Generally, the banking system comes up with a requirement for channelizing the fund from surplus unit of the economy to the deficit one in a formal way. The banking system is essential for the promotion of economic activities in the country. It can also be regarded as a meeting point of the customers who want to purchase deposit products and customers who want to purchase lending products. It also helps to increase the money supply in the economy, in turn, has a multiplier effect in the economy.
The main motto of the banking industry is to deliver banking products to the customer in an efficient and effective manner.
Banking service involves a customers’ presence at an outlet to perform transactions. This has compelled the bank and financial institutions (BFIs) to establish a large number of branches across different geographical areas.
In the context of Nepal, BFIs are opening branches across the 753 local levels in order to spread their wings as directed by the central regulatory and monetary authority, Nepal Rastra Bank (NRB).
In fact, Nepali BFIs have been facing difficulties to open their branches in all levels due to the geographical structural diversification, and also due to poor infrastructure development in such areas.
With the geographical diversification in Nepal, implementation of digital banking concept is more appropriate in order to convert the unbanked area into banking one.
In fact, for a country like Nepal, with a literacy rate of 64% and 60% population still without a bank account, it means that financial inclusion about 40%, it is challenging for the regulators and market players to promote digital banking.
With the emergence of technology, highly competitive and rapidly changing environment, the concept of physical outlets has started to look less relevant. As Bill Gates said in 2008, “banking is essential, but not a bank”. This reflects that the banking system is essential for economy promotion but not physical layouts.
Due to the use of internet technology has changed the way of doing banking business. Digital banking refers to the process of delivering the various banking products using electronic channels like ATM, Post of Sale (POS), mobile phone, telephone, SWIFT transfer among others. For example, NIC Asia bank has been focusing on the digital banking in Nepal by promoting mobile banking, internet banking, debit card, POS in order to convert the physical banking system into digital one which is essential for the country.
It is clear that anything that creates various opportunities then it is necessary to grab such opportunities we will face lots of challenges. Digital banking has lots of opportunities with challenges. Digital is not a piece of cake. The SWIFT hacking of NIC Asia Bank, theft a number ATMs and recent thefts in E-Sewa increase concerns about the reliability of the digital banking in Nepal.
In fact, the National Cyber Security Index 2018 ranks Nepal 92th out of 100. This means that Nepal’s ability to prevent cyber threats and manage unintended cyber incidents is poor.
Digitalization in the banking industry is today’s need. It also helps in the promotion of financial literacy and financial inclusion in the rural part of Nepal. Still, people are in remote part need to reach headquarter for the financial services. People still regard digital banking in a complicated procedure. Although they know all the financial transactions through mobile phones, people hesitate to make use of them.
So as to promote digital banking in Nepal, NRB established a Payment System Department on July 2, 2015, with the sole authority of regulation, supervision, and oversight of the entire payment system in the country.
In order to promote digital banking in Nepal, first, the government should develop IT-related infrastructure like internet facility, electricity in unbanked areas, then BFIs feel easy to expand their services in those areas, and conduct awareness program among people. Second, BFIs should hire IT expert with sound banking software, empower and train banking employees, maintain sound and efficient internal control system with implementing, monitoring and controlling mechanism in order to provide and ensure reliable digital banking services products to the customers.
With the emergence of digitalization, many organizations have adopted this technology. The future looks optimistic about the move towards a cashless economy.
