"Cashless economy is our vision and the mission is less-cash economy"; Interview with Neelesh Man Singh Pradhan, CEO of Nepal Clearing House

Neelesh Man Singh Pradhan, CEO of Nepal Clearing House Ltd. is an Engineer and MBA graduate with a knack for banking and financial technology. He started his career as a Lecturer at Kathmandu University, worked for TATA Consultancy Services in India and Netherlands after which he moved to Bahrain. After 11 years of international exposures in various financial technology implementations, he then joined NCHL as the second employee of NCHL in 2011 and has been here since the day.

Nepal Clearing House (NCHL) is a public limited company, which has been providing various clearing and settlement services for various instruments. After the successful introduction of Electronic Cheque Clearing System (NCHL-ECC) and Interbank Payment System (NCHL-IPS), it has recently introduced connectIPS e-Payment System targeting the end customers of the BFIs and PSPs. On this backdrop Aakriti Thakali and Krishna Khatiwada from Sharesansar visited Mr. Pradhan. The excerpts of the interview are:

How was the idea of NCHL conceived and brought to life?

NCHL is a public limited company promoted by Nepal Rastra Bank (NRB), various Banks and Financial Institutions (BFIs) and Smart Choice Technology Ltd., with a primary objective to establish multiple payments, clearing and settlement systems in Nepal with long term objective to establish a national payments gateway to facilitate electronic payments and financial transactions within the country. In this backdrop, NCHL was conceived by NRB and the BFIs as an implementing institutions to establish and operate national payment systems in line with the strategic plan of NRB. The company was incorporated in 2008 and started its operation from 2011.

Being a developing country, we are still far behind in regards to many technological advancements. How long do you think it will take for our economy to be fully digitized?

Digitization is a continuous process rather than an end in itself. For any economy to fully embrace digitization, certain factors like the status of economy, its size, the adaptability of end-consumers and the access of banking & technology services are crucial. So far we’ve achieved commendable developments in terms of institution build up, acceptance and investments from the BFIs and recognition from the regulators & Government agencies. The Government has also now moved all its payout transactions to e-payments and pilot launched the e-payment of revenue transactions also. So with the kind of traction that we see today in Nepal with regards to digitization, it’s not very far that Nepal will also be digitized to good extent but as I said before it is not the end. We will have to keep developing and expanding our horizon with respect to digitization.

“A Digitized Economy is not an end but rather a process. We achieved certain miles and we still have a lot of room to grow and innovate”

Do you think we’ll be fully cashless?

Fully cashless is still far at reach. Even in the developed countries, cash still exists and is the king. So rather than cashless, our goal is and should be towards less cash.

“The vision is to go cashless for most of the countries. So rather than cashless we should be aiming toward less cash economy for Nepal.”

In a time when all banks are introducing mobile apps and internet banking facilities in addition to the e-payment service providers like wallet companies, what is your core strength?

Yes, there are variety of service providers but each of us specialize in a certain area which makes us complimentary components of the e-payment eco-system of Nepal. The selection of the services by the end consumers are driven by the purpose (of transaction) and the convenience.

For example for small expenses and daily payments, which are identified as micro-payments, e-wallets or mobile banking might be the first choice. Similarly for low value retail payments, cards or internet banking may be preferred; for retail low to high value payments/transfers an interbank fund transfer might be safer and effective. Thus as long as we are focused on specializing on our area of expertise, all the mentioned payment channels or instruments will support the payments industry in Nepal.

As far as NCHL’s core strength is concerned, we specialize on payments infrastructure and processes for varied instrument types and channels. We have NCHL-ECC System for processing of paper based instruments (cheques, drafts); NCHL-IPS system for direct credit/direct debit transactions from/to the bank accounts; connectIPS e-Payment System for immediate payments (supporting payment processor, fund transfer and biller payments). And most importantly, the coverage of almost all the banks & financial institutions including their branches are within our network.

“All the e-payments companies along with NCHL are the complimenting parts of an ecosystem rather than competitors”

Many companies have received license for (PSP/ PSO) and have also started their operation. However, you mentioned earlier that you are going to complement each other rather than compete.  How will NCHL compliment other institutions in Nepali digital payment system?

The companies who have received license as PSP/PSO from NRB have been doing wonderful job to develop the payment industry in Nepal. However, we believe the more of a collaborative approach is required if we are to see an exponential growth of our payments industry in Nepal. And in this regards, NCHL role could be critical to onboard major stakeholders including some of such companies together for such approach thereby complimenting each other. NCHL’s role in this could be:

1. To convince and bring in new and different types of services (creditors/ merchants) into the system who have not yet used e-payments. We normally identify them as non-conventional creditors like Government/ Semi-Government agencies, large corporates, regulated institutions, etc. And we are strategically positioned to bring them onboard.
2. To allow such PSPs/PSOs to utilize NCHL’s payments infrastructure and leverage on the network of the BFIs that is already in place, thereby the PSP/PSOs could focus on acquisition of customers and merchants/services.

Would you mind explaining the products of NCHL in most basic terms so that our viewers can understand and use your systems?

NCHL currently provides mainly three services. They are:

Electronic Cheque Clearing System (NCHL-ECC): Electronic cheque clearing system supports the banks and financial institutions to process and clear their cheques electronically and within same working day. Prior to NCHL-ECC, such cheques were cleared and settled manually, which used to take 2-3 days for normal cheques and over a week for outstation cheques. It has participation of over 80 BFIs with coverage of over 4,200 branches.

Interbank Payment System (NCHL-IPS): It is a system to provide facilities for payment and collection directly from/to the bank accounts. The customer doesn’t need to issue cheque, rather it can simply instruct its bank to make transfer to another person’s account held at any other member banks. Alternatively, the customer can do withdraw as a direct debit from some other account held at some other bank, with pre-approved mandate. Similarly, if a bank has integrated this feature to its alternate banking channels like Internet banking & mobile banking, then the customers can also transfer directly from such alternate channels without even visiting their bank. It has participation of over 73 BFIs and 7 non-bank financial institutions with access to more than 4,100 bank branches across the country.

connectIPS e-Payment System: It is a multi-banking single payment platform through which a customer can do online fund transfer, government payments, allowed payment processing (as gateway) and third party biller payments. And all such transactions are processed directly from/to the bank accounts. It works as a single application for the customer without having to use multiple applications or visit a bank. However, a customer has to enroll one-time from www.connectips.com. It was recently launched for online fund transfer and pilot launched for government payments, which has participation of over 28 BFIs.

Since the date of establishment what was and is the greatest challenge that you have faced?

It was a new concept so naturally the first and greatest challenge is to make people aware and then to convince them to use it. When we first introduced electronic cheque clearing system, it wasn’t revolutionary, we were just migrating the manual clearing process to an automated process for the existing financial instrument but that too took more than 2 years for nationwide implementation. For NCHL-IPS, direct credit and direct debit as a financial instrument on itself is new and convincing BFIs and their customers aware of such instruments is challenging yet, we find people more receptive towards new and innovative instruments. We have been able to overcome major resistance and challenges during the establishment of NCHL and implementation of various systems namely NCHL-ECC, NCHL-IPS and now connectIPS e-Payment.

“Convincing various stakeholders of using new technology based financial services and making them aware of such services are more challenging than just implementing a payment system.”

What prospects do you see for NCHL in the days to come?

From the very first day, NCHL’s establishment by NRB and the BFIs, our goal has been to develop core infrastructures and create platforms required for national payment and clearing systems, so that various transactions by customers, BFIs, Corporates and Government could be processed with ease and efficiently. With the able support from NRB, BFIs and other institutions, we believe, we have performed well within the expectations of all such stakeholders and we see much better prospects for NCHL in future.

NRB has recently recognized it as a separate payments industry and has mandated licensing as Payment Service Providers (PSPs) and Payment System Operators (PSOs). With the onboarding of various PSPs/PSOs within the payments industry, we are very optimistic on the role that NCHL could play for the development of digital ecosystem in Nepal.

Further, our economy is expected to grow further, however, most of the transactions are still done in cash and cheques, which shows that we have a lot of room for growth in electronic payment transactions. So even if we’re able to convert 10% to 20% of the current paper-based transactions (in terms of number and value) within next 3 years into paperless transactions like card, m-banking, i-banking, direct debit, direct credit, etc., the industry will grow like anything. Since the Government has taken major initiative in this regards, we see bright prospect for NCHL and similar institutions in Nepal.

“If only we’re able to convert 10% to 20% of current paper-based payment transactions into electronic payment transactions, it will be a huge turn-around for Nepal’s payments industry.”

The NRB has recently introduced new transactions limit on electronic payments. Will it any way affect your organization?

I think the recent NRB directive related to transaction limit is a very positive move, which is directed towards putting in place regulation for the newly licensed PSPs/PSOs, mainly for the security reason and customer protection. Prior to this, there was already a directive for BFIs, who could determine limits on transactions through alternate channels based on their own risk profiling for channels, whereas for PSPs and PSOs, there was no such specifications. Thus to mitigate the payment channel specific risks and to protect the end consumer, the generic directive was issued by NRB specifying the transaction limit for electronic transactions through mobile and internet channels.

However as the electronic payment usages increase in future, the confidence of consumers and the NRB for such alternate channels will also increase. The PSPs/PSOs will also invest more in security of the payment systems, after which NRB could amend such directives related to transaction limits and other shortfalls that exists in the current regulation.

Your financials of last Fiscal Year shows drastic growth of NCHL based on profit, paid-up capital, total assets and shareholders’ fund. What is the prominent thing that brought this change?

We’re a public limited company and our promoters are all institutions and given the core objectives of NCHL, profit is not our primary goal. We rank our priorities based on:

1. Products & services development along with necessary infrastructure
2. Operational quality improvement of the existing products and services
3. Risk management and investment into security
4. Sustainable growth with reinvestment into payment infrastructure

Sustainable growth represents industry standard returns to our institutional shareholders with majority of the income/cash flow being re-investment into future payment system projects. The detailed feasibility study and way we have executed the business plan in expanding our business has helped to achieve the growth and are reflected in our financials in last couple of years. We’re very satisfied with the progress we’ve achieved so far and look forward for being a leading institution, financially also.

What is the shareholdings’ structure of NCHL?

NCHL is owned by NRB (10%), Banks & Financial Institutions (80%) and Smart Choice Technologies Ltd. (10%). The Board of NCHL includes 1 representation from NRB, 3 representation from commercial banks, 1 from development banks, 1 from finance companies and 1 from SCT.

The major hindrance while accepting any new system is the security factor. As a customer while we connect our bank accounts to your connectIPS platform, how can we be assured that it’s safe?

The first assurance is an authorized license from NRB. Now that NRB has mandated licensing as PSPs and PSOs, the consumers should transact only with the BFIs and other licensed institutions for payment transactions. Other factors that should be considered are compliance and the type of risk management mechanism that they have implemented. Talking about NCHL’s recently launched connectIPS e-Payment System, specifically, we want the customers to feel safe and convenient with the new system.

The transacting money does not come under ownership of NCHL at any stage, which means we never touch customer’s money. All payments that the customers make through connectIPS are made directly from/to the bank accounts. You don’t need to move your fund or load/recharge to an intermediary for availing any of the available services, while using connectIPS e-Payment System.

Our primary investment has been on security related appliances to make the transactions safe and secure in all means. As a proactive measure, we’ve implemented risk management framework as per Bank of International Settlement (BIS) Payments Market Infrastructure for systemically important payment systems. We are also ISO 27001:2013 certified related to Information Security Management System (ISMS), which also mandates continuous process and system improvements for security.

Thus based on the best international practices that we have implemented in our payments infrastructure including security and the number of transactions that we’ve been processing over the years, we believe we are in position to provide considerable assurance to our customers on the safety and security of our payment systems, including connectIPS e-Payment System.

Final note:

The digitization and in particular digital payments have already begun in Nepal and the future of the payments industry looks really bright. There are lots of scope and opportunities for NCHL and other PSPs/PSOs. And we are very much excited with regards to the NCHL’s role in this transformation.