Decoding the Fintech Revolution in Nepal

June 1, 2023, will be remembered as an important date in the history of fintech in Nepal. On that day, Nepal and India entered into an accord for establishing a cross-border digital payment mechanism. Neelesh Man Singh Pradhan, CEO of Nepal Clearing House Limited (NCHL) and Ritesh Shukla, CEO of National Payment Corporation of India (NPCI) signed a memorandum of understanding for cross-border digital payments during Prime Minister Pushpa Kamal Dahal’s visit to India. This deal has garnered a big welcome in both countries as businesspersons and ordinary citizens expect that it will eliminate hassles related to physical currencies, thereby fostering trade and exchange of people between the two South Asian neighbors.

In a world where cash is still the king, this agreement can prove to be a stepping stone for Nepal in its transformative journey toward becoming a cashless society. As more people are getting accustomed to digital money, paying bills at local tea shops, vegetable vendors, department stores, cozy cafes and restaurants to online shopping purchases using mobile wallets, QR codes and bank cards have become widespread. It won’t be otherwise to say a revolution is underway in the country’s financial system which until a few years back used to be dominated by the use of physical money. The remarkable ease and convenience offered by digital payment systems have captivated the spending habits of Nepalis, driving them to ditch cash and embrace a digital future.

While the history of electronic payment in Nepal dates back to 1990 when Nabil Bank (then Nepal Arab Bank) issued credit cards for the first time in the country, it was the until mid-2010s that digital payment gathered any significant momentum with the growing use of mobile wallets and electronic banking systems. The emergence of the Covid-19 pandemic in early 2020 provided a massive boost to the domestic electronic financial ecosystem in Nepal with QR code-based payment garnering immense popularity among the people.

The latest data from the Nepal Rastra Bank (NRB) shows the growing adoption of digital payment systems by Nepalis, thanks to the widespread use of smartphones. NRB has reported a three-fold increase in QR code-based payments within a year, with the number of transactions rising from 2.38 million in mid-March 2022 to 6.75 million in mid-March 2023.  Not only has the transaction volume increased, but the value of these transactions has also tripled. According to NRB, the total amount of the payments jumped to Rs 20.77 in mid-March 2023 from Rs 7.76 billion in mid-March 2022.

The rise of electronic transactions can be attributed to several factors including the increasing number of smartphone users, efforts of banks in offering mobile and internet banking services, the dedication of Payment Service Providers (PSPs) and Payment Service Operators (PSOs) in promoting mobile wallets and QR code payments, the booming e-commerce industry, and the expanding internet penetration. At the heart of this digital transformation in Nepal lies the staggering growth of the domestic fintech industry.

Digital adoption in Nepal has witnessed exponential growth, particularly after the start of the Covid-19 pandemic. For instance, the number of mobile banking and internet banking users was gradually growing prior to the pandemic years. In 2016, there were approximately 1.75 million mobile banking users. The number reached 8.35 million in 2019 and jumped to 18.31 million by mid-July 2022.

Similarly, internet banking users expanded from around 515,000 in mid-July 2016 to 917,344 by 2019 before reaching approximately 1.68 million by mid-July 2022. The number of mobile wallets has also skyrocketed in the past three years, from around 6.27 million users in mid-August 2020 to approximately 15.96 million by mid-January 2023.

As individuals and businesses increasingly recognize the benefits of digital transactions, the country is gradually transforming into a more digitally inclusive society. According to Narayan Prakash Bhuju, CEO of Smart Choice Technologies (SCT), the prospects of digital payments in Nepal are promising, and recent trends clearly demonstrate this. According to him, the fact that digital transactions are growing at a rate of 30 percent per month shows an increase in acceptance and the expansion of delivery channels.

NRB officials are also hopeful that this trend will further increase in the coming days. “Currently, 30 percent of the government’s total revenue collection is derived from digital payment methods such as mobile wallets, mobile banking, internet banking, and bank transfers,” said Guru Prasad Paudel, Executive Director and Chief of Payments Systems Department of NRB. “Furthermore, a staggering 90 percent of government transactions are conducted through digital payment systems. This is a shift toward a cashless society which has been highlighted in the month of Chaitra when 7.7 million transactions amounting to Rs 77 billion were recorded.”

According to Amit Agrawal, Co-founder and Director of Khalti Digital Wallet, digital payment systems have made the lives of people easier. “One of the significant advantages is the ability to connect your bank account to digital wallets. This eliminates the need to visit the offices of the Nepal Electricity Authority or Nepal Telecom to pay bills. People can now buy movie tickets, pay utility bills, purchase insurance, and make several kinds of payments from the comfort of their phones,” he said.

As of Mid-July 2022, 37 institutions are licensed as payment companies. Among them, 27 are payment service providers (PSPs), and 10 are Payment System Operators (PSOs). In addition, all 21 commercial banks, 13 development banks, 14 finance companies, and one microfinance institution have obtained licenses to operate as PSPs from the central bank.

Over the last 10 years, Nepal’s fintech landscape has witnessed remarkable growth, with a diverse range of PSOs and PSPs playing a pivotal role in fostering the digital financial ecosystem. NCHL, F1Soft, Khalti and IME Digital have emerged as major contributors in this regard.

ConnectIPS, a PSO of the Nepal Clearing House Limited (NCHL), has revolutionized online payments by enabling individuals and businesses to link their bank accounts and perform seamless transactions. With ConnectIPS, users can conveniently transfer funds, make bill payments, and even initiate merchant payments through a single platform, enhancing the overall efficiency and convenience of digital transactions.

Khalti, another leading PSP, has gained significant popularity among users in Nepal. It offers a comprehensive range of digital payment services, including mobile banking, bill payments, fund transfers, and online shopping. Khalti has successfully established partnerships with numerous banks and merchants, providing users with a seamless experience and empowering them to transact effortlessly using their mobile devices.

According to Agrawal, Khalti has made remarkable progress in just six years of its inception. “The monthly transactions via Khalti amount to Rs 5 billion which clearly shows its popularity and adoption,” he said.

Fonepay, an F1Soft International company, has emerged as a prominent PSO in the country. Launched in 2019, it offers diverse digital payment solutions, including mobile banking, internet banking, QR code payments, and merchant payment services. Fonepay’s interoperability allows users to connect their bank accounts and mobile wallets, facilitating convenient fund transfers, bill payments, and online purchases across various networks and platforms.

Diwas Sapkota, CEO of Fonepay, observes that digital payments have experienced a significant increase in their contribution to the economy, particularly following the Covid-19 pandemic. “This surge can be attributed to several factors. The advancements in technology have greatly improved the digital payment industry, leading to greater adoption by consumers. Over the past three years, the sector has witnessed an impressive average growth rate of 300 percent year-on-year,” he said. According to him, Fonepay currently boasts a merchant base of 1.3 million, which accounts for 65 percent of all registered businesses. “The customer base has reached approximately 20 million, resulting in a monthly transaction volume of around Rs 20 billion and a million transactions recorded each month. It is worth noting that nearly 95 percent of banks and financial institutions (BFIs) have integrated with Fonepay,” he mentioned.

Another F1Soft brand eSewa, a well-established PSP in Nepal, has gained widespread popularity for its comprehensive range of services. It enables users to make utility bill payments, mobile top-ups, ticket bookings, and online purchases seamlessly. eSewa has partnered with multiple banks and merchants, expanding its reach and providing users with a wide array of payment options.

IME Pay, a digital wallet launched by IME Digital in 2017, has rapidly gained traction in the market in a relatively short span of time. According to the company, it offers a convenient and secure platform for various transactions, including fund transfers, bill payments, and merchant payments with IME Pay’s user-friendly interface and extensive network of partners contributing to its growing user base and popularity.

NCHL CEO Pradhan, says the growth of digital payments in the country is changing the entire financial landscape in the country. “The financial landscape has transitioned to paperless solutions. Wallets, mobile banking, internet banking, card issuance, and Connect IPS have emerged as popular options. Both banks and consumers have embraced these digital services, leading to a significant increase in paperless transactions year after year,” he said.

While the fintech companies in Nepal are primarily focused on the payment space, it is important to recognize that fintech encompasses much more than just payments, according to Sanjib Subba, CEO of Nepal Electronic Payment System (NePS).

“Technology has indeed disrupted the payments industry, which is why fintech is often associated with payments. However, it is crucial to understand that fintech encompasses a broader spectrum of applications. Fintech solutions can be found in areas such as data analytics, digital lending powered by artificial intelligence (AI), blockchain technology, regtech (regulatory technology), insurtech (insurance technology), and more. These diverse fintech segments are driven by technological advancements and aim to revolutionize different aspects of the financial industry,” he said.

Subba says that digital lending platforms utilizing AI algorithms can provide quick and efficient loan approvals based on borrower data and creditworthiness.

According to him, another aspect of the fintech industry in Nepal is that Nepali products are world-class and they have the huge potential to export to foreign countries. “By encouraging and supporting the expansion of Nepali fintech companies beyond national borders, Nepal has an opportunity to capitalize on its strengths and promote exports of fintech services,” he said, adding, “This type of export does not require traditional cargo transportation or physical infrastructure, making it a unique and promising avenue for economic growth. Allowing Nepali fintech industries to operate fully outside the country not only opens doors for international expansion but also stimulates innovation, creates employment opportunities, and strengthens Nepal’s reputation as a hub for fintech excellence.”

Companies like Fusemachines and Macnet are some of the organizations that are delivering fintech solutions to global companies, showcasing the expertise and capabilities of Nepali professionals.

Similarly, there are fintech companies in Nepal working in the field of big data analytics. eXtensoData is one such company that offers insights and tools to help businesses make better financial decisions.

Binod Pokharel, Chief Business Officer at Imark Digital Pvt. Ltd, says that a huge potential exists in fintech. “Fintech encompasses a wide range of technologies and services aimed at simplifying payment processes, including digital payment platforms, insurance, health, education, and more. It plays a crucial role in ensuring smooth transactions and has garnered significant attention in Nepal due to the presence of highly talented professionals,” he said. “Globally, fintech solutions have facilitated access to capital for small and medium-sized enterprises (SMEs) through digital loans, making it easier for entrepreneurs to fund their ventures. Though the digital loan is in a nascent stage in Nepal, it is expected to grow in the future.”

Experts say Nepai fintech companies are yet to explore areas such as insurance to bring innovative and disruptive services and systems. According to them, in India, platforms like PolicyBazar have helped revolutionalize insurance services as consumers can compare and purchase policies online.

Experts say the issuance of the Digital Lending Guidelines 2022 by NRB in February last year has the potential to revolutionize the lending landscape in Nepal. This policy allows customers to conveniently obtain loans of up to Rs 500,000 through digital platforms, including bank apps and e-wallets, from the comfort of their homes or anywhere else.

With the guidelines, the central bank aims to facilitate small lending for micro, cottage, and small-scale enterprises, as well as personal and education loans. However, its full implementation and effectiveness are yet to be realized.

Currently, Fonepay and Namaste Pay have been providing digital loans to consumers. Fonepay in collaboration with banks is offering the Foneloan service for a variety of purposes including personal loans and business loans. Foneloan allows banks to disburse short-term loans up to Rs 200,000 instantly to users’ bank accounts, without even needing them to visit bank offices. In addition to this, it doesn’t require any paperwork or collateral either. According to Fonepay, as of January 2023, Foneloan has disbursed over 85,000 loans worth Rs 1.6 billion.

Subba views that digital lending is at an early stage in Nepal, with some regulatory and legal considerations to be addressed. “Fintech companies like Foneloan have collaborated with banks to offer loans, making the process more accessible to individuals. However, there is a need for further evolution and widespread adoption of digital lending,” he said.

According to him, microfinance institutions (MFIs) could leverage digital lending to provide small loans, ranging from Rs 5000-1000, to support small businesses and the immediate needs of individuals like small farmers. “This kind of disruption is necessary to promote lending culture in Nepal. With a massive user base of debit card holders (around 20 million) but limited credit card usage (just 300,000), there is a significant opportunity for innovation in lending to tap into the potential of this market.”

The lack of interoperability between various  service providers remains as a significant challenge for its growth in Nepal. While there exists some level of interconnectivity between PSOs and PSPs, much work still needs to be done to establish seamless interoperability, say experts.

Despite the progress made so far, digital service operators believe that the current level of interconnectivity falls short of meeting the industry’s needs. Recognizing the importance of addressing this issue, NRB has set a deadline of May-mid 2024 for the PSOs and PSPs to achieve full interoperability. This means that by that time, the companies should be able to facilitate seamless transactions and data exchange across their respective platforms. NRB Executive Director Paudel says that achieving this level of interconnectivity will foster a more robust and inclusive digital ecosystem, benefiting both service providers and end-users.

Currently, mobile banking services allow consumers to transfer funds to various digital wallets. While this form of interoperability exists, there is still a lack of connectivity between PSOs in the country. As a result, if a consumer is using a mobile banking service that is part of a specific network, they are unable to scan the QR codes of another company’s network, and users of a wallet cannot transfer money to another wallet. Fintech experts believe that this lack of connectivity has created obstacles to the expansion of the digital payment market in Nepal.

NCHL in November 2021 launched the Retail Payment System (RPS) as part of the National Payment Switch (NPS). The NPS is a key infrastructure to establish interoperable payment systems, allowing the settlement of all domestic transactions within the country. All retail payment transactions originating from interbank payment system (IPS), connectIPS, and ECC (electronic cheque clearing) systems are currently settled through RPS in the books of the central bank.

RPS currently includes 24 wallets, aiming for complete interoperability. Banks, PSPs, and PSOs are being enrolled in this system, although full implementation is still pending. Two key players, namely Nepal Pay, Smart Pay, are already on board, and others are expected to follow suit in due course.

Fonepay CEO Sapkota says that while Fonepay itself is interoperable, there seems to be a difference in market perception. “Presently, through banks enrolled in Fonepay, users can transfer funds to any other digital wallet, demonstrating interoperability. It is not necessary for Fonepay to establish direct connections with other Payment Service Operators (PSOs), as even in global practice, platforms like Visa and Mastercard do not have direct connections,” he said.

NePS CEO Subba suggests that a common QR code for payments would promote an inclusive payment market, ensuring that consumers have the freedom to choose any service provider they prefer without restrictions. “This would enhance convenience and interoperability in the payment ecosystem,” he said.

According to Paudel, the growth of the digital payment system and digital economy hinges on seamless interconnectivity between service providers. “We have already directed all PSOs to adopt technologies that facilitate interconnectivity. Although there has been some progress in this area, it is still insufficient,” he said. “For instance, while a user with mobile banking on one network can load money into a wallet on a different network, more comprehensive interconnectivity is required.”

The central bank has recently implemented stricter regulations for payment service operators (PSOs) and payment service providers (PSPs) through the ‘Permit Policy for Institutions Working on Payment 2023.’ In a bid to strengthen the digital payments service provider, the central bank has made it mandatory for them to increase their paid-up capital.

Under the new rules, PSPs that offer equipment operation services, excluding payment cards, are now required to raise their paid-up capital from Rs 10 million to Rs 50 million. Similarly, PSOs are now obligated to increase their working capital from Rs 40 million to Rs 400 million, a tenfold increase. PSOs involved in international payment settlements utilizing government-issued payment equipment must raise their paid-up capital from Rs 250 million to Rs 800 million.

“The Nepal Rastra Bank’s strategy to increase the minimum paid-up capital requirement is a positive step as it will allow for the scaling up of businesses. However, this policy may pose a barrier to new players entering the market. As an established and sizable company, Fonepay does not anticipate difficulties in raising additional capital. In fact, we have plans to issue IPOs to the general public in the near future, further strengthening our position in the market,” said Diwash Sapkota.

Additionally, the NRB has raised the license fees for both types of companies. PSPs will now have to pay Rs 100,000, whereas PSOs will have to pay Rs 600,000. These amounts represent a significant increase compared to the previous fee of Rs 25,000. Furthermore, the new regulations state that these companies can invite foreign investments of up to a maximum of 15 percent of their paid-up capital.

“The step taken by the Nepal Rastra Bank (NRB) to raise the minimum paid-up capital requirement is aimed at reducing risks for companies and encouraging growth and further investment. It reflects the NRB’s intention to attract serious and genuine investments in the digital payment sector,” according to Agrawal.

According to Pradhan, in the early stages, the focus was not on capital, and licenses were issued more freely. “However, as the number of players increased and transactions grew, NRB now requires PSOs and PSPs to enhance their capital. This change aligns with the need for scalable infrastructure, reduced risks, and upgraded systems. Increasing the capital requirement also facilitates consolidation for smaller service providers under larger entities.”

Despite the big potential, the Nepali fintech industry faces several challenges basically stemming from the migration of skilled IT professionals who go to other countries in search of better job opportunities. According to NCHL CEO Pradhan, many tech professionals including those with expertise in digital payment technologies, choose to leave Nepal for higher-paying positions abroad. “This brain drain affects the development and growth of the local fintech ecosystem. Even those who remain in Nepal often opt for freelancing opportunities with foreign companies, as they can earn better salaries,” he said, adding, “This creates a shortage of skilled professionals within the country and puts a strain on local companies that have to continually train newcomers who too migrate to other countries after gaining some professional experience, perpetuating the cycle.”

Experts point to the lack of interoperability within the digital payment ecosystem as another significant challenge for the fintech industry. Currently, merchants and consumers are required to use multiple networks and wallets to facilitate transactions. This lack of interoperability creates a fragmented and inefficient system, as each network and wallet operates independently. Merchants are compelled to accept payments from different platforms, which increases complexity and may result in higher costs. Consumers, on the other hand, are burdened with the need to maintain multiple wallets and adapt to different payment methods depending on the merchant they are dealing with. This lack of standardization and interoperability hinders the seamless and convenient adoption of digital payments, say experts.

In the meantime, low digital literacy, particularly among the rural populace and older demographics, is also hampering the expansion of fintech services in the country. “Limited access to digital technologies and the internet in rural areas, coupled with a lack of familiarity with devices and online platforms, poses challenges. Additionally, inadequate education and awareness, language barriers, and infrastructure limitations further contribute to the low digital literacy rates,” said SCT CEO Bhuju. “Addressing these issues requires targeted education programs, awareness campaigns, user-friendly interfaces in local languages, improved infrastructure, and efforts to bridge the digital divide between rural and urban areas.”

Nevertheless, Pokharel of Imark Digital also sees some bright spots. “Many Nepali fintech experts are being sought after by foreign companies to work on backend operations, particularly in level 3 areas. This is a testament to the exceptional skills possessed by Nepali professionals,” he said. He is of the view that the attractive pay packages offered by fintech companies further contribute to the growing interest among young people in pursuing careers in the field of fintech.

Recently, Nepal has witnessed a significant surge in the usage of digital payment systems, as evident from the numbers. Currently, 30 percent of the government’s total revenue collection is derived from digital payment methods such as wallets, mobile banking, internet banking, and bank transfers. Furthermore, a staggering 90 percent of government transactions are conducted through digital payment systems. This is a shift toward a cashless society which has been highlighted in the month of Chaitra when 7.7 million transactions amounting to Rs 77 billion were recorded.

Despite this progress, several challenges persist. Digital payment systems are predominantly popular in urban areas, while rural areas require the involvement of banks, the government, and the Nepal Rastra Bank (NRB) to improve financial literacy. Another obstacle is the issue of interconnectivity. The growth of the digital payment system and digital economy hinges on seamless interconnectivity between service providers. NRB has directed all Payment Service Operators (PSOs) to adopt technologies that facilitate interconnectivity by the end of Baisakh 2081. Although there has been some progress in this area, it is still insufficient. For instance, while a user with mobile banking on one network can load money into a wallet on a different network, more comprehensive interconnectivity is required.
Data protection poses yet another challenge. The government stakeholders, including the Nepal Rastra Bank, are committed to safeguarding the data and privacy of consumers. Issuing circulars by NRB alone will not suffice in the long run, necessitating the enactment of proper legislation by the government. We have engaged in discussions with all stakeholders to address this issue.

NRB is currently working on the implementation of the second phase of the National Payment Switch. This phase involves establishing an in-country switch for card payment settlements. Presently, domestic Visa and MasterCard transactions are routed through international payment gateways, resulting in transactions being charged in dollars. However, the national payment switch will enable domestic card payment processing, reducing fees and enhancing transaction speed and convenience.

To accomplish this, the Nepal Clearing House Limited (NCHL), the company assigned by the NRB for the national payment switch, is in the process of collaborating with an international payment giant. The bidding process is currently underway, and once completed, the rollout of the national payment switch will commence.
With the card payment switch system built in the country, the banking and financial institutions will provide Nepal paid cards instead of Visa, Master and Union pay cards, to keep the customers’ data within the country and also helps in reducing the issuance and service charges of the payment cards.

Diwash Sapkota, CEO, Fonepay

The contribution of digital payment systems to the country’s economy significantly increased after the start of the Covid-19 pandemic. This surge can be attributed to several factors. Advancements in technology have greatly improved the digital payment industry, leading to greater adoption by consumers.

Over the past three years, the sector has witnessed an impressive average growth rate of 300 percent year-on-year. Currently, Fonepay boasts a merchant base of 1.3 million, which accounts for 65 percent of all registered businesses. The customer base has reached approximately 20 million, resulting in a monthly transaction volume of around Rs 20 billion and a million transactions recorded each month.

It is worth noting that nearly 95 percent of banks and financial institutions (BFIs) have integrated with Fonepay. While Fonepay itself is interoperable, there seems to be a difference in market perception. Presently, through banks enrolled in Fonepay, users can transfer funds to any other digital wallet, demonstrating interoperability. It is not necessary for Fonepay to establish direct connections with other Payment Service Operators (PSOs), as even in global practice, platforms like Visa and Mastercard do not have direct connections.

We have invested substantially in raising awareness about QR codes and digital banking, and we continue to do so regularly. As pioneers in this field, we take pride in promoting not only Fonepay but the entire digital payment industry. Our investment includes significant resources dedicated to developing the necessary human capital for creating an enabling environment.

The Nepal Rastra Bank’s strategy to increase the minimum paid-up capital requirement is a positive step as it will allow for the scaling up of businesses. However, this policy may pose a barrier to new players entering the market. As an established and sizable company, Fonepay does not anticipate difficulties in raising additional capital. In fact, we have plans to issue an initial public offering (IPO) to the general public in the near future, further strengthening our position in the market.

The prospects of fintech in Nepal are promising, and recent trends clearly demonstrate this. Digital transactions are growing at a rate of 30 percent per month, with an increase in acceptance and the expansion of delivery channels. The Covid-19 pandemic further accelerated this growth, as carrying cash was perceived as a health risk. Consequently, mobile top-ups, bill payments, insurance purchases, and various other transactions have become paperless, offering convenience, cost savings, and environmental benefits.

However, a significant challenge lies in the fact that the digital payment ecosystem is primarily concentrated in urban areas. This urban-centric nature hinders the broader adoption of digital payments in rural areas. Moreover, the market is currently dominated by a few major players, creating a lack of interoperability. This absence of interoperability prevents new entrants from establishing a presence and sustaining themselves in the market, ultimately leading to a monopolistic environment.

Addressing this issue, the Nepal Rastra Bank has assigned the Nepal Clearing House Limited (NCHL) to introduce Nepal Pay. However, it is crucial for the government to refrain from directly entering the market as a Payment Service Operator (PSO). Instead, the focus should be on ensuring that PSOs become interoperable. With numerous players in the market, the government’s responsibility lies in monitoring, regulating, and promoting a consumer-oriented and user-friendly market environment.

Neelesh Man Singh Pradhan, CEO, Nepal Clearing House Ltd (NCHL)

Initially, cash and cheques were the primary means of transaction, relying on paper-based methods. However, the financial landscape has since transitioned to paperless solutions. Wallets, mobile banking, internet banking, card issuance, and ConnectIPS have emerged as popular options. Banks, as well as consumers, have embraced digital services, leading to a significant increase in paperless transactions year after year.

Service providers and financial institutions, including PSOs and PSPs, have made substantial investments to bring their services up to international standards. Despite the relatively small market size, the introduction and continuous upgrading of new systems have been driven by major service providers. Such investments are not one-time occurrences; they require a continuous commitment to keep pace with technological advancements.

Over the past decade, the policies of Nepal Rastra Bank (NRB) have prioritized digital transactions while aiming to create a conducive environment. As a regulator, NRB must safeguard the interests of consumers, regulate service providers, and facilitate the introduction of new technologies. Consequently, it has been implementing new policies to support these objectives.

In the early stages, the focus was not on capital, and licenses were issued more freely. However, as the number of players increased and transactions grew, NRB now requires PSOs and PSPs to enhance their capital. This change aligns with the need for scalable infrastructure, reduced risks, and upgraded systems. Increasing the capital requirement also facilitates consolidation for smaller service providers under larger entities.

PSPs and PSOs were introduced approximately 15 years ago when consumers had limited knowledge of digital payments. These early players played a crucial role in investing and educating consumers about these services. With the market reaching a certain maturity level, it is now time for interoperability to be established. Interoperability will be gradually upgraded to offer customers the freedom to choose any service provider.

The Retail Payment Switch, introduced as the first phase of the National Payment Gat currently includes 24 wallets, aiming for complete interoperability. Banks, PSPs, and PSOs are being enrolled in this system, although full implementation is still pending. Two key players, namely Nepal Pay, Smart Pay, are already onboarded, and others are expected to follow suit in due course.

Binod Pokharel, Chief Business Officer, Imark Digital Pvt. Ltd.

Fintech encompasses a wide range of technologies and services aimed at simplifying payment processes, including digital payment platforms, insurance, health, education, and more. It plays a crucial role in ensuring smooth transactions and has garnered significant attention in Nepal due to the presence of highly talented professionals. Many Nepali fintech experts are being sought after by foreign companies to work on backend operations, particularly in level 3 areas. This is a testament to the exceptional skills possessed by Nepali professionals. The attractive pay packages offered by fintech companies further contribute to the growing interest among young people in pursuing careers in the field of fintech. The financial incentives associated with the industry have become a key factor in drawing youths towards the sector.

Amit Agrawal, Co-founder & Director, Khalti

Digital transactions have revolutionized the way we handle payments, offering ease and convenience to people who are involved in financial transactions. Carrying physical money in your pocket is no longer a concern, and you have a record of all your transactions and expenditures. Digital payments have become a lifestyle choice, simplifying various aspects of daily life.

One of the significant advantages is the ability to connect your bank account to digital wallets. This eliminates the need to visit the offices of the Nepal Electricity Authority or Nepal Telcom to pay bills. People can now buy movie tickets, pay utility bills, purchase insurance, and make several kinds of payments from the comfort of their phones. Khalti, for instance, offers access to 40 movie theaters, allowing users to purchase tickets seamlessly.

Khalti, being one of the fastest-growing wallets, has made remarkable progress in just six years of its inception. The monthly transactions via Khalti amount to Rs 5 billion which clearly shows its popularity and adoption.

However, it is important to acknowledge that digital technology is a costly business. Khalti employs more than 300 individuals, and considering Nepal’s relatively small market, significant investments are required to ensure its success. We have been actively investing in promotions to raise awareness about the numerous benefits of digital payments.

In contrast to Payment Service Operators (PSOs) and Payment Service Providers (PSPs), banks have not been sufficiently focused on digital technology. While they offer mobile banking services, simply having such services is not enough. To foster a fully digital society, banks need to stay updated with the latest technologies and provide 24-hour customer service for their digital banking platforms. The current practice of limited office hours hinders Nepal’s progress toward becoming a fully digital society.

The step taken by the Nepal Rastra Bank (NRB) to raise the minimum paid-up capital requirement is aimed at reducing risks associated with the business for companies and encouraging growth and further investment. It reflects the NRB’s intention to attract serious and genuine investments in the digital payment sector.