KATHMANDU, Oct 20: Nepal Rastra Bank (NRB) is considering promoting mobile banking transactions without using internet services citing a growing risk in the internet-based payment service channels.
Underscoring the importance of the Unstructured Supplementary Service Data (USSD) in the country, the NRB has said the system will ensure the financial safety of the digital payment service seekers. At a time when there is a growing threat of cyber security across the globe, the central bank has started a workout to extend the service which has been implemented by a number of domestic firms across the country.
The USSD channel for payments allows making financial transactions using basic feature mobile phones, without the need for internet connectivity. It is a protocol used by the Global System for Mobile Communication (GSM) network to communicate with payment service providers’ platforms.
According to the NRB, the USSD is one of the most widely used means of offline payments, aiming at financial deepening and inclusion of the marginalized and under-banked population in mainstream banking services.
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Unveiling a Study Report on the USSD-based Payment System and its Regulations on Friday, the apex monetary authority has concluded that the limited numbers of this type of platforms being operated in the country are not user-friendly and are expensive.
Currently, Nepal stands at 109th position in terms of the National Cyber Security Index, exhibiting the vulnerability of the country in this regard. Theft of individual data from online platforms like online shopping, ATM heists resulting from compromised switching systems, distributed fund transfers into legitimate user accounts and the hacking of the SWIFT system, among others, are the known cases of data breaches in Nepal in recent days.
Citing the increasing cases related to vulnerability in cyber security, the NRB in its Fourth Strategic Plan 2022-2026, has talked about promoting digital payments and driving innovations as one of the key objectives of the Payment Systems Department (PSD).
The study has also highlighted the need for coordination among the NRB, Nepal Telecommunication Authority (NTA), and USSD service providers for financial inclusion in the country. “If the telecommunication authority/regulator mandates every telecom operator to allow USSD gateways for banking and digital financial services, the adoption of USSD channels can increase for mobile financial services,” reads the NRB report.
The prospects of growth of digital payments have been growing in the country. While the broadband internet service has penetrated 137.68 percent of the population, the mobile broadband covering stands at 69.22 percent of the total broadband market, according to the government data. Likewise, the smartphone penetration rate stands at 72.94 percent of the total households and there has been a drastic fall in currency in circulation-to-GDP ratio after the impacts of the COVID-19 pandemic.
The central bank, however, has underlined a number of challenges in the implementation of the USSD-based payment systems. The systems are subject to regulations from multiple authorities (financial, telecommunication, and competition regulator). Thus, coordination and harmonization of multiple regulations are major challenges for using the USSD channel for mobile financial services.
Likewise, people require some level of literacy and awareness to operate USSD menus. “Hence, in rural areas where there is lack of rudimentary education, creating understanding of USSD menus can be a challenge,” says the NRB reports.
