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UnelmaPay: A hybrid approach to international Digital Payment Gateway
Platform for Nepal
Dr. Santosh Kalwar
Co-founder & CEO
Unelma Platforms Inc.
unelmapay@gmail.com
Abstract: Electronic payment platforms are emerging in Nepal, where they help consumers and
merchants to make the necessary payments on their website or physical stores. However, not all
consumers can pay internationally and quickly online, with just one payment processor. As a result,
there is a need to aggregate several domestic and international payment processors in one single
unified user interface whereby consumers and merchants can make the necessary payments. This
study suggests a hybrid approach in developing and implementing an international digital payment
gateway platform called UnelmaPay (hereafter referred to as “UPay”). In this paper, we analyzed
current limitation of digital payment gateways from a con!sumer perspective in the context of Nepal,
but also aim to answer what type of products in UPay are consumers likely willing to pay for? What
are the characteristics and attributes of current and likely future purchasers of electronic products and
services in a cashless society? How can UPay act as one of the country’s payment system in which it
will act as an enabler for making its financial market work both locally and internationally? Making
“cashless society” is the way to strengthen the financial instruments in the country further. UPay
platform aims to deliver the first global secured digital payment gateway platform for Nepal based
on regulation and direction provided by NRB (Nepal Rastra Bank) and ECB (European Central
Bank). UPay can act as an enabler in paving the path for this convergence which may be in the public
interest to formulate a hybrid approach for international payment gateway processing in Nepal.
Keywords: Payment system, Fintech, payment instruments, UPay, UnelmaPay, Nepal, Digital
Wallet, Electronic Payments
Introduction
This paper primarily aims to establish a rational approach to international digital payment gateway
platforms for Nepal through development and implementation of conceptual platform called
UnelmaPay (hereafter referred to as “UPay”). Secondarily, the paper also aims to discuss about why
making “cashless” society is better for strengthening the economy and financial stability through joint
effort of regulatory institutions, such as NRB and ECB.
Gone are the days when you had to carry a bulky, heavy wallet in your personal pocket. Now, with
the extensive use and launch of various mobile wallets in Nepal, one can pay for almost any product
or service, and transfer money with this technology. Be it paying for a taxi ride or buying your
morning coffee and breakfast, mobile digital wallets are the go-to option in today's times. Cashless
transactions have increased (Finextra 2019) substantially following the introduction of contactless
payments and mobile payment options like Apple Pay and Google Pay, and in Nepal through
emerging gateways such as: eSewa, Khalti, IMEPay, CellPay, PrabhuPay, QPay, ConnectIPS and
others. Online mobile digital wallets are popular in part because they're uncomplicated for the public
to use. Consumers can easily download a mobile wallet app on their phone or mobile device, add
payment information, and use their mobile wallet as a payment method in person or online (Rathore,
H. S., 2016). Setting up a merchant account is also hassle-free. The merchant obtains merchant
account with the payment system provider. Whenever users purchase an item, the merchant submits
the purchase information to its acquiring bank, which will then send it through the card association
network to the card holder's issuing bank. The bank either approves or declines the cardholder
amount. In a recent paper by Adhikari (2018) claims that the exchange rate is not only dependent on
internal factors but also external factors for maintaining adequate foreign and exchange reserves.
Empirical evidence of exchange rate complexity has also been outlined by Kharel et al. (2011) where
it may be closely connected with exchange rate dynamics and how monetary policy impacts with
explanatory variables. In addition, current limitations of Nepalese emerging payment gateways do
not have the backing of international FOREX account transactions. Hence, in terms of international
payment, it becomes challenging to operate a multi-currency account. Operating a multi-currency
account with real-time data from ECB may assist in some way.
UnelmaPay or UPay is an e-currency, e-wallet and online payment gateway platform. A digital wallet
for an instant, secure and hassle-free online payments. Also known as an e-wallet or electronic
wallets, a digital wallet is the online equivalent of a physical wallet in some sense. This may be in
form of electronic device or online service which consumers can use to make electronic transactions
(Hayashi, F. and E. Klee 2003). Online users can securely store their bank information and card
details in the e-wallet system. Additionally, they can also fund their wallet account and use that money
for payment transactions. When you think of "online payments," PayPal is seemingly the first service
or payment gateway platform that comes into the consumer's mind. One of the first and most prolific
global payment solutions, PayPal, offers a variety of tools for online merchants to accept payments.
However, in the context of Nepal, PayPal has not made any business account setup and agreements
with any of the emerging digital wallets because of AML issues rampant in the country. UnelmaPay
or UPay is the only conceptual mobile digital wallet application which has a business account set up
with a major online payment processing company such as PayPal, among others. UPay aims to bridge
that gap whereby, an international payment can be made quickly, as the currency can be exchanged
real-time based on the data provided by ECB. The same real-time exchange rate data provided by
ECB is also used by multi-national corporations such as Microsoft, Samsung and others. Online
mobile digital wallets are estimated to exceed 50 per cent of all retail sales in the U.S. by 2021 (Cindy
Turner and James Perkins, 2019). In developing countries, this confidence is often lacking, especially
in Nepal, where more than half-a-population is underbanked, according to recent data reported by
NRB. In order to mitigate this NRB together with Nepal government is organizing “Bank Account
for All” campaign. In doing so, they can also add countless users to the mobile wallet base as
underbanked portions of the population become new and lucrative consumers who can increase sales
and advance growth. The impetus is clear. Consumer buying behaviour points to connected lives that
grow by the millions every year.
Background and Literature Review
In the international arena, according to A.T. Kearney’s analysis, contactless payments are presumed
to grow periodically by more than 21% in the developing world and over 7% in developed markets
by 2021 (A.T. Kearney, 2019). In 2018, cashless transactions accounted for only 45% of all payments
made in Russia. Elsewhere, other countries are putting the steps in place to be entirely cashless, with
Rwanda setting a goal of hitting this milestone by 2024 and South Korea aiming to eliminate coins
by 2020. A.T. Kearney’s ‘Retail Banking Radar 2019’ (A.T. Kearney, 2019), released recently,
analyzed data from 92 banks across Europe and predicts that one in 10 banks will disappear as
customers increasingly favour digital banks such as Monzo and Starling Bank, with branch networks
being phased out and replaced by a multichannel system incorporating AI, analytics and new
technologies to meet changing consumer needs and expectations. This shift in consumer behaviour
and rise in fin-tech dominance will have an impact on the traditional payment landscape, driving the
way for a cashless future (Vishal Marria, 2018). The advantages of digital transactions including
convenience, cost savings and electronic record-keeping are driving adoption from the financial
services sector. In recent years, there has been progress on research related to payment systems and
electronic payment gateways (GiroFintech 2019). A survey conducted by Belgian and U.S.
researchers (Loix, Ellen et al. 2005) on payment system has shown that the demographic and financial
characteristics are mostly in line with the 'conventional wisdom' on the adoption of electronic
payment instruments. Based on the current knowledge, more than 90 per cent of Swedes bank online,
and they use more mobile data than any of the other 35 other developed countries, apart from South
Korea. In the UK alone, the costs associated with bank branches and ATMs are approximately £5
billion (Finextra 2019). Innovative payment methods, such as biometric authentication and facial
recognition, which are already adopted in India and China, will play a big and huge role in the cashless
transition. Nepal should not be left behind.
In Sweden, for example, cash payments are fading fast. In 2016, only 15% of retail transactions were
paid for with cash, down from 40% in 2010. The trend continues globally, with cash making up only
15% of all payments made through dominant mobile payment applications, such
as Alipay and WeChat Pay in China. Cash is no longer a king in Sweden (Jim Edwards, 2015).
According to a study conducted by KTH Royal Institute of Technology, in Sweden, for example,
swedes use debit cards primarily, and extensively use their payment app, Swish. The number of
consumers who are using online digital wallet and payment processing platform has increased
dramatically now that the app is credited for the reduction of cash circulating in Sweden. While
surveying with participants in Sweden, we have found, when asked, when they last paid for something
in cash. The answer fell between last month or weeks. Thus, digital payments via card or mobile app
are so common and trusted now in Sweden and most of the Scandinavian countries that they no longer
require to carry cash around. Bengt Nilervall at the Swedish Trade Federation explains why: 'In terms
of the cashless society, I think Sweden is ahead compared with other countries because in Sweden,
there is – in general – trust in the government, the system, the banks and the authorities.' Every two
years, Sweden's central bank, Riksbanken, surveys payments patterns in Sweden. Between 2016 and
2018, card payments increased by 25 per cent, at the expense of cash payments. Besides, Swedes
have high confidence in their financial institutions, satisfied that cashless transactions will be backed
up and safeguarded.
The data released by JP Morgan shows that globally, digital trade surpassed $3 trillion in 2017 and is
projected to more than double by 2022. In the U.S., about 110 million Americans have used a digital
wallet at least once as of 2018. Three-quarters testify that “digital wallets are simply more convenient
than cards or cash, and one in four said they spend more with digital wallets. Moreover, the trend
looks to be fairly universal, demographically speaking”. While it's no surprise that Gen Xers (18 to
38-year-olds) are the heartiest embracers of wallet technology, with 50 per cent saying they use digital
wallets regularly, older groups are also propelling the trend. Forty per cent of Gen Xers and 17 per
cent of Baby Boomers have used wallets during 2018 (Cindy Turner and James Perkins, 2019).
Digital Payments and Cashless Attributes
The rise of digital payments in Nepal, which includes debit and credit cards as well as mobile
payments, have contributed to the positive shift in payment practices among consumers but still, it’s
at an early stage. For example, elsewhere, however, according to the FDIC, cash represented just 30%
of all payments in 2017. Besides, 68.7% of U.S. households had a credit card in 2017 vs 63.8% in
2015, according to data released by Harvard Business Review (Shelle Santana, 2019). Business
owners, who are recognizing this very trend, are responding with opting to go entirely cashless, and
this trend may also slowly emerge in developing nations, such as Nepal, to increase operating
efficiency, reduce waiting times for consumers and for creating safer work environment against the
risk of theft and crime. The financial services sector, meanwhile, is continuing to push non-cash
options, including contactless payments and secure transactions, also known as tap and go. Such
payment systems, which include Apple Pay and Google Pay, are estimated to grow worldwide to 450
million people by 2020. There is some discussion about "cashless society" in popular news media,
but hardly any discourse or agreement about what that term means in research, scientific and
academic community (John Papaevgeniou, 2017). To some, it may mean banks, especially those
banks which are authorized under central bank, will monitor and control all the transfers of money.
However, others see a cashless future to be anonymous and distributed for example with
cryptocurrencies which are allowing all manner of activity to flourish without any central authority
controls. It may be that cashless society is likely to be a digital version for the world where we already
live in. Or, it may be the different ways of paying based on the amount and type of transaction. Also,
the cashless society will most likely expand rather than reduce the options. Consider India's 2016
"demonetization," in which the government pulled large-denomination banknotes out of circulation
and replaced them with new bills (Singh, A., 2017). An editor of the Delhi-based financial newspaper
reports that a variety of factors motivates the Indian government (Monika Halan, 2018). It has partly
to do with cracking down on money earned on the black market, as well as the financing of terror.
But, it also has something to do with financial inclusion and financialization of the economy. The
financial and economic prospect of a cashless society is more real now than ever as the trend is slowly
showing on that front (Matthew Cochrane, 2019). While it is also true that society without cash could
also prove to be vulnerable in some ways, it could bring a lot of positive and convenient changes.
Here, we’ll discuss some attributes for a cashless society:
Efficiency: In Nepal, there are several local vendors and small businesses which still rely on counting
cash. The cash consumption in Nepal is never going to end anytime soon; although, it can be a tedious
and lengthy process. In a cashless society, however, this system of manual labour can be redefined
with the help of technology. Technology possesses speed and efficiency, which can easily surpass
humans in terms of accuracy, reliability and complex calculations. While it may take several hours
for a person to count weekly and monthly cash earnings, a computer can calculate it in a few seconds.
The employee’s time, which is dedicated to counting cash, can be used somewhere else, which could
be advantageous to the local vendors and small businesses in general. The time-saving aspect not
only applies to companies and small businesses, but it can also benefit the society as a whole. For
example, many people have to file their tax returns – especially those who are self-employed. In a
cashless society, you could have a solid record of every ingoing and outgoing expenditure that can
be totaled up with ease. Going cashless is particularly beneficial when you consider paying with cash
could result in inaccurate figures. With a record of all ingoing and outgoing transactions, people will
be able to manage their finances and accounts with more efficiency.
Accessibility: Especially in the context of Nepal, the benefit of a cashless society is such that it
provides more accessibility to people in rural Nepal. When purchasing foreign goods, the pricing can
be presented in that country's national currency, which in a cashless society, means the national or
base currency. The base currency can be implemented, which will already be determined in real-time.
For example, if you are purchasing gift cards from the USA, the pricing might be listed in USD as
well as NPR. Consumers in Nepal can purchase goods from US online through UPay - users are not
required to be in the US nor are they required to work out the relevant currency conversion as the
payment gateway can encompass the appropriate currency conversion. For example, in UPay, we
have implemented this feature whereby, users can shop online, from anywhere in the world, in their
local currency, which is on NPR. This isn't limited to Nepal and the US either. Online goods and
products can be purchased worldwide, from China to Australia. In this sense, a cashless society helps
unite the world globally as opposed to being limited to buying products sold in customers' country of
origin.
International payments: When you visit a foreign country, you may need to buy local currency. But
payments are secure if both nations can handle cashless transactions. Instead of figuring out another
money, your mobile device or an account with UPay will automatically handle everything for you.
Less crime: Cash can be easily misplaced or stolen, whether the amount is small or large. Also, an
illegal transaction, such as money laundering, drug trafficking and illicit handling of money typically,
can take place with cash so that there's no record of the transaction - and so, that seller can be certain
about getting paid.
Cash can be stolen: Consumers who carry around large sums of cash are at high risk of being the
target of criminals and thieves. With digital payment gateways, for example UPay, or through a credit
or debit card, the purchasing of items can be easily done. This is because, cash is easily lost - and it
can be challenging to reclaim the money. There is indeed an ever-growing number of theft and online
fraud cases, as well as with online banking too- however, these incidents can be easily discussed.
Criminals, of course, are enthusiastic and avid users of cash, but there's no reason to think that their
demand for cash would have increased in the last ten years. On the contrast, the advent of
cryptocurrencies, blockchain and digital currencies has provided them with a viable alternative
(Peters, G., Panayi, E., & Chapelle, A., 2015). Cash may be anonymous and untraceable, allowing it
to play a significant role in the anti-money laundering, including tax evasion, counterfeiting,
corruption and terrorist financing. Nevertheless, cashless payments leave behind, traceable records,
making it harder to conceal income, evade taxes, and hide black market transactions. With
technologies such as voice and face recognition, as well as retina-scanning, being inbuilt to payment
technologies, for example UPay transactions, also have the potential to become more secure than ever
before. At the same time, payments can also be protected by end-to-end encryption and fraud-
preventing technology. And, with less physical cash in circulation, in theory, there might be a less
physical crime. Other, equally nasty, crimes would also be severe without cash to oil the wheels. For
example, modern slavery depends heavily on the existence of real money to facilitate and disguise
payments. So, too, does the drugs trade - although there is evidence that parts of that have already
migrated to the so-called "dark web". Besides, providing security on user's account online is the most
vital attribute, and it is more difficult for criminals and hackers to obtain access online than it is for
pick pocketers to steal cash. Going cashless does not guarantee that consumer’s fund will be safe
either, but neither does one with real money. For instance, if a consumer’s card is stolen or a thief
marks on your own shopping spree, there will be CCTV in effect, to identify the perpetrators. If ill-
minded users took the cash, there is no record of you having the money to spend. If card users know
that their card has been stolen, it can be easy to cancel or block the card instantly by the service
provider to prevent the theft from causing significant damage to the bank account. A recent news
report hacker aiming for ATM to breach the banks' processing system and withdraw real cash shows
its vulnerabilities, i.e. the vulnerability of the card system (Shuvam Dhungana and Rajesh Khanal,
2019).
Eco-friendly: It costs a lot of money to print physical banknotes and mint coins. It also requires a lot
of electricity and energy power to facilitate the printing of money. In a cashless society, this issue is
null and void. Institutions that print money can be slowly removed from the community, thereby
reducing the amount of wastage which ultimately harms the environment.
Countering counterfeit money: There is also a lingering issue with cash-driven society, especially
in Nepal, where banknotes can be counterfeited. This can not only cause a variety of topics such as
having false notes circulating in the community and society in general, but also having driven up
inflation. The academic community has not much-discussed demonetization policy (Singh, A, 2017
and Uke, L. 2017), which has alleviated this issue to some extent. Electronic payments and companies
record all the incoming and outgoing transactions; especially in UPay, we have implemented a
provision to monitor every transaction that is incoming and outgoing which can allow central and
regulatory bodies, such as central banks and institutions, to trace all transactions and spot fraudulent
behavior. This doesn't just benefit Nepal - it helps the world.
A cashless society is coming one way or another: As a cashless society presents tangible benefit
and convenience to consumers, a cashless community is coming closer now than ever, and it seems
like it’s here to stay. The advantage of going cashless and adopting online payment platform can help
to reduce physical cash theft, and bring more accessibility and eco-friendly environment. A cashless
society, through the proliferation of online payment gateways and payment instruments, do not
necessarily mean cash will be eliminated forever - it merely means that it will take some time before
the transition and the trend with emerging payment gateways in Nepal will come to fruition.
A hybrid approaches
With UPay, have you ever wondered what happens behind the scenes when an online payment is
made both locally and internationally? For an average user, it can be overwhelming to operate the
convoluted platform used in the industry, and make sense of how the feature and functionality works.
Therefore, in this section, we’ll explain the hybrid approach UPay uses in terms of an infrastructure
term one needs to understand, and how they work together to enable local and global eCommerce
transactions.
1. Let’s start with the merchant – merchant is the individual or company who offers goods and
services for sale to its consumers. An eCommerce merchant sells good and services online. A
merchant must work with UPay to get a merchant account - an account that allows the merchant to
accept debit and credit cards, and be able to start selling and receiving payments from shopper online.
With UPay, any eCommerce shoppers can create a merchant account for selling goods and services
online; since UPay has already partnered with local banks, there is no need for the merchant to work
with an acquiring bank - this also allows smart selling and receiving payment for accepting debit and
credit cards for merchants. The heavy tasks of acquiring and dealing with local banks have been done
with UPay, and a merchant is provided with unique account number or information in UPay platform.
Once the merchant has a merchant account with UPay, any consumer can purchase an item and the
merchant purchased transaction information is automatically recorded in UPay platform; if need be,
the information can be transferred to card association network where the card holder’s issuing bank
is located. The issuing bank, after checking the transaction, will then either approve or decline the
charges. If the customer uses a digital wallet, i.e. UnlemaPay or UPay, the transaction data will be
handled securely in the UPay platform for payment processing.
2. The Shopper: A shopper is an online user who purchases goods and services directly from a
payment gateway, i.e. UPay or through a payment processor. When a shopper buys online, they are
willing to typically place an order for a product or service on a merchant's website. The payment
details go through credit/debit card, and payment methods go through a secured web page (URL is
prefixed with HTTPS), which is encrypted by the web browser and sent to the server for a payment
service provider or processing. If the purchase is made through debit or credit card, the payment has
to be authorized by the credit card authorization technique, and the merchant will then fulfil the order
for the shopper. Based on our preliminary research, we have identified that there are several
limitations of current digital payment gateways from a consumer perspective such as
• the inability to purchase global goods and services online
• the inability to sell international goods and services online
• the inability to send and receive payments from doing work online (e.g. in Freelancer, fiverr,
UpWork and others)
• the inability to buy digital goods and services online (e.g. popular gift cards from Microsoft,
Google and Apple)
• the inability to use other international payment gateways such as PayPal, advCash, Payeer,
Perfect Money, Skrill, Payoneer, Paytm and others
3. Payment processing: In the background, once the merchant obtains the payment information, this
information is submitted to UPay. UPay platform facilitates the communication of transaction
information. UPay not only acts as a middleware that transmits transaction information with an
acquiring bank and decides whether a transaction is approved or declined, but it also acts as an
integrated platform for several global payment processors as well. UPay is facilitating communication
within banks. Security is an integral component of UPay; for this reason, sensitive card data is never
stored in the UPay platform because of the threat of fraudulent activities. The credit card association
network has created a set of rules and standards which must be followed by payment processing
systems, including UPay. The collection of standards and regulations are obtained from the PCI-DSS
(Payment Card Industry Data Security Standard). Submitting an order completed using the HTTPS
protocol, which securely communicates personal information through the parties involved in the
transaction, is adhered using UPay platform. In the case of UPay, there are several national and
international Payment gateways integrated inside the one common platform (such as PayPal,
advCash, Perfect Money, Skrill, eSewa, Paytm, SCT Cards, and many others) to facilitate the
transactions, and those gateways usually charge those who use them a per-transaction fee. Many
eCommerce merchants use one or multiple Payment Service Providers to gain access to payment
gateways and thus, be able to accept payments. However, with UPay, the need to use several payment
gateways is mitigated under one common digital platform.
4. Banks and transaction settlement: The most important step in the hybrid approach is the process
of merchant after fulfilment of the order to clear the authorization on the shoppers' fund and prepare
for the settlement with merchant’s acquiring bank. International Credit Card Interchange is the
process in which an acquirer or acquiring bank submits approved card transactions on behalf of its
merchants. The interchange refers to clearing and settlement of records between payment system
participants. A payment service provider (e.g. nPay) is a third party that help merchants accept and
facilitate payments locally in Nepal for UPay. In case of UPay, the settlement of national payments
is done locally by local settlement bank classified under category "A" class, which is under the
purview of NRB, so the UPay settlement amount never goes away from the country. Thus, UPay is
not breaking any legal clause of Nepal and follows the guidelines and direction provided by the
regulatory body. Furthermore, an international settlement is done under the purview of the European
Central Bank, so capital and transactions also, do not float outside the EU zone.
5. GLEI and SWIFT network association: In case of providing a hybrid approach for international
digital payment gateway platform, UPay is associated with global regulatory bodies such as GLEIF
and SWIFT network. GLEI (Global Legal Entity Identifier) which was developed by the 2011 G20
summit, the task for global LEI, is to maintain the financial stability with entities being issued by
local operating units. UPay platform is registered and regulated under the Global Legal Entity
Identifier Foundation (GLEIF) with entity number 7437001A4PTU07V33A97. The Global Legal
Entity Identifier (GLEI) System is an initiative of regulatory authorities throughout the world,
working with the private sector to unambiguously identify legal entities engaged in financial
transactions. The regulatory oversight committee, which is made up of government financial
regulators, oversees the whole system. UPay is not the only member of GLEI but also SWIFT network
association whereby, it is working for SWIFT network messaging services for global financial
instruments.
Conclusions
The interplay between finance and technology in Nepal has shown rising popularity of mobile digital
wallets and payment gateway platforms, and a new form of financial services such as UPay only acts
as a hybrid approach to facilitate the international digital payment gateway ecosystem for Nepal. The
financial industry has witnessed the so-called "fin-tech revolution", and the evolution of cashless
society is now at our doorsteps in Nepal. The systematic literature review on the present study
confirms our hypothesis with existing literature on the adoption of other new technologies which can
act as a significant predictor of electronic payment adoption and usage. This emergence of
information technology, together with cloud computing, blockchain, artificial intelligence, are all
starting to question the traditional financial industry at large. The new forms of fin-tech products such
as P2P lending, insurance, bitcoin, as well as mobile payment application such as Alipay, are a perfect
example that illustrates the ongoing financial revolution and how this is starting to disrupt
conventional banking industry and models. As we can see that digital wallet and payment gateways
are evolving fast - and changing rapidly, the regulatory bodies and central banks role in adapting to
the "Now Economy" is here to stay.
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