PSOs and PSPs in Nepal, Learn all you need to know about!

PSO and PSP in Nepal

In this cashless world of digitization, we all are quite used to the terms FonePay QR, eSewa, ConnectIPS, ImePay, and mobile banking payment. Although you might know the difference between mobile banking and digital wallets, there is an even more important term to understand: Payment System Operator (PSO) and Payment Service Provider (PSP). Here in this article, I’ll be explaining all that you need to know about PSOs and PSPs in Nepal.

PSO and PSP in Nepal Overview:

Payment System Operators (PSOs)

A payment System Operator (PSO) is a licensed company that provides payment system-related services like electronic payment gateway, payment scheme, ATM Switch, Point of Sales (POS), and such. Basically in simple language, it provides a medium for banks, digital wallets, and other financial institutions to conduct digital payments. You can say, a PSO works like a backend guy for the operations of digital payments.

Payment System Operators (PSOs)
PSOs

In the context of Nepal, Nepal Rastra Bank (NRB) works as the license provider and regulator for both PSO and PSP. The most common examples of PSOs in Nepal are FonePay, ConnectIPS, SCT, and NPS. Among them, Fonepay is the most used PSO which offers fund transfer and QR payments. Meanwhile,  the government-backed ConnectIPS is also more or less popular to FonePay for a cheaper Fund transfer option. Likewise, SCT offers SmartQR service while NPS is currently the cheapest medium for fund transfer from one bank to another bank.

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In terms of Debit/Credit card payment, you can find VISA and Union Pay acting as Payment System Operators in Nepal, allowing domestic as well as foreign cards to withdraw money from local ATMs.

Payment Service Providers (PSPs)

Now, let’s come to the Payment Service Provider (PSP), which is again, as aforementioned, licensed and regulated by Nepal Rastra Bank (NRB). It basically provides various kinds of digital payment options to the general public, using the mediums of PSO, acting as a middleman between the merchant and the acquiring bank or card networks involved in the transaction.

Payment Service Providers (PSPs)
PSPs

Digital wallets like eSewa, IME Pay, Khalti, Namaste Pay, Cell Pay, MORU, MyPay are the actual PSPs. But as BFIs (Bank and Financial Institutions) can also provide such services, as licenses granted by NRB, they can also be termed PSPs. So basically, when you open the QR scan option of your digital wallet or mobile banking app, the icons you see such as FonePay, NepalPay, Union Pay, etc are the PSO, your PSP app supports.

PSO Options in IME Pay
PSO options on QR Payment via IME Pay

How does PSO and PSP work together?

In order to learn how the PSO and PSP work together. We can take an example of a digital wallet.

  • Suppose, you are using IME Pay to make a FonePay QR payment to NIC Asia Bank. The PSP (IME Pay) collects the transaction details and sends it forward to the PSO (FonePay).
  • After that, the PSO goes through the details and after verification, it routes the payment to the recipient’s PSP, which is the destination bank (NIC Asia )itself in this example.
  • Then, the PSO clears and settles the payment between the sender’s and receiver’s financial institutions, which are IME Pay and NIC Asia.
  • After that, the recipient’s PSP which is NIC Asia confirms the transaction and notifies the receiver.

Why are PSOs and PSPs important?

In this age of digitization, both PSOs and PSPs are very crucial for establishing a digital economy. As a matter of fact, both mediums need each other to operate digital transactions. For instance, you can see various PSO options inside a mobile banking app or digital wallet. While, if you use a PSO app such as FonePay and ConnectIPS, there inside, you’ll find your linked banks. So, it’s very clear that the synergy between them is very very important for cashless transactions.

List of PSOs and PSPs in Nepal

As derived from the latest data from the end of Kartik 2081, there are 9 PSOs and 26 PSPs operating in Nepal.

List of PSOs in Nepal
Payment System Operators (PSOs) in Nepal as of Kartik 2081
List of PSPs in Nepal
Payment Service Providers (PSPs) in Nepal as of Kartik 2081
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