Why NRB is Rooting for An Offline Payment Revolution Amidst the Online Payment Boom

Online payment in Nepal has grown over the years. So much so that we don’t miss our wallet anymore. Forgetting the wallet at home when going out seemed like a nightmare. Not anymore! Because like many other things, smartphones have now replaced wallets too. Or shall I say cash.?

But amidst this ongoing online payment revolution, the central bank seems to be going back to the past by suggesting that there is a great potential for an offline payment system known as USSD-based payments. Well, don’t pass your judgements yet. It’s not talking about replacing the online payment systems but proposing the USSD as an alternative to the existing app-based online systems. And that too particularly in areas with limited internet connectivity to improve financial access in Nepal.?

USSD (Unstructured Supplementary Service Data) a cost-effective, internet-free mobile technology suitable for digital payments using basic mobile phones. It has been crucial for financial inclusion in other countries, especially for underbanked populations. So, you see, even though an offline payment system, it supports digital payments.?

And the central bank finds that, in Nepal, with a large percentage of feature phone users and areas with poor internet connectivity, USSD provides an opportunity to extend digital payment services to rural and marginalized populations. Now you see where this is coming from because app based online payments are too Kathmandu focused. While other major cities are slowly catching up, the rural areas, where internet connectivity is an issue, still can’t adopt it wholeheartedly.??

So, let’s understand the basics.?

What’s USSD??

USSD stands for Unstructured Supplementary Service Data. In simple terms, It lets you make payments without needing the internet. All you have to do is dial a short code, follow a few steps, and voila—you’ve sent money or paid your electricity bill!

And here’s the best part—USSD works on even the most basic phones. Yep, your old-school Nokia phone? It can still be a part of this revolution. It’s like going back to the basics, but in a good way.

Why Is NRB Pushing for This?

Let’s be real: internet connections can be flaky, especially in rural areas. And not everyone has a smartphone. In fact, 73% of households in Nepal have one, and while that sounds high, it leaves a good chunk of the population out of the digital payment world. That’s where USSD steps in to save the day. It’s inclusive, it’s simple, and it doesn’t need a strong Wi-Fi signal to work.

And guess what? It’s also more secure. Since you’re not online, the chances of a hacker swooping in and stealing your info are way lower. It’s like putting your money in a safe that hackers can’t break into.

So, NRB Hitting Two Targets With One Arrow??

Cybersecurity risks are becoming a big deal—hackers are getting more creative, and unfortunately, Nepal isn’t immune to these problems. And given the low digital as well as financial literacy, the risk related to app based online payments is really high. According to the National Cyber Security Index, we’re ranked 109th in the world in terms of cybersecurity. That’s like finishing way back in a marathon—not ideal. In recent months, hackers have targeted everything from ATMs to big banking systems, which has made everyone nervous about using online payment platforms.

So, what’s the solution? NRB is thinking, “Hey, what if we didn’t rely on the internet for payments?” And this is where USSD may swoop in like a superhero!

What’s the Catch?

Of course, like with any good idea, there are some challenges. First off, NRB can’t do this alone. They need to team up with telecom companies and the Nepal Telecommunication Authority (NTA) to get this thing off the ground. Why? Because USSD operates through mobile networks, meaning it relies on telecom infrastructure to function. Without the telecom companies providing the necessary USSD gateways and ensuring smooth communication between banks and mobile phones, this offline payment system wouldn’t have a solid foundation. Everyone has to be on the same page for this, which, as you can imagine, isn’t always easy.

Then there’s the issue of teaching people how to use USSD. It’s simple for those of us who’ve been texting for years, but for someone who’s never used it—it could be a bit tricky. That means there will need to be some serious awareness campaigns to make sure everyone knows how to use this tech safely.

Why Now?

If you’re wondering why NRB is looking into this now, it’s because digital payments in Nepal are growing tremendously. Since the COVID-19 pandemic, more people have been ditching cash and going digital. Plus, smartphone and internet usage are increasing, but the internet still isn’t everywhere. Broadband internet—the high-speed connection delivered to homes and offices via cables—covers 137% of the population (that number is higher than 100% due to multiple connections per person). In contrast, mobile internet, the data used on phones, only covers 69%. That’s a pretty huge gap.?

This is where USSD may come in as a game changer. Since it doesn’t require any internet—broadband or smartphone—it can bridge the gap, allowing more people, especially in rural areas, to make secure digital payments without needing a strong internet connection.

Is This the Future of Payments?

Well, more than the future, it’s like turning to the past. Why? Because USSD is not a recently developed technology. Countries like Kenya (M-Pesa), Bangladesh (bKash), and Pakistan (Easypaisa) have successfully implemented USSD-based payment systems, significantly contributing to financial inclusion. And that too way back as early as 2007.?

But better late than never. And NRB is betting on USSD to not only make payments more accessible but also more secure. Plus, it’s not talking about replacing the existing app based payment solution by payment companies like esewa, Khalti etc. or the mobile banking apps by banks and financial institutions. It is proposing USSD as an alternative solution where adoption of the current online payment system is a challenge.

Only time will tell how the implementation will go. Because this is still only a consideration. And USSD has its own set of challenges like limited character space, in USSD menus, high session dropout rates due to poor telecom network quality and requirement of coordinated efforts among regulators like the NRB and the Nepal Telecommunication Authority, among others. And therefore, the central bank is of the view that it should avoid mandating USSD as a standard feature for all financial institutions and should rather encourage promoting interoperability of USSD gateways, adopting common standards for security, and improving user education and awareness. So, what do you think?