Nepal Rastra Bank, the central bank, placed a ban on the use of Chinese digital wallets WeChat Pay and Alipay, in Nepal on 20th May, 2019, stating that the country was losing foreign income due to illegal use of those payment applications by Chinese tourists.

WeChat Pay and Alipay are hugely popular mobile payment applications in China.

Most Chinese tourists who visit Nepal carry these digital wallets. These payment applications are also used by Chinese nationals who operate hotels, restaurants and other businesses in Nepal. So, when Chinese tourists visit businesses operated by Chinese nationals in Nepal, bills are paid using the Chinese payment applications. This means payment for services acquired in Nepal are made in China because the Chinese digital wallets are not registered in Nepal.

This has barred authorities here from registering spending made by Chinese tourists as foreign income, as the money technically never enters Nepal’s banking channel. This has also enabled Chinese businesspersons to repatriate earnings without paying any taxes here because the domestic authority has no evidence to substantiate that those transactions have taken place in Nepal.

“These activities are illegal. That’s why we have banned the use of those applications in Nepal,” NRB Spokesperson Laxmi Prapanna Niroula told The Himalayan Times. “If people are found using Chinese payment applications, criminal investigation will be launched against them.”

The Himalayan Times first exposed this issue in its April 17 edition. After the story was published the central bank had told THT it would look for ways to legalise the use of those digital wallets in Nepal as China happened to be the second largest source of foreign tourists for Nepal and those payment applications were widely used by the Chinese.

Nepal received 153,602 Chinese tourists in 2018, up 46.8 per cent compared to 2017. Nepal is planning to attract even more Chinese tourists in the Visit Nepal Year 2020, a government campaign that aims to attract two million foreign tourists.

Tourist spending is the third largest source of foreign income for Nepal after worker remittance and merchandise exports.

“We know most of the Chinese use WeChat Pay and Alipay. But foreign companies that provide payment related services in Nepal must register their businesses here. If not, services of those Chinese companies should be provided by firms registered in Nepal,” said Niroula.

At least two Nepali companies have expressed interest to work as intermediaries for those Chinese mobile payment giants in Nepal, according to a senior NRB official who did not want to be named. “But we have not granted them permission yet as they have not fulfilled all the requirements,” the official said.

Once these intermediaries come into operation, they will route payments made using WeChat Pay and Alipay through Nepali banks, helping Nepal register those spending as foreign income.

But even if these intermediaries start settling payments, illegal use of Chinese digital wallets cannot be ruled out because those applications allow peer-to-peer transactions. This means Chinese tourists visiting Nepal and Chinese nationals operating businesses in Nepal can always send money to each other bypassing the intermediary.

This can only be prevented if the Chinese payment companies deploy technology called geofencing to track whether Chinese nationals are making payments using the formal channel, according to experts in the field of digital payment. This way, payments made by Chinese citizens, who have bypassed the formal channel, can be blocked.

THT had emailed the Chinese app companies on April 26 to get clarity on these issues, but they went unanswered.

Source : https://thehimalayantimes.com/business/use-of-chinese-digital-wallets-banned-in-nepal/