12th August 2025, Kathmandu
As Nepal continues its rapid shift toward a digital economy, understanding the technology that powers everyday electronic transactions is more important than ever. To help citizens navigate this evolving landscape, Nepal Rastra Bank (NRB) has launched a public awareness campaign under its “Financial Literacy for All” initiative.
PSPs and PSOs Vitality
This campaign aims to clarify the distinct, yet interconnected, roles of Payment Service Providers (PSPs) and Payment System Operators (PSOs), two key players in the nation’s digital payment ecosystem. By fostering a deeper understanding of these entities, the central bank seeks to promote trust, security, and greater adoption of cashless transactions.
The Two Pillars of Nepal’s Digital Payments
In Nepal, all digital payment activities are governed by the NRB, which ensures that transactions are secure, reliable, and accessible to the public. Within this regulatory framework, financial institutions that enable digital payments are categorized into PSPs and PSOs. While both are crucial for the system to function, they serve different purposes.
What is a Payment Service Provider (PSP)?
A PSP is a customer-facing institution licensed by the NRB to provide services that allow people to initiate and execute electronic payments. Think of a PSP as the “front end” of a digital transaction—the platform you directly interact with. They offer a variety of services to help you send, receive, and manage money digitally.
Key Functions of PSPs:
- Mobile Wallet Services: Providing digital wallets for easy payments and fund transfers.
- QR Code Payments: Facilitating transactions using QR codes at merchants.
- Bill Payments: Enabling users to pay for utilities, top-ups, and other services.
- Fund Transfers: Allowing users to send money to other individuals or bank accounts.
In Nepal, common examples of PSPs are well-known digital wallets like eSewa, Khalti, IME Pay, and PrabhuPay. These are the apps you open on your phone to make a payment or transfer funds.
What is a Payment System Operator (PSO)?
A PSO, on the other hand, operates as the infrastructure backbone of the payment system. They work “behind the scenes” to ensure that payments initiated by PSPs are processed, cleared, and settled securely across the entire banking and financial network. While a PSP provides the user interface, a PSO provides the essential infrastructure that makes the transaction possible.
Key Functions of PSOs:
- Clearing and Settlement: Managing the process of interbank transfers, ensuring that funds move correctly between different financial institutions.
- Switching Services: Routing transactions between various banks and PSPs to ensure they are completed efficiently.
- Technical Standards: Maintaining the secure networks and technical standards required for payment processing.
Prominent PSOs in Nepal include Nepal Clearing House Limited (NCHL), which manages systems like connectIPS, and other key players like Fonepay and SCT (SmartChoice Technologies). These are the systems that connect your bank to your digital wallet and to the merchant’s bank account.
Why This Distinction Matters
The clear division between PSPs and PSOs is not just a regulatory formality; it’s a strategic design choice that enhances the entire ecosystem. This separation of roles promotes efficiency, boosts security, and encourages innovation. PSPs can focus on creating user-friendly services and new features, while PSOs can concentrate on maintaining a robust, reliable, and secure infrastructure. For consumers, understanding this distinction is crucial for making informed decisions and using digital services safely.
The NRB’s campaign also stresses the importance of safe digital payment practices. As more Nepalis adopt digital payments for daily needs, the central bank advises users to:
- Only use platforms licensed by the NRB.
- Protect personal login credentials and never share them.
- Regularly update their payment apps to ensure they have the latest security features.
- Use official customer support channels for assistance.
This public education drive is a critical step in the NRB’s mission to increase financial literacy and transition Nepal toward a cashless economy. By building public trust and promoting secure digital practices, the central bank aims to make digital payments an integral, safe, and convenient part of life for all Nepalis.
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