The landlocked Southeast Asian country of Nepal is one of the least developed countries in the world, and relies on importation for a number of crucial resources. How can fintech support its evolution and growth?
Nepal’s economy is very much reliant on agriculture. In fact, agriculture accounts for over half of the country’s export earnings. However, recognising a need for change, Nepal is actively aiming to develop its economy and technological capabilities.
By the end of this fiscal year, Nepal plans to enable internet access for 80 per cent of its population. Even with this ambitious aim, around one-third of Nepalis remain financially excluded – with no access to a bank account.
But with growing access to the internet, does Nepal actually hold the ideal conditions for fintech growth? The nation’s fintech journey began at least as early as 1990 when Nepal Arab Bank (now known as NABIL Bank) introduced credit cards.
In 2014, Nepal’s central bank, Nepal Rastra Bank, introduced its ‘National Payment Systems Development Strategy’ (NPSDS) with a vision to modernise the payment system and develop a secure, robust and efficient payment system.
In 2019, the central bank then introduced the ‘Payment and Settlement Act’, which provided the legal basis for the development, promotion, expansion, monitoring, and regulation of payments, settlement and clearing systems in the country.
Shortly after, the country’s fintech sector enjoyed growth, as banks integrated mobile banking services and payment service providers (PSPs) into their offerings. E-commerce also began to grow during this period.
Eventually, the Covid-19 pandemic had a similar impact on Nepal, as it did across the rest of the world. The region saw increased adoption of electronic payment technologies – despite limited growth before the mid-2010s. Nepal saw significant growth in mobile banking, QR payments and wider cashless solutions.
Fintech foundations
According to the World Bank, the gross domestic product (GDP) per capita of Nepal is around $1,100. Currently, the country hosts 10 Payment System Operators (PSO) and 27 Payment Service Providers (PSP).
Regarding digital payment systems in Nepal, mobile banking boasts the largest number of customers (over 23 million), while digital wallets follow closely behind (21 million).
The ‘Nepal Financial Inclusion Report 2023’ by the International Finance Corporation (IFC), outlines some key fintech achievements in Nepal:
- Mobile banking users grew at an impressive CAGR of over 58 per cent, reaching 18.31 million users, or almost 63 per cent of the population in mid-July 2022
- QR-based payments also experienced a surge, with transaction volume increasing nearly 200 per cent from Rs 7.76 billion ($570million) in 2022 to Rs 20.77 billion ($1.5billion) in mid-March of last year.
- Growth in revenue collection from the government is notable, with 30 per cent attributed to digital payments and 90 per cent of transactions executed digitally.
In March 2024, the National Payment Corporation of India’s (NPCI) UPI platform launched in Nepal. While NPCI previously enabled UPI-based payments in Singapore and Bhutan, as well as inking a deal with UAE-based Mashreq Bank to enable Indian travellers to make payments in the UAE, the Nepal expansion marks the first time UPI’s real-time payment system is fully adopted internationally. UPI will function for Nepali users like it does for Indians in India.
Recognising challenges
Nepal boasts a number of promising fintechs including eSewa, a semi-closed KYC-enabled wallet; fonepay, a wallet-enabled payment solution for individuals; and Khalti, a digital wallet and gateway solution.
While digital lending is still at an early stage, fintechs such as Foneloan are making loans more accessible to Nepali citizens through collaboration with banks. As of 2022, there were around 70 fintech startups in Nepal.
Despite reasons to be optimising, Nepal needs to recognise the plethora of challenges ahead. Despite technological advances, its economy is still developing and relies on remittances from overseas – so much so that it represents over a quarter of the country’s total GDP.
The country also has much to develop in terms of a regulatory and wider investor-free network. Nonetheless, Nepal, despite its challenges, has established foundations that should enable fintechs to help propel and accelerate its wider economic development.
