Use of digital payment index
1.Introduction
During the post-Covid years, digital payments have significantly increased around the world. Bolstered by the development in the digital payment infrastructure, the innovation in the payment instruments and the increase in financial awareness, especially in the developing countries, the digital payment is expanding at an unprecedented speed. It is led by large emerging economies such as China and India. The PWC organization has predicted that the number of cashless payment transactions worldwide will double in 2025 and triple in 2030 compared to 2020. In order to measure the overall progress of the payment system, various countries have created digital payment indices. The Reserve Bank of India has been publishing such an index based on March 2018, and such index has reached 465 in September 2024. Similarly, in Serbia, the index was started to be published based on the year 2016, and the index has reached 180 in 2021. In this article, an attempt has been made to discuss the calculation and applicability of digital payment index in the context of Nepal.
2. Drivers of digital payment development
The development and expansion of digital payment is determined by four components:
a) the tendency of the general public to use technology and the infrastructure available for it,
b) the demand-side and supply-side infrastructure of digital payment,
c) the use of digital payment instruments and
d) the experience of the general public related to the quality of payment transactions.
The level of efficiency, effectiveness and progress of the digital payment system is measured based on the progress made in these four aspects. Such measurement is done by digital payment index.
An important prerequisite for the expansion of digital payments is public access to basic technology. This includes availability and use of mobile and internet services, use of smartphones etc. How many people use mobile phones in any country, what is the condition of internet access and how many people use smartphones determine the potential expansion of digital payments. Similarly, access to deposit accounts of the public and digital identity details also act as enablers of digital payments. In the case of Nepal, the progress made in such infrastructure can be measured by indicators such as mobile density, internet density, smartphone density. The access to bank accounts and the distribution rate of national identity cards in the form of digital identity cards can also be taken as a prerequisite indicator of digital payments.
The second important basis for the expansion of digital payments is the demand-side and supply-side infrastructure required for digital payment transactions. The supply side infrastructure includes the infrastructure available from the organization issuing the digital payment instruments (such as: the number of payment system operators and payment service providers, the number of payment service provider agents, the number of ATM machines, the number of POS machines, the number of merchant QR codes, etc.). Similarly, from the demand side, indicators such as mobile banking account number, internet banking account number, wallet account number etc. are included under such infrastructure. In the case of Nepal, since data of all these indicators are available, these indicators can be included in the calculation of digital payment index.
Third, the use of payment instruments is the most important aspect for measuring the overall trend of digital payments. It can be measured by the number of payment transactions and payment amount through various digital payment methods. For example, the number of transactions completed through mobile banking, wallet and QR and the trend of transaction amount can be included in it. As the use of digital payment increases, it can also include an indicator that informs whether there has been a decrease in the currency notes in circulation in the country and whether there has been a decrease in the tendency of people to withdraw cash from ATMs. In the case of Nepal, the statistics of such indicators are published monthly by the Nepal Rastra Bank, so the number of digital payment transactions completed through various means and the transaction amount can be included when calculating the digital payment index.
Another important aspect of the expansion of digital payments is the public's trust in the digital payment system, i.e. what is the consumer's experience when using digital payment methods. This indicator is determined by the overall quality of the digital payment system. Quality can be estimated based on various indicators. The first part under this is the quality of the technical aspect. For example, the quality of the technical aspect of the digital payment system can be estimated from aspects such as how long the transaction has not been successful due to technical problems in the payment system in a certain period of time, i.e. what is the technical failure rate, what is the rate of fraud or financial crime in the digital payment system, how long has the payment system been down in a certain period of time, etc. This affects the public's trust in digital payments.
Another important aspect is the level of awareness of digital financial services among the general public. It can be measured by the digital financial awareness program conducted by various concerned organizations and the population benefited from the program, digital financial literacy related materials and the number of people who read, listen, and watch these materials and other indicators. The increase in financial literacy can also be estimated from the number of people viewing websites related to digital financial literacy. It also helps to promote the safe use of digital payments and increase the digital payment transactions. The third part of measuring the quality of the financial payment system includes an indicator of how many complaints have been received from the general public regarding digital payment transactions and the rate at which those complaints are addressed. The increase in the receipt of complaints related to digital transactions can be defined as the increase in financial awareness, while the resolution rate of complaints can be taken as the increase/decrease in the quality of digital payment services.
3. Progress in digital Payments and Calculation of Indicators
In the context of Nepal, in the post-Covid period, there has been a significant increase in digital payment infrastructure, public access to payment instruments and the use of payment instruments. For example, compared to July 2022, the number of wallet accounts increased by 2.76 times in January 2025, and the number of mobile banking accounts increased by 1.81 times to 256 million and 263 million, respectively. In the FY 2021/22, 450 million digital payment transactions were completed, in 2023/24, the transaction was tripled, i.e. about 1.35 billion. During that period, the number of mobile banking transactions has reached to 3.76 times, wallet transactions to 2.36 times and QR transactions to 30.33 times.
The overall progress in digital payment related infrastructure development, equipment availability and usage can be measured through the digital payment index. In the case of Nepal, it seems that the index has almost doubled in the last two years, based on the 39 different indicators for which data is available. The index calculated considering the FY 2021/22 as the base year includes all the four aspects of digital payment, while for calculating the average index, according to the international practice, the use of payment instruments and the infrastructure of the payment system are considered the most weighted. The details of index calculation are presented in the accompanying chart. Analyzing on the basis of this index, it is seen that more than 50 percent contribution to the achievements in Nepal's digital payment system is the use of payment service equipment, while about one third of the contribution is the expansion of the payment service infrastructure.
As progress is made in various aspects of the digital payment system, the digital payment index can be used to evaluate the policy arrangements adopted by the country. Various countries have started calculating such an index to measure the expansion of digital payments. Even in Nepal, if such an index is created including all the indicators related to the payment system, it will prove to be helpful in measuring the progress in the expansion of the payment system and in creating the necessary policies for the modernization of the payment system.
