Online Payment Landscape, Problem and Solutions in Nepal

I have been building websites and working online for 10 years now. I started doing this back in 2006 and following post is my experience about problems with online payment in Nepal.

If there is one thing that has been a major roadblock for Technology companies from Nepal to compete in global scale then it is the lack or to tell you fact complete absence of Online Payment Mechanism in Nepal.

There are plethora of domestic payment solutions like Esewa, iPay, etc. but they don’t solve the age-old problem of how do I get paid by someone from outside Nepal?

To give where credit is due, getting money into Nepal in terms of Remittance is very easy. Western Union, Moneygram and almost all leading remittance companies have a presence in Nepal and they have been bringing money into Nepal for decades now.

But money that flows inwards into a country through remittance and business transactions that are done between 2 business entities are two very different things and two very different set of laws govern both kind of transaction.

If as a freelancer or a technology company you are getting money from your clients through WU, Moneygram or any other remittance company then not only is it illegal in a sense but you are loosing a lot of money in Forex as well as transaction fees. Above that, you cannot pay taxes on money you received as remittance. Remittances are classified as personal transaction legally.

Before jumping into problem and its solutions, lets examine what are the current solutions available to Nepali freelancers and business in terms of receiving money from Outside Nepal.

Payment Gateways:
There are essentially two payment gateways that I have found people in Nepal have used successfully.

2checkout: 2CO has been in business since 2000, supports transactions in 211 markets through 8 payment methods, 87 currencies, and 15 languages, and is trusted by more than 50,000 merchants worldwide. They charge 3.9% + 45¢ per successful transaction plus 1.5% fee applies to payments you accept from customers outside of Nepal. Above that they charge $15 USD per transfer for wire transfer to send money into your Bank Account in Nepal.
Pros: Accepts Nepal
Cons: Bit of Pricey Side plus surprisingly high chance of Account Freeze

Fastspring: Fastspring has been in business since 2005 and charges 8.9% Per Transaction (Minimum order fee $.75) OR 5.9% + $.95 Per Transaction.
Pros: Accepts Nepal
Cons: Bit Expensive

Apart from these two, there is also Bluesnap.com aka Plimus which accepts Nepali Merchants but due to its horror stories I would not suggest people using it. There is a reason they changed their name from Plimus to Bluesnap.

Online Wallets:
There are few online wallets that accept Nepali customers like Skrill (MoneyBookers), Neteller, Webmoney, etc. But problem is they do not have the exact same amount of Market share as PayPal has. So if you want your clients in US or even UK to pay you into Skrill or Webmoney than Good Luck explaining them how is it different from PayPal.

The main issue with Online Wallet is not that receiver can’t create an account, the problem I mainly faced with Online Wallet other than PayPal is that my clients would not want to use any other payment method except PayPal and it’s a hard work explaining them why and how you cannot receive money into PayPal.

PayPal:
Now coming into giant in the room. A resident Nepali citizen can create a PayPal account but that’s about it. A Nepali PayPal account can only “Send Money”. You cannot “Receive” money into a Nepali PayPal Account. But since none of the Debit or Credit Card issued by Nepali Banks work online so you cannot upload money into your PayPal Account either. So, technically, a PayPal Account made with Nepali address is pretty useless.

Skrill: Skrill or Moneybooker as it was called has recently gone into partnership with Esewa where you can withdraw money from your Skrill account into your Esewa Account and then move it to your bank. This does bring some respite but problem is again that if your client is not using Skrill to send you money, then what’s the point.

Friends and Families:
This is how I assume majority of Nepali online business companies and freelancers are doing business right now in Nepal. Almost everyone today in Nepal knows someone who lives abroad and they ask their friends and families abroad to help them setup a PayPal account in which they receive money from their clients and then their friends and families in turn withdraw that money into their bank account and then send the money to Nepal using Western Union or any other remittance companies.

This setup is can of worms and cannot be sustained for a long run. Also, this is what people in legal terms says is “Money Laundering”.

First problem with this method is that the person who is receiving money abroad has to pay all the taxes on the money they receive in their bank and have to show the source of the money if it exceeds beyond certain point and secondly you are essentially being a Money transfer agent between two separate entities without any legal license to do so. The sooner you stop this setup , the better it’s for everyone involved in this.

Bank Wire Transfer
Bank Wire Transfer or SWIFT is the 100% legal method of transaction between two business entities but if you are a small time freelancer in Nepal or are just starting up it is hard to ask your client to SWIFT you the money. Bank charges anywhere from $15 and above for every transaction and if all you are receiving is $100 from your work then it kind of becomes hard to justify $15 on each wire transfer.

Payoneer
Among all the noise that is in Payment industry, Payoneer quietly came out from no-where and took the industry in one full swipe. They have been in business since 2007/8 and as been a huge respite to freelancers all over the world.

What Payoneer essentially does is when you sign up with them they send you a MasterCard® Debit Card in which your clients can load funds or you can get money loaded into it from Freelancer marketplace like Upwork, Elance, Freelancer, PPH, etc. Once funds are loaded you can then withdraw the money from any local ATM or there is also a method where Payoneer Wires you the money directly into your local bank account.

The major problem with Payoneer is that, its bit on pricey side. They charge $2.15 per transaction for ATM withdrawal but what you don’t see is the Forex charge you get when doing ATM withdrawal using Payoneer card. The Forex rate is almost always few rupees below the current market rate.

The Ground Reality

If you go into Facebook groups and forums on social media where Nepali freelancer discuss or if you read blogs you would find out almost everyday someone asking why is PayPal not coming into Nepal. Few of the regular question I see is:

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And on and on and on.

There does not goes a single day when I don’t see someone asking how to get paid online.

Now, what happens in all of these cases and I have seen from my own experience is that 50% of people who see an option of selling their services through internet quit doing so when they cannot figure out how to get paid. I have personally seen talented designer and developer quitting online freelancing altogether because they cannot figure out how to get paid at the end of the day.

Other 50% who are persistent enough find a hack through system and use that until that hack is closed and once its closed they start looking for another hack.

Following are two examples of hack I have seen people successful achieve to get paid on internet.

1. Create a PayPal Account with a fake US Address and connect it with Payoneer’s Virtual Bank account and then use Payoneer Card to withdraw money. This was eventually closed when PayPal banned use of Payoneer bank account.

2. Back in the days when Xoom.com used to support Nepal, a freelancer used a fake PayPal to receive money from their clients and then make a international remittance transaction using Xoom funded by their PayPal account and then Xoom in turn would send the said freelancer money using a Remittance company which he can cash out in any local money transfer agent. This hack worked for like 2 years before Xoom discontinued cash out to Nepal.

There are many more hacks I have seen people use to do as simple thing as get paid for their hard work.

Now, the problem isn’t only on one side. There are problems with freelancers and outsourcing companies in Nepal as well.

First, there is absolutely zero solid data on how many people are actually working online. If you walk in the streets of Kathmandu, you can find an outsourcing company in almost every part of city but no one exactly knows what they do, how much money they make, how much taxes they pay or even how many employees work for them.

Without Data, you cannot solve any problem.

The reason, PayPal and likes are not coming to Nepal is not because NRB’s policy does not allows them to do so but because they do not see any business sense in investing in Nepal.

PayPal is a business and they need solid data before they invest in a country and at a time when they are not able to fully open up their services in India, Nepal is not even in their horizon at the moment.

Allowing a country to open a PayPal account is not as easy as just letting them sign up which essentially PayPal is already doing but to allow you to receive money into your PayPal account also means they have to provide a mechanism for you to withdraw your money into your local bank account which requires a partnership with a intermediary bank which along with it brings host of compliance and regulatory issues and such PayPal does not see the ROI in investing into doing all that when they do not have any data on the use of online payment and e-commerce within Nepal.

Faisal Khan, a payment consultant from Pakistan who has written letter to PayPal for 11 years asking why PayPal is not coming into Pakistan has written following points on PayPal absence from Pakistan which in my opinion is pretty much the accurate scenario for Nepal as well:

See the following points and swap in Nepal instead of Pakistan below and the point still will be true for Nepal:

  • Most of the hue and cry with regards to PayPal not being present in Pakistan  is by freelancers who want to be able to seamlessly accept payments from their foreign counterparts.
  • There is no domestic market for PayPal (as such), the demand is more cross-border.
  • The domestic market person-to-person payment solutions are already out there in the form of branch-less / mobile banking and these will continue to improve and be supplemented with transactions done on the smart phone via IBFT (Inter Bank Funds Transfer).
  • PayPal’s trusted brand makes it seamless for to do business using PayPal.
  • Most people in Pakistan do not have a credit card (or debit card that can work abroad, or are hesitant of providing their details online) and PayPal is one of surest, safest way to pay online.
  • There is a larger demand for PayPal to receive than pay via PayPal..
  • If PayPal will enter the Pakistan market, due to Pakistan’s prevailing foreign exchange rules, majority of the users would be upset that they cannot keep their money in US Dollars, etc. and the money would be converted to Pakistan Rupees and into their bank accounts. Income declared for short.
  • The export related demand for PayPal is diminishing by the day. Everyone has figured a way out to accept payments online.
  • The ones making the most hue and cry are the ones who simply do not have a way to obtain a PayPal account, whilst sitting in Pakistan (i.e. their family and/or friends abroad are of no help).
  • There is a huge deficit in the perceived demand for PayPal vs the on-ground demand. The demand is huge, but we are all placing our bets that we will have the same easy in and out of flow of money as one gets with the US-based PayPal accounts. That most likely would not be the scenario.
  • Collectively, out of 10 years of limited surveys, 2/3rd of the people who would like to use PayPal for business or freelancing purposes would not like to declare their incomes to the Government.
  • No one is willing to collectively fight for the cause for PayPal. They just want it. They expect that to magically happen.
  • Even the most educated lot are seriously misguided and ill-informed as to why PayPal is not entering the Pakistani market. And for some reason, they refuse to believe the truth.

Second problem in Nepal is that, no one wants to pay taxes. We all want services provided to us but do not want to pay taxes for those benefits and when an entire sector does not pays taxes they do not show up in Government data and hence Government cannot make any policies relates to them.

This has also been a problem why Government in Nepal does not see IT industry as huge change maker. I don’t have any data to back this but by my personal interaction with people running outsourcing companies and seeing how much money they make yearly, I can tell you that the amount of money IT industry in Nepal makes yearly might be higher or closer to what Tourism Industry makes in Nepal but since Tourism industry has higher percentage of tax payers so they get more benefit and lauded as being backbone of country’s development.

Now, it’s not like no one pays taxes, there are people who pay taxes but if only 2 out of 10 companies are paying their taxes then the Government will only see that there are 2 IT company in Nepal instead of 10 which are working outside of the gov’s radar.

When a company like PayPal wants to come into Nepal they ask the government for data and when the Government itself has no idea how many people in their country are working online then how can it prove PayPal that Nepal is right fit for their business.

People in Nepal now have become so much accustomed to using hacks to get their payment which does not comes under tax scanner that they do not want to use genuine method to get paid which might come under tax scanner.

We are OK with using illegal methods and paying high transaction fees to PayPal in some one elses name but would not use a genuine method to get paid or else we might have to pay taxes.

The Solution

There is no hope of PayPal entering Nepal anytime soon. They still have not figured out how to provide their services in India where the monetary policies are more liberal than in Nepal and where the Data on IT industry is much more solid and higher than in Nepal.

The only solution I can think of right now is if someone from Nepal makes a home-grown payment processing solution to receive money from outside Nepal. Till then, all we can do is hope.

P.S. The above article is about “receiving” money from outside Nepal, as per NRB polices Nepali Residents are not allowed to “send” money from Nepal to any other third country using Online Technologies. If you want to send then you have to provide documents supporting your transaction and use only one of licensed Nepali bank to do the transaction.

Moneygram, Western Union, etc are not allowed to “Send Money From Nepal” . You can only receive money using remittance companies.

Personal Plug /  Disclaimer : I made Zokimo which is a platform to sell your digital goods globally and get paid in Nepal. It is 100% legal and uses Machpay.com’s payment engine to process payment. Machpay is a product of Machnet Inc a US Based Company which also powers payment for Thamel Remit, Muncha Money and Prabhu Online.  

If you are interested to use Zokimo then sign up here or if you have questions then shoot an email to tajim@zokimo.com

Thanks for reading.


8 Comments

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  1. santosh malla

    Really Nice post Tajim…
    that’s what i was wondering from long time… but still not found any solution for the international payment prepossess even though we here at Nepal got local online pay system …. i wish that very soon the problem will be solve and people will be able to make payment from Paypal / Payoneer and many other online system … and here where Nepal is behind in all this online business…

    Reply
  2. Shreyans Tamang

    Zokimo sounds promising. If you already have customers using Zokimo, could you post links to their products so we can see how the platform looks like? thanks.

    Reply
  3. Shakyak

    Great article!!

    Reply
  4. Bishnu Gautam

    Excellent article Mr. Tajim. I also have a similar feeling. After going through your article, it appears that people like you should form a kind of association and file a formal request to NRB and to the concerned authorities, also to Banker’s association or so, raise the issue more publicly and do a followup. Else, from among us, someone should dare to begin a new business to address this very need. Future looks promising.

    Reply
  5. how about remitting funds through bitCoin in Nepal ? New Startups can initiate BitCoin Exchange.

    Reply