Deepening connections between Bhutan and India through cross-border payments

Did you know that India accounts for over 86 percent of Bhutan’s total trade? The 2016 record[1] reveals a total of Nu.32.05 Billion (approx. $482 Million) of exports and around Nu.55.28 Billion (approx. $859 Million) of imports, to and from India respectively. Besides the rise in trade, tourism between Bhutan and India have increased every year. In 2017, tourists from India were estimated at around 152,896 [2]— a significant surge over previous years.

The challenge with physical cash

However, due to lack of proper mechanisms to facilitate cross-border payments between the two nations, a significant portion of transactions are believed to be executed through physical cash that usually goes unrecorded from the formal banking systems.

Although some of the banks in the country provide international cards, the facility is expensive — exorbitant transaction fees are dissuading customers from widely availing the services. Consequently, tourists from both countries have to resort to carrying huge amounts of physical cash, posing significant risk and inconvenience.

Emergence of FinTech and DFS

By leveraging on financial technologies to facilitate cross-border payments, Bhutan and India have the opportunity to integrate financial services between the two nations. A recent report[3] describes Bhutan as “characterized by a unique environment for development of an ICT-based society by way of a stable and vibrant government, a small population, widespread knowledge of English, good telecommunications network in many of the urban areas and the Government’s commitment to adopting ICT as a development tool”.

The pace of financial technologies (FinTech) development and modernization of country’s digital payments landscape is growing at steady pace, ranging from deployment of ATMs, electronic fund transfer, mobile payments, cashless solutions and national e-payment gateway. These payment systems are underpinned by enabling regulatory frameworks and tools such as mobile money; agent banking and fund transfer clearing.

Meanwhile, there is a need for increased coherence and supportive approach among the lead agencies for regulating security and cyber, privacy and data protection, online payments and consumer protections. The pace of cashless payment have increased and transformed the payment landscape, which, in large part, reflects the Royal Monetary Authority (RMA)’s proactive role and commitment to pursue digital financial technologies towards achieving inclusive reach, access and growth.

Stimulating demand to increase investment

However, more needs to be done on the supply-side to stimulate demand for effective uptake and confidence on new digital services. One example is improving the country’s telecommunication infrastructure (covering 86 percent of the country) to ensure reliability, affordability and quality of services, which will also help in overcoming the country’s harsh geographical challenges to reaching the last mile segment.

Despite competitive pricing between local Internet service providers (ISPs), there is still adequate space to improve and make the services ubiquitously available at affordable rates or at least ensure reliable networks for inclusive access. However, uptake from mobile money providers has been slow — more training and awareness programs are needed to take advantage of the enabling environment.

Interconnect the Bhutan Financial Switch with the RuPay network of India

Cognizant of these issues and challenges, the Royal Monetary Authority is currently implementing an iconic project to interconnect the Bhutan Financial Switch, owned and operated by RMA, with the RuPay network of India, operated by the National Payments Corporation of India. The initiative, an exemplary flagship project in the region to commemorate the 50th Anniversary of India-Bhutan Friendship this year, is expected to improve and facilitate cross-border remittances between the two nations.  Although Bhutan’s financial system is small—comprising of five banks, one pension, two insurance and three microfinance institutions, the interconnectivity of two switches is congruent with objective of promoting digital payments transactions, which is evidenced by the effort from central bank of the both the countries.

Through this initiative — to be delivered in two phases — the cross-border interoperability would allow the citizens of both nations to seamlessly perform banking transactions using their local bank issued ATM/Debit Cards through any of the delivery channels such as ATMs, PoS and merchant’s e-commerce sites. The first phase of the project will enable the acceptance of RuPay Cards in Bhutan across all customer abovementioned access points (delivery channels). The second phase will enable acceptance of Bhutanese banks local cards in all the access points offered by the banks in India. Furthermore, the integration is expected to pave way for RuPay brand to become one of the growing payment networks in the cards space at par with the dominated players.

Safe and convenient banking

The interconnection of these two switches would not only usher safe and convenient banking but also help realize cost-effective, and cashless transaction by formalizing the flows into the mainstream banking system in both countries, through proper legal and regulatory frameworks. The initiative should make Bhutanese smile, known throughout the world for pursuing happiness as the unparalleled development philosophy.

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The views and opinions expressed in this article are that of the author, Sherab Jamtsho, from the Information Technology Department at Royal Monetary Authority (RMA) of Bhutan. RMA has been an active member of the AFI network since October 2010. They have assisted in framing enabling policies and regulations through peer-to-peer learning, capacity building and knowledge sharing with the community.