FinTech innovations: Transforming Nepal's banking landscape

The Rise of FinTech in Nepal: A Financial Revolution

 

The profound impact of Financial Technology (FinTech) companies on the finance industry in Nepal is nothing short of revolutionary. FinTech is reshaping the way people in both bustling cities and quiet towns save, spend, and invest. This transformation goes beyond mere convenience; it aims to spearhead inclusion and growth, paving the way for Nepal to become a digital powerhouse in South Asia.

 

The Shift Towards a Cashless Society

 

The evolution towards a cashless society is well underway in Nepal, as evidenced by the dramatic increase in mobile banking transactions. By July 2024, the number of mobile banking users had surged to 24.65 million, surpassing the 23.46 million e-wallet users recorded in 2023. This significant shift underscores the growing acceptance and integration of digital financial services.

 

Projected Growth in Digital Transactions

 

According to Statista, Nepal's overall transaction value is projected to soar to €3.94 billion (approximately USD 4.3 billion) by 2025, with an annual growth rate of 12.17% expected post-2028. Driven by catalysts such as QR code payment acceleration, smartphone adoption, government policies, and the rise of fintech services, the transaction value is anticipated to escalate at a Compound Annual Growth Rate (CAGR) of 30%, potentially reaching US$11.14 billion by 2029.

 

The COVID-19 Catalyst

 

The COVID-19 pandemic served as a pivotal catalyst for this change, as the number of FinTech users ballooned from 6.48 million in 2020 to over 20 million by 2023 — representing a remarkable increase of 200%. This shift signals a broader acceptance of digital financial solutions among Nepalese citizens, highlighting the sector's resilience and adaptability.

 

Leaders in Nepal's FinTech Landscape

 

Nepal's FinTech landscape boasts 132 companies, with key players such as eSewa, Fonepay, Khalti, and PrabhuPAY leading the charge. These platforms have become integral to everyday financial activities, facilitating seamless transactions for bill payments, shopping, and more.

 

Cross-Border Innovations

 

One notable evolution is the integration of India's Unified Payments Interface (UPI) with Nepal's National Payments Interface (NPI). This integration has enabled Nepali users to conduct over 100,000 transactions via UPI QR codes, amounting to more than ₹250 million. Such advancements significantly benefit travelers and businesspersons, offering streamlined cross-border payment solutions.

 

Regulatory Support for FinTech Innovation

 

In recognition of FinTech's opportunities, the Nepal Rastra Bank (NRB) established a Digital Finance Innovation Hub in March 2025. This initiative allows FinTech companies to test innovative solutions in a controlled environment, ensuring safety and reliability before market entry. This supportive regulatory framework fosters innovation while maintaining financial stability.

 

The Regulatory Ecosystem

 

To bolster the fintech ecosystem, NRB has licensed numerous digital wallets, including eSewa, Khalti, IME Pay, and PrabhuPAY. It has also issued separate licenses for wallet operators and switch/settlement platforms, such as Fonepay and Nepal Clearing House Limited (NCHL), along with formulating directives like e-KYC for digital customer onboarding.

 

Interoperability and Unified Payments

 

Initiatives to promote unified QR code usage and the introduction of the National Payment Switch (NPS) for interoperability among various financial platforms are pivotal. These innovations facilitate seamless integration across wallets, banks, and cards, advancing the digital financial landscape.

 

The Role of Open Banking

 

Commercial banks are increasingly offering API access to third-party FinTechs, promoting collaboration and service integration. NRB supports partnerships between Banking Financial Institutions (BFIs) and FinTech, enhancing the ecosystem further.

 

Exploring New Frontiers: Credit, Blockchain, and More

 

Digital lenders are leveraging alternative data and automated credit scoring models to revolutionize credit offerings. Concurrently, while cryptocurrency trading remains unauthorized, blockchain technologies for digital identity and document verification are under exploration.

 

InsurTech and AgriTech Surge

 

Innovations in insurance and agriculture are also seeing growth, with the rise of insurance aggregators and mobile microinsurance platforms, alongside fintech solutions for agricultural loans and market linkages.

 

Integration of Remittance Services

 

Direct remittance transfers to user wallets through digital channels are burgeoning, with partnerships such as WorldRemit and eSewa exemplifying the collaborative potential between local FinTech firms and international money transfer services.

 

Challenges on the Path Forward

 

Despite this progress, challenges persist. Studies indicate that while financial literacy and government support are essential, they do not significantly impact FinTech adoption without the user's innovative engagement. Digital literacy, trust in technology, and social influence are crucial, especially among millennials in regions like Karnali Province.

 

Envisioning a Digital Future

 

The future of Nepal's banking landscape is undoubtedly digital. Projections suggest that the digital banking market will achieve a net interest income of US$170.8 million by 2025, expanding to US$240.6 million by 2029 — a clear indication of the momentum driving the sector forward.

 

Fostering Inclusive and Sustainable Growth

 

To ensure this growth is inclusive and sustainable, stakeholders must prioritize enhancing digital literacy, implementing robust cybersecurity measures, and fostering an innovation-friendly environment. By doing so, Nepal can not only transform its banking sector but also set a precedent for digital financial inclusion in the region, benefiting its citizens and the broader economy alike.