Nepal has World-classFintech Products

The fintech market has experienced significant growth and progress from both consumer and innovation perspectives

 – Sanjib Subba

Fintech in Nepal has come a long way with significant advancements occurring over the past two decades. Around 20 years ago, companies like SCT and F1Soft stood at the forefront, primarily associated with the payment industry. However, fintech as a distinct industry was not yet established at that time.

In Nepal, the Covid-19 pandemic played a crucial role in shaping the growth of fintech. The leadership of the central bank further accelerated its development. As a result, the domestic fintech industry has begun to expand and diversify in recent years.

In addition to the 10 Payment Service Operators (PSOs) and 27 licensed Payment Service Providers (PSPs), the fintech ecosystem has a broader range of players. This ecosystem is comprised of entities that support the fintech industry through various means, either by providing solutions or functioning as an ecosystem partner, even without holding licenses themselves. Many companies are actively contributing to the industry by offering services such as deploying Point of Sale (POS) machines or developing solutions specifically tailored for fintech companies.

The fintech market has experienced significant growth and progress from both consumer and innovation perspectives. Consumers have benefited from the advancements in fintech, which have provided them with convenient and innovative financial services. Also, the industry has witnessed a surge in innovation, with companies continuously developing new solutions and pushing the boundaries of what is possible in the fintech space. The fintech ecosystem has evolved beyond traditional payment services, expanding to include a wide range of players and creating a dynamic and thriving market.

Currently, the fintech industry is in a favorable position, displaying a forward-looking approach and embracing future opportunities. The emergence of fintech companies planning to go public through initial public offerings (IPOs) has been a significant development and marks a historic milestone. Notably, Fonepay is preparing for IPO, signaling a new phase for the industry. Looking ahead, the focus is expected to shift towards investment in fintech from an investment angle. This may involve the establishment of startup funds dedicated to supporting fintech ventures. Many fintech companies have already attracted investments from venture capital (VC) firms, both internally and externally. The attraction of investment in the sector has played a crucial role in generating employment opportunities and contributing to the growth of the fintech ecosystem.

The fintech industry in Nepal has witnessed the emergence of remarkable talent and has become renowned for its world-class innovation. Nepali talents are actively contributing to the global fintech market by providing cutting-edge solutions from Nepal itself. 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.

Nepali individuals have achieved notable milestones, such as obtaining neo-bank licenses in the United States. This accomplishment highlights the exceptional talent and entrepreneurial spirit present in Nepal’s fintech ecosystem. It demonstrates that Nepal has made significant strides in establishing its presence and achieving recognition in global fintech. The abundance of talent in Nepal’s fintech industry is a promising sign for the country’s future growth and innovation. It reflects the potential for further advancements, both domestically and internationally, and positions Nepal as a hub for fintech excellence.

One significant advantage of Nepali talent in the fintech industry is their bilingual and multilingual capabilities. Being able to communicate effectively in multiple languages allows them to cater to a wider range of markets and customers, both domestically and internationally. This linguistic advantage gives Nepali talent an advantage in the global fintech landscape. The likes of Fonepay, eSewa, and Khalti are shining examples of world-class homegrown products. Their success demonstrates the potential for Nepali fintech solutions to be replicated and adopted in other markets.

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 in this sector. 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 will not only open doors for international expansion but also stimulates innovation, creates employment opportunities, and strengthens Nepal’s reputation as a hub for fintech excellence. It presents an exciting opportunity for Nepal to showcase its capabilities on a global stage and contribute to the growth and development of the global fintech industry.

While it is true that many fintech companies in Nepal are primarily focused on the payment space, it is important to recognize that fintech encompasses much more than just payments. Fintech, short for financial technology, refers to the use of technology in the financial industry to enhance and streamline various financial processes. Technology has indeed disrupted the payment 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.

For instance, fintech companies focusing on data analytics may offer insights and tools to help businesses make better financial decisions. Digital lending platforms utilizing AI algorithms can provide quick and efficient loan approvals based on borrower data and creditworthiness. By acknowledging the varied facets of fintech beyond payments, it becomes clear that the industry offers a wide range of innovative solutions and possibilities for transforming the financial landscape in Nepal and beyond.

The core principle of fintech is financial inclusion. Fintech aims to provide access to financial services and solutions to all individuals, regardless of their gender, race, geographic location, or economic background. It seeks to bridge the gap and ensure that everyone has equal opportunities to participate in the formal financial system. Fintech plays a vital role in promoting financial inclusion by leveraging technology to offer services to individuals who have access to mobile devices, be it smartphones or feature phones. This accessibility empowers people to conduct financial transactions, manage their finances, and access various financial services conveniently.

An excellent example of the impact of fintech on financial inclusion is M-Pesa, introduced in Kenya in 2007. M-Pesa revolutionized the way Kenyans conducted financial transactions, particularly for those without traditional bank accounts. Through M-Pesa’s mobile money platform, individuals could easily send and receive money, pay bills, and access other financial services using their mobile phones.

This innovation brought financial services to previously underserved populations, enabling them to participate in the formal economy and improve their lives. The concept of financial inclusion remains at the core of fintech’s mission, as it strives to create a more inclusive and accessible financial system for all individuals globally. By leveraging technology and innovative solutions, fintech continues to drive financial inclusion and empower people with greater financial opportunities and capabilities.

In Nepal, the fintech industry is offering exciting services such as peer-to-peer (P2P) and peer-to-merchant (P2M) payments. Companies like NCHL and eSewa have introduced utility bill payment services and government transaction solutions. These services enhance convenience and streamline financial processes for consumers.

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. Microfinance institutions (MFIs) could leverage digital lending to provide small loans, ranging from Rs 5,000-10,000, to support small businesses and the immediate needs of individuals like small farmers. This kind of disruption is necessary to promote the 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.

As the industry evolves, fintech companies are likely to form partnerships with microfinance institutions (MFIs) and collaborate with other class C financial institutions (BFIs). This progression will enable fintech companies to expand their digital lending services and tap into underserved segments of the population, facilitating the growth of the lending culture in Nepal. The central bank’s involvement and evolving regulations will play a crucial role in shaping the future of digital lending and fostering financial inclusion in the country.

Fintech has played a crucial role in facilitating instant payments for small businesses, leading to a smooth supply chain and value chain. This has created significant room for future growth in the fintech industry. Efficiency is key for fintech services, including efficient internet platforms and widespread fintech disruption across the country. With a digital platform, a small business in Kakarvitta could easily sell products to buyers in Mahendranagar, receiving online payments and arranging transportation. Insurance services should also be integrated into this digital ecosystem. While digital banking or neo-banking is not explicitly recognized in the current banking act, the central bank is aware of the need for regulations and guidelines in this area. The development of a regulatory framework for digital banking is essential to ensure its proper functioning and adherence to industry standards.

There is a lack of specific regulations outlining the requirements and operations of digital banks. However, the central bank is aware of this gap and is likely considering the necessary steps to address it. Under the Digital Nepal framework, which includes eight verticals such as energy, education, health, and tourism, fintech fits within the finance vertical and can support various other sectors. Fintech can act as a cost-cutting tool across industries, including agriculture, education, healthcare, and tourism. To establish a recognized digital platform, it is essential to have components such as a digital marketplace, digital lending, and digital insurance. The central bank should incorporate these services under a digital bank or neo-bank framework, extending beyond digital payments.

If digital banking licenses are awarded, it would be more impactful to grant them to new entities rather than existing banks. Fully digital banks would not have physical branches, and their services would be primarily experienced through mobile devices. The number of licensed Payment PSPs may increase in the future, as the central bank has been aiming to consolidate the industry and has implemented increased capital requirements. The second phase is expected to bring about further consolidation and innovation. 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.

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