Nepal Bans WeChat Pay and Alipay due to tourism concerns

Nepal’s central bank has taken steps to ban two of China’s most popular digital payment platforms – WeChat Pay and Alipay – over concerns that tourists in the country are using the digital wallets to bypass local currency transactions and fees.

The central bank of Nepal, Nepal Rastra Bank, said the Himalayan kingdom is incurring income losses in relation to goods and services due to the use of the payment apps by Chinese tourists.

The bank banned the use of Chinese digital wallets from immediate effect. “We have enforced a ban on Alipay and WeChat Pay because the country is losing foreign currency earnings through its usage. Action will be taken if anyone is found using the platforms,” said a spokesman, Laxmi Prapanna Niroula.

Both WeChat Pay, operated by Tencent, and Alipay, which is operated by Alibaba Group, are hugely popular in China and most Chinese tourists who go abroad carry these digital wallets.

These payment apps are also used by Chinese nationals who operate hotels, restaurants and other businesses in Nepal. When tourists visit the businesses, the bills are paid online using mobile phones or other devices in Chinese yuan.

The consequence is that payment for services acquired in Nepal go through China because the digital wallets are not registered domestically. This has discouraged authorities from registering spending by Chinese tourists as foreign income, as the funds technically never enter Nepali banking channels.

The situation has also enabled Chinese businesses to send earnings home easily without paying taxes because the authorities have no evidence the transactions have ever taken place in Nepal.

The Himalayan Times newspaper first exposed the issue on April 17. It was raised as part of a wider drive and effort to encourage spending by foreign tourists as officials are trying to discourage Nepal becoming a budget-only destination.

According to economist Chandan Sapkota, two key factors are responsible for the drop in visitor spending seen in Nepal. Firstly, that Nepal’s tourism products and services have stagnated, and secondly that Chinese tourists are bypassing the financial system.

Nepal received 153,602 Chinese tourists in 2018, up 46.8 per cent compared to 2017. It is hoping to woo even more Chinese tourists in the Visit Nepal Year 2020, a government campaign that aims to attract 2 million foreign tourists.

Payments by Chinese tourists via WeChat or Alipay have become more common in Nepal, and a significant portion of businesses in the centrally-located Thamel tourist district of Kathmandu accept payments via WeChat or Alipay.

The central bank had previously said it would look for ways to legalise the use of digital wallets in Nepal as China happened to be the second largest source of foreign tourists and those payment applications were widely used.

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

Two Nepali companies have so far expressed interest to work as intermediaries for the Chinese mobile payment giants. “But we have not granted them permission yet as they have not fulfilled all the requirements,” said an official.

If these intermediaries eventually come into operation, they are expected to route payments made using WeChat Pay and Alipay through local banks, helping to register the spending as foreign income.

But even if intermediaries come into play, illegal use of Chinese digital wallets will still be an issue since the apps allow peer-to-peer transactions, bypassing the intermediary altogether.

This can only be blocked if the Chinese payment firms deploy geofencing to track whether Chinese nationals are making payments using the formal channel, say experts.

According to Sapkota, Indian tourists are also increasingly using their own online payment systems, like Paytm, but not as aggressively as the Chinese.

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