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New Era of Fintech in Nepal – Storm or Gradual Change?

The global financial industry is experiencing unprecedented technological transformation. Digital payments, neobanking, and the widespread use of artificial intelligence (AI) are fundamentally changing the way financial services are delivered and consumed. These trends are particularly relevant for emerging markets like Nepal, where fintech presents both huge opportunities for disruption and significant challenges for traditional financial institutions.¹Nepal, which is looking to modernize its economy, is not immune to these global shifts. The country’s banking sector faces a key question: is the current wave of fintech innovation a disruptive “tsunami” that will dramatically change the market landscape and displace established leaders, or is it an “evolutionary” process that traditional banks can gradually adapt to by integrating new technologies into their existing models?

The answer to this question is critical to setting strategic priorities for both banks and regulators. The global fintech boom provides Nepal with a unique opportunity to leapfrog some of the traditional stages of financial infrastructure development. However, such a leap requires not only technological readiness but also appropriate adaptation of the regulatory environment and increased digital literacy among the population.¹Without these conditions, the rapid adoption of new technologies may lead to increased risks and a deepening digital divide. Moreover, the “tsunami or evolution” dichotomy may not have a universal answer for all segments of the Nepalese financial market. For example, the payments sector, with its rapid adoption of digital wallets and QR technologies, may already be experiencing the force of the “tsunami”.¹⁰At the same time, the implementation of AI scoring in lending or the full-scale development of neobanks may turn out to be more gradual processes due to regulatory, infrastructural and cultural barriers.¹²

This study aims to analyze the current state of the Nepalese banking sector, assess the impact of key fintech innovations – digital wallets, neobanks, and AI scoring – and explore the adaptation strategies of traditional Nepalese banks in their fight to maintain market leadership. The report will provide an overview of the macroeconomic and regulatory context, analyze consumer behavior, and highlight case studies of the country’s leading banks’ adaptation.

Current Status of Nepal Banking Sector: A Bastion of Stability in the Face of Innovation

The banking sector of Nepal, the backbone of the national financial system, operates in a unique environment of traditional approaches and emerging digital trends. Its current state and adaptability are largely determined by the macroeconomic environment, internal market structure, and specific cultural factors.

Macroeconomic background and its impact

current status of nepal banking sector: a bastion of stability in the face of innovation

Nepal’s economy is showing signs of recovery, but faces a number of challenges. GDP growth forecasts for fiscal years 2024-25 and 2025-26 vary, with the Nepal government expecting growth of 4.61% in the current fiscal year15, while international organizations such as the World Bank and the Asian Development Bank (ADB) forecast growth in the range of 4.4-4.5% for FY2025.¹⁷The IMF forecasts growth of 4.0% for 2025.¹⁹Inflation is projected to remain moderate, around 4.9-5% in 2025.²³

A key feature of the Nepalese economy is its high dependence on remittances from migrant workers, which account for about 21-25% of GDP.²⁶In the first nine months of FY2024/25, remittance inflows increased by 10% to NPR 1191.31 billion (approximately USD 8.74 billion).²⁶The main source countries for remittances are the Gulf countries and Malaysia.³³This significant inflow of foreign exchange supports the country’s balance of payments, which remained in surplus at NPR 346.23 billion in the first nine months of FY24/25.^27,and ensures sufficient foreign exchange reserves (USD 17.63 billion as of mid-April 2025, which covers more than 14 months of imports of goods and services).^²⁶

However, such an economic structure carries the risk of “Dutch disease”, when significant foreign exchange earnings from one sector (in this case, remittances) can lead to a strengthening of the real exchange rate, a decrease in the competitiveness of other sectors (especially manufacturing and agriculture) and an increase in dependence on imports.³⁴Nepal’s trade deficit remains high; it exceeded NPR 1.25 trillion in the first ten months of FY2024/25.⁵⁵Political instability and frequent changes of government also create an unfavourable environment for long-term economic planning and investment.²⁰

Structure and stability of the banking market

The banking sector in Nepal is dominated by commercial banks, which include both government and private institutions.⁵⁷As of January 2025, there were 20 commercial banks operating in the country.⁵⁸An important indicator of the health of the banking system is the level of non-performing loans (NPL). According to Nepal Rastra Bank (NRB), the average NPL of commercial banks in the third quarter of FY2024/25 reached 4.83%.⁵⁹, which is higher than the 4.0% rate for April 2024 noted by the IMF.⁶²This growth has raised concerns among regulators and market participants about asset quality and potential risks to financial stability.⁶³It is noteworthy that the growth of NPLs is taking place against the backdrop of falling interest rates⁶⁶, which may indicate deeper structural problems in the economy or in banks’ lending practices, rather than simply the impact of the cost of money. This could be due to the quality of borrowers, the effects of the pandemic, inefficient use of credit funds, “brain drain” and a shortage of skilled entrepreneurs.⁷², or low labor productivity.³⁶

Despite the growth of NPLs, the capital adequacy and profitability indicators of the banking sector as a whole remain above regulatory requirements, although they are under pressure.⁶³Private sector credit growth remains moderate at 8.3% year-on-year as of mid-April 2025.²⁶The NRB’s monetary policy for FY2024/25 is aimed at stimulating lending to productive sectors of the economy.⁶⁶

Table 1: Nepal Key Economic and Financial Indicators (2023/24 – Forecast for FY2024/25-2025/26)

Note: GDP and inflation data are from different sources with different reporting periods and forecasts. NPL and credit growth data are based on NRB reports.

This table is critically important because it sets the macroeconomic and financial context in which the fintech transformation is taking place. It allows us to assess the current economic situation, the stability of the banking sector, and the challenges banks face, which directly impacts their ability and willingness to invest in new technologies and adapt to change.

Strengths of Traditional Banks

Despite the challenges, traditional Nepalese banks have a number of strengths. First, there is the high level of trust among the population, which has been built up over decades.⁷⁹In a culture where personal relationships matter, established banking brands have an advantage over new, purely digital players. Secondly, there is the extensive branch network. By early 2025, banking services were available at all 753 local government levels, thanks to NRB’s financial inclusion policy.⁵⁸Rastriya Banijya Bank, for example, recently opened 10 new branches, bringing its total to 307 across the country.⁸¹This physical infrastructure remains an important service channel, especially for older generations and in rural areas with limited internet access.

Weaknesses and Challenges

However, the traditional model also has its weaknesses. Bureaucratic procedures and slow decision-making often characterize the functioning of large banking institutions in Nepal.⁸²Resistance to change and slow adoption of innovation can be a major obstacle in the rapidly changing fintech landscape.

Infrastructure limitations are another significant challenge. Logistics issues, especially the “last mile” of delivery of services or products, remain relevant.⁸⁴Nepal’s Internet Penetration Reaches 55.8% by January 2025³, but this figure is significantly lower in rural areas.⁴The level of digital literacy among the population also remains low, making it difficult for complex digital financial products to be widely adopted.³⁶

Cultural context and its influence

Nepal’s cultural background has a significant impact on how businesses operate, including the banking sector. The concept of “afno manche” (literally “one’s own people”) emphasizes the importance of personal connections, family and social networks when deciding on various matters, including obtaining services or preferences.⁹⁶This can manifest itself in the form of “kripabad” (favoritism) and “natabad” (nepotism). This cultural norm can slow down the adoption of objective, data-driven digital systems (e.g. AI scoring) and even contribute to NPLs if lending decisions are influenced by personal connections rather than rigorous risk assessment. Nepal’s hierarchical society and respect for elders also influence banks’ internal decision-making processes and customer interaction styles, which may favor more formal and personal communication channels.⁹⁶

Digital Wallets: A Payment Revolution in Nepal

The digital payment market in Nepal is experiencing rapid growth, largely driven by the activity of digital wallet providers. These platforms are fundamentally changing the payment habits of the population and creating a new competitive environment for traditional banks.

Market overview and key players

digital wallets: a payment revolution in nepal

The leaders in the Nepalese digital wallet market are eSewa, Khalti and Fonepay.¹By 2024, eSewa had over 10 million registered users.¹⁰⁶, and the total number of wallet users in the country reached 25.8 million by mid-January 2025.¹⁰⁵Khalti and IME Pay are each estimated to have 5 million users, and their potential merger under the “IME Khalti” brand could create a player with a 10 million audience.¹⁰¹

Transaction volumes through digital wallets have shown impressive dynamics. For example, Fonepay processed over 1 million QR transactions worth NPR 2.62 billion in just one day (March 30, 2025).¹⁰³The total digital payments volume in Nepal is projected to reach USD 3.62 billion in 2024 and grow to USD 6.1 billion by 2028.¹⁰⁹Transactions through QR codes, which have been one of the growth drivers, increased from NPR 20.28 billion (5.5 million transactions) in FY2020/21 to NPR 500 billion (160.93 million transactions) in FY2023/24.¹¹eSewa, as the market pioneer, holds a significant share, estimated at around 80%.¹⁰¹

Impact on consumer habits and use of traditional banking services

Digital wallets are actively displacing cash from everyday circulation, especially in the segments of paying utility bills, topping up mobile accounts, online shopping and money transfers.²The widespread adoption of QR payments, supported by both ease of use for consumers and low barriers to entry for merchants, has been a catalyst for this change.⁷The number of QR codes issued to merchants increased from 282,000 in July 2021 to 2.34 million in January 2024¹¹, indicating the widespread adoption of this technology.

Banks’ Strategies in Response to the Digital Wallet Boom

Traditional banks in Nepal are forced to respond to the rapid development of the digital wallet market by choosing different strategies:

Competition: Developing and promoting our own mobile banking applications with advanced functionality, aiming to offer users a similar or superior level of convenience.¹⁰
Partnership: Integration with existing popular wallets, providing APIs (application programming interfaces) for third-party fintech companies. Examples of such partnerships include NIC Asia Bank’s collaboration with Khalti¹¹⁶and Wallyt (to enable payment acceptance via WeChat Pay and UnionPay QR)¹¹⁷, as well as Global IME Bank’s partnership with the International Finance Corporation (IFC) to develop digital banking and fintech.¹¹⁸
Creating your own ecosystems: Some banks are taking the path of creating their own payment gateways and ecosystems, such as Global IME Bank, which launched a global card-based payment gateway.¹¹⁹

The Role of QR Payments

QR codes have become a key element in the spread of digital payments in Nepal. Their simplicity and low cost of implementation for merchants have contributed to the rapid growth of the payment acceptance network.⁷Nepal Rastra Bank’s initiatives to standardize QR codes (e.g. Fonepay QR, Smart QR) and ensure their interoperability across national payment systems such as NCHL (Nepal Clearing House Ltd.) further encourage the expansion of this ecosystem.¹²⁰

The rapid growth of digital wallets and QR payments is not only changing consumer habits, but also creating a new competitive landscape. Banks that fail to actively integrate into this ecosystem through partnerships or offer their own competitive solutions risk losing a significant share of transaction business. More importantly, they may lose direct contact with the customer as digital wallets become the primary touchpoints for many daily financial transactions.¹⁰⁰This, in turn, limits banks’ ability to collect data on customer behavior and offer them other products and services (cross-selling).

The success of leading digital wallets like eSewa is largely due to their ability to address specific daily needs of Nepali consumers (e.g. convenient bill payment, mobile top-up) and their wide agent network that ensures accessibility even in the context of limited digital literacy.¹⁰⁶Banks should consider this “hybrid” approach when developing their own digital strategies, combining online tools with physical support.

Potential mergers between major players in the digital wallet market, such as the mooted merger of Khalti and IME Pay¹⁰¹, could lead to further market consolidation. This would create even more powerful competitors for traditional banks, with a combined user base comparable to or even larger than the audience of individual banking mobile apps, and greater resources to invest in technology and marketing. Such a scenario would require banks to respond even more quickly and innovatively.

Table 2: Leading Digital Wallet Providers in Nepal – User Base, Transaction Volumes and Key Services (Estimated 2024-2025)

Note: User numbers and transaction volumes are estimates based on available information and are subject to change. Fonepay operates as a payment network that aggregates QR payments from multiple providers, and is not a standalone wallet with its own user base in the same sense as eSewa or Khalti.

This table clearly shows the scale of the digital wallet market and the dominance of key players. It helps to understand the level of competition traditional banks face and to assess the extent to which the payment habits of the population are changing.

Neobanks: Emergence of a New Banking Model in Nepalese Realities

The concept of neobanks, or fully digital banks that operate without physical branches, is starting to gain attention in Nepal. While there are currently no licensed neobanks operating in the country, the prospects for their emergence and potential impact on the traditional banking sector are worth looking into.

Potential and Prospects of Neobanks in Nepal

Neobanks focus on providing financial services exclusively through digital channels such as mobile apps and websites.¹²Their target audience in Nepal could be:

Young, tech-savvy generation (Gen Z, Millennials): This demographic group, which makes up a significant portion of the population (13.6% of those aged 18-24 and 16.7% of those aged 25-34³), is more open to digital innovation and values convenience and speed.
Digital nomads and Nepalis working abroad: Remote access to banking services is important to them.
Population in remote and rural areas: Neobanks have the potential to provide access to financial services where opening traditional bank branches is not economically feasible, provided there is internet coverage.
Customers not covered by traditional banking services: In Nepal, about 18% of the population still does not have access to banking services.¹²

The range of services offered by neobanks typically includes current and savings accounts, issuance of debit and credit cards, money transfers and various types of payments.¹²In the Nepalese context, digital microcredit, insurance products and services related to receiving and managing remittances may also be promising areas.

The key advantages of neobanks include lower operating costs (due to the lack of physical branches), which potentially allows them to offer customers better rates or even free services, as well as greater convenience and speed of service.¹²They are also able to introduce innovative products and services more quickly.

Regulatory environment and position of Nepal Rastra Bank (NRB)

The Government of Nepal has expressed its intention to facilitate the establishment of a neobank, which has been reflected in the budget plan for the 2025/26 financial year.¹²References to the need to develop digital banking were also contained in previous budget documents (for 2022/23 and 2023/24 FY), but specific steps to license neobanks have not yet been taken.¹²

To fully launch neobanks in Nepal, Nepal Rastra Bank will need to develop a dedicated regulatory framework and clear licensing requirements. Existing directives on digital payments, cybersecurity, and customer data protection⁶⁶, can serve as a basis, but they need to be adapted to the specifics of the neo-banking model. Particular attention should be paid to electronic customer identification (e-KYC) procedures to prevent financial crimes and ensure compliance with AML/CFT standards.¹²

Traditional banks react

Currently, there is no direct competition from licensed neobanks in Nepal. However, traditional banks are not sitting idle and are actively developing their own digital platforms. Flagship mobile apps of leading banks, such as nBank by Nabil Bank¹¹², are increasingly approaching what neobanks offer in other markets in terms of functionality and convenience. This includes the ability to open an account remotely, online KYC, a wide range of payments and transfers, and obtaining certain types of loans.

Government announcement of plans to create a neobank¹²serves as an important signal for the entire banking sector in Nepal. Even if it takes some time for full-fledged independent neobanks to emerge, customer expectations for the quality and convenience of digital banking services will steadily increase, driven by this announcement and the overall development of fintech. Traditional banks, seeing such intentions from the government, will be forced to invest even more in their own digital channels and improve user experience.⁹⁴to keep up with potential new competitors and meet the growing demand for modern financial solutions.

The main challenge for neobanks in Nepal, if they emerge, will not be so much technological competition with already digitalizing traditional banks, but overcoming infrastructural and socio-cultural barriers. Low internet penetration in rural areas⁴and insufficient digital literacy of a significant part of the population³⁶may limit their customer base. Furthermore, in a culture that highly values personal connections and the trust built through physical interaction (the concept of “afno manche”⁹⁹), convincing people to fully trust their finances to a bank without a single physical branch will be a difficult task.⁹⁶

However, even if neobanks do not initially capture a significant market share, their emergence could have a positive impact on the entire sector, encouraging traditional banks to improve service quality, reduce fees, and further innovate.¹²This is the classic effect of a technological disruptor entering the market, forcing established players to reconsider their approaches.

AI Scoring and Other Fintech Innovations: Transforming Lending and Banking

Artificial intelligence (AI) and related machine learning (ML) technologies are opening up new horizons to transform banking services, especially in the areas of credit scoring, customer service, and risk management. In Nepal, these innovations are still in their early stages of implementation, but their potential to improve efficiency and accessibility of financial services is enormous.

Using AI to Assess Creditworthiness

Traditional credit scoring models that rely on formal credit history and official income often fail in countries like Nepal with a large informal economy and low banking penetration. AI scoring offers a solution to this problem by allowing the analysis of a much broader range of data, including so-called alternative data: social media activity, mobile usage, digital wallet transactions, online behavior data, and even psychometric tests.¹³

For Nepal, where a large portion of the population does not have a formal credit history, AI scoring could be a tool to expand access to credit to previously unreached segments such as small entrepreneurs, farmers, and the self-employed.¹⁴This, in turn, may help reduce the level of non-performing loans (NPL), which is a pressing issue for Nepalese banks.⁶²Some Nepalese banks and microfinance institutions have already started exploring or piloting AI solutions for risk assessment.¹³

However, there are significant challenges to the widespread adoption of AI scoring. A key issue is the availability and quality of data needed to train AI models. In the Nepalese context, collecting relevant and reliable digital data on potential borrowers is difficult. There are also issues related to the lack of a clear regulatory framework for the use of AI in lending, ethical issues (such as the risk of discrimination based on algorithmic biases), and the need to protect personal data.¹³

Using AI to Improve Customer Experience

In addition to lending, AI is used to improve customer service. One of the most common tools is AI-powered chatbots, which can process standard customer requests around the clock, provide information on products and services, and help navigate banking services.¹²⁴This reduces the workload of call center operators and branch employees, and increases the speed of response to customer requests.

Personalization of services is another important area. By analyzing data on customer transactions, preferences, and behavior, AI algorithms can help banks create customized offers of products, services, and financial advice.¹⁴For example, Nabil Bank makes a big deal about using AI and data analytics to personalize offers in its nBank app.¹¹²

Need for specialists

Implementing AI and other complex fintech solutions requires skilled human resources. Nepal is seeing a growing demand for Data Scientists, Data Analysts, Machine Learning Engineers, and Cybersecurity experts in the financial sector.¹²⁸However, the country faces a shortage of such specialists, exacerbated by the problem of “brain drain” – the outflow of talented young people abroad in search of better career opportunities.⁷²This highlights the need to develop a national education system and programs for retraining personnel in the field of modern information technologies.

The introduction of AI scoring could be a key tool for Nepalese banks to compete with more flexible digital wallets and potential neobanks, especially in the microcredit and SME finance segment. AI’s ability to quickly and objectively assess risks on small loan amounts using alternative data could give traditional banks the speed and efficiency advantage of fintechs, while allowing for better risk management.¹³

Successful application of AI in Nepal’s financial sector will depend directly on addressing two key challenges: the “data gap” and the “skills gap.” The lack of quality digital data on potential borrowers, especially in the informal economy, limits the ability to train accurate AI models.¹³At the same time, there is a shortage of local AI and data analytics specialists¹²⁹forces banks to either invest heavily in staff training or turn to expensive foreign solution providers, which carries risks associated with data security and dependence on external vendors.

Nepal Rastra Bank to launch regulatory sandbox (Digital Finance Innovation Hub) in March 2025¹is an important step to stimulate fintech innovation. However, the effectiveness of this initiative will be determined by the speed of decision-making by the regulator and its willingness to flexibly adapt the regulatory framework to rapidly changing technologies, especially in complex areas such as AI and blockchain. Delayed approval processes or excessive bureaucracy could negate the benefits of rapid fintech development.

Table 3: AI Implementation in Nepalese Banks – Key Use Cases, Benefits and Challenges

This table organizes information on AI applications, allowing a quick assessment of both the potential of this technology for the Nepalese banking sector and the barriers to its widespread adoption. This is important for understanding how AI can be a viable tool for adaptation and continued leadership.

Adaptation Strategies of Nepalese Banks: Path to Maintaining Leadership

In a rapidly changing financial landscape characterized by the rise of digital wallets, potential emergence of neobanks, and the active adoption of AI technologies, traditional Nepalese banks are forced to develop and implement comprehensive adaptation strategies. These strategies include digital transformation, rethinking the role of the branch network, innovation in customer service, partnerships with fintech companies, and overcoming internal cultural and bureaucratic barriers.

Digital transformation as a priority

Recognising the inevitability of change, Nepalese banks are increasingly investing in digitalisation. Key areas here are:

Modernization of IT infrastructure: Updating legacy systems, moving to more flexible and scalable platforms, including cloud solutions, to ensure rapid development and implementation of new digital products.¹³⁴
Development of mobile and online banking: The creation and improvement of multifunctional mobile applications and Internet banking is becoming a de facto standard. An example is the nBank application from Nabil Bank, positioned as a “super application” with a wide range of functions available even without logging in.¹¹²Global IME Bank is also actively developing digital services in partnership with IFC.¹¹⁸
Strengthening cybersecurity: As the volume of digital transactions grows and cyber threats become more sophisticated, banks are under increasing pressure to protect customer data and ensure transaction security.⁵²The NRB has issued relevant guidelines, such as the Cyber Resilience Guidelines 2023.¹⁴¹

Transformation of the branch network

Despite the rapid digitalization, physical branches continue to play an important role in Nepalese banking, especially in the context of financial inclusion and serving less digitally-savvy customers. Branch network transformation strategies include:

Network Optimization: Although the programme to ensure the presence of commercial banks in all 753 local governments has been completed⁵⁸, banks may reconsider the efficiency of existing branches, their location and format.
Implementation of “smart” branches: Equipping branches with self-service kiosks (as NIC Asia Bank does)¹⁴²), video banking zones, and automation of routine operations help reduce queues and free up staff for more complex consultations.¹⁴³
Development of omnichannel service: Ensuring a seamless and consistent customer experience across different channels of interaction – physical branches, mobile app, online banking, call center.

Innovations in customer service

Retaining and attracting customers in an increasingly competitive environment requires banks to constantly innovate in the service sector:

Improving Service Quality (CSAT): Simplifying banking procedures, reducing waiting times, training staff in empathy skills and effectively solving customer problems.³¹Research shows that Nepalese customers particularly value reliability, confidence and responsiveness from banks.⁷⁹
Personalization of offers: Using customer data analysis to create customized offers for products, services and interest rates.¹⁸²
Digital loyalty programs: Implementation of systems for accumulating points, cashback and other bonuses for using digital channels and banking products.¹⁸⁵
Using word of mouth marketing tools: Encouraging customers to share positive experiences through social media and recommendations, collaborating with local opinion leaders.¹⁹¹

Partnerships with fintech startups

Collaboration with fintech companies is becoming an important tool for Nepalese banks to accelerate innovation and expand the range of services offered:

Models of cooperation: This could be either joint development of new products or the use of ready-made white-label solutions from fintech providers, as well as direct investments in promising startups.
Examples: Global IME Bank partners with IFC to develop digital financial services and implement embedded finance models.¹¹⁸NIC Asia Bank collaborates with Khalti payment system to expand digital payment options for its customers¹¹⁶and with Wallyt to integrate Chinese payment systems WeChat Pay and UnionPay QR.¹¹⁷Nepal Rastra Bank also encourages such partnerships.¹²⁰Fintech partnerships enable banks to bring innovative solutions to market faster and gain access to new technologies and customer segments that might otherwise be unavailable through purely in-house development.¹⁹⁵

Overcoming cultural and bureaucratic barriers

Successful adaptation of Nepalese banks to the fintech era requires not only technological changes but also a profound transformation of the internal organizational culture. It is necessary:

Encouraging innovation and flexibility: Creating an environment where employees are not afraid to propose new ideas and experiment.
Reducing the influence of “afno manche” and hierarchy: Shifting towards data-driven decision making and meritocracy rather than personal connections or rigid hierarchies that can stifle innovation.⁹⁶
Simplification of internal procedures: Increasing the speed of response to market changes and customer needs through de-bureaucratization of processes.

Case studies of successful banks

Nabil Bank: Demonstrates commitment to digital transformation through the development of its nBank mobile app, which is positioned as a “super app”.¹¹⁴The bank is vocal about its use of AI and data analytics to personalize services and improve efficiency.¹¹²Nabil Bank has also received international recognition for its technological innovations, such as the Banker’s Technology Award 2025 for the Asia Pacific region.¹¹³
Global IME Bank: Combines a strategy of expanding its physical presence (the bank has branches in all 77 districts of Nepal) with active development of digital channels.¹¹⁸The partnership with IFC aims to improve digital financial services and introduce embedded finance models.¹¹⁸The launch of its own global card-based payment gateway also signals the bank’s commitment to strengthening its position in the digital space.¹¹⁹
NIC Asia Bank: Focuses on automation and self-service at physical points of presence, introducing self-service kiosks and IVR banking.⁵¹Actively collaborates with fintech companies such as Khalti and Wallyt to expand the range of payment instruments available to clients and integrate with international payment systems.¹¹⁶

Successful adaptation of Nepalese banks will require not just the introduction of individual technologies, but a profound transformation of the organizational culture. Traditional hierarchy and bureaucracy⁹⁶, as well as the cultural phenomenon of “afno manche”⁹⁹, can significantly hinder innovation and objective, data-driven decision making. What is needed is a culture that encourages experimentation, rapid decision making, and is focused on results rather than formal adherence to procedures.

Partnerships with fintech companies¹¹⁶are becoming less of an option and more of a necessity for Nepalese banks. Fintech startups tend to be more flexible and develop new products faster. Banks, with their complex and often cumbersome structures, find it difficult to compete in terms of innovation speed. Collaboration allows banks to use ready-made solutions or jointly create new ones, significantly reducing the time to market and gaining access to cutting-edge technologies.

In the foreseeable future, the most profitable strategy for Nepalese banks is likely to be the “phygital” model – a combination of physical presence and digital channels. On the one hand, this is driven by the desire to ensure financial inclusion for all segments of the population, including those living in remote areas or with low levels of digital literacy.⁸On the other hand, this is in line with the cultural characteristics of Nepal, where personal communication and the trust built on it are still highly valued.⁹⁶In this model, branches are transformed from transaction centers into consulting hubs.¹⁴³, where clients can receive complex financial advice and help in mastering digital services, while routine operations are completely transferred online.

Table 4: Comparative Analysis of Leading Nepalese Banks’ Fintech Adaptation Strategies

This table provides a visual comparison of how market leaders are responding to fintech threats and opportunities. It highlights best practices and common trends in adaptation strategies, which will be useful for other banks and for understanding the overall direction of the sector.

Challenges and Opportunities on the Path to a Digital Future

Despite the rapid development of fintech and the efforts of banks to adapt, Nepal’s financial sector faces a number of significant challenges on its way to a fully digital future. At the same time, these challenges also create new opportunities for growth and innovation.

Regulatory aspects

Nepal Rastra Bank (NRB) plays a key role in shaping the country’s fintech landscape. On one hand, NRB encourages innovation through licensing of payment system operators (PSOs) and payment service providers (PSPs)⁵, development of guidelines on digital payments and security⁶⁶, as well as the launch in March 2025 of a regulatory sandbox – the Digital Finance Innovation Hub.¹This platform is designed to test innovative fintech solutions in a controlled environment before they are launched to the market.

On the other hand, the regulator needs to constantly adapt legislation to rapidly developing technologies such as AI, blockchain and neobanking, finding a balance between supporting innovation and ensuring financial stability and consumer protection.¹²Nepal’s placement on the FATF grey list also imposes additional obligations to strengthen anti-money laundering (AML) and counter-terrorism financing (CFT) measures, requiring banks and fintechs to implement more sophisticated compliance procedures and technologies.¹²⁷This, in turn, could become an incentive for the development of RegTech solutions in the country.

Cybersecurity

As the volume of digital transactions increases, the risks of cyber threats inevitably increase. Nepal has already faced incidents such as the NEPS payment system attacks, Foodmandu and Vianet data breaches, and the NIC Asia Bank attack using the SWIFT system.¹³⁷Phishing, DDoS attacks and other forms of cyber fraud are a constant threat.¹³⁵In 2023, more than 1,500 government websites were recorded to have been subjected to DDoS attacks.¹³⁹

Banks and fintechs need to continually invest in modern security systems, conduct regular security audits, train staff, and raise customer awareness of cyber hygiene. The NRB, for its part, has released Cyber Resilience Guidelines 2023 for financial institutions.¹⁴¹

Personnel issue

One of the most pressing challenges in the digital transformation journey is the shortage of skilled labor. Nepal is facing a shortage of specialists in fintech, data analytics, artificial intelligence, and cybersecurity.¹²⁸This problem is exacerbated by the “brain drain” – the mass exodus of talented young people abroad in search of better career opportunities and working conditions.⁷²Every year, more than half a million Nepalese leave the country in search of work.⁷⁵

Addressing this issue requires a comprehensive approach, including reforming the national education system with a focus on IT specialties, creating retraining and advanced training programs, and improving working conditions and career prospects within the country to retain talent. The shortage of local talent may lead to increased dependence of Nepalese banks on foreign fintech solution providers, which poses both risks (increased costs, data security, dependence on external vendors) and opportunities (access to advanced global technologies).

Infrastructure and social restrictions

Uneven infrastructure development and social factors also hinder the pace of digitalization:

Internet access: Despite growth, internet penetration in Nepal remains at 55.8% (January 2025)³, with a significant gap between urban and rural areas. About 63% of the population lives in rural areas.²⁰¹
Digital Literacy: Low levels of digital literacy, especially among rural populations and older age groups, are a major barrier to the uptake of digital financial services.³⁶By some estimates, digital literacy in Nepal is virtually non-existent, despite more than 80-90% of the population having access to the internet.⁸
Access cost: The cost of smartphones and internet tariffs can be prohibitive for some of the population, limiting their access to digital services.

The influence of global trends

Nepal’s financial sector is not isolated from global economic and technological processes:

Macroeconomic uncertainty: The IMF, World Bank and OECD forecasts for 2025-2026 point to a slowdown in global economic growth, persistent inflation risks and geopolitical tensions.²⁰³These factors may impact remittance volumes, fintech investments, and overall economic activity in Nepal.
Technological innovations: Global trends in AI, cloud computing, cybersecurity and other fintech areas will determine the available solutions and industry standards for Nepalese banks.²¹⁹

Government initiatives such as the Digital Nepal Framework4, and support from NRB1are key factors for the success of digital transformation. However, their effectiveness will depend on the level of coordination between different agencies and consistency in policy implementation, which is a challenge in the context of frequent government changes and political instability in Nepal.²⁰

Conclusion: Fintech in Nepal – Evolutionary Path with Elements of Tsunami. Forecast and Recommendations.

An analysis of the current situation in Nepal’s banking sector and the dynamics of fintech innovation implementation suggests that the country is on the path of evolutionary transformations with obvious elements of “tsunami” in certain segments, particularly in payments. It’s not a full-blown storm that’s sweeping everything in its path, but it’s not a slow, subtle movement either. Rather, it’s a series of powerful waves that have already transformed the payments landscape and are beginning to have an increasingly visible impact on other aspects of banking, including lending and customer service.

Digital wallets and QR payments have already created a real revolution, changing the daily habits of millions of Nepalese and forcing traditional banks to actively seek their place in the new ecosystem – whether through competition with their own products or through partnerships. The speed of their spread and adoption by the population is truly reminiscent of a “tsunami”.

Neobanks remain more of a prospect than a reality for now, but the government’s announced support for their creation¹²is a clear signal of the changes to come. Their appearance, even on a limited scale, can accelerate the evolution of traditional banks towards greater digitalization and customer focus.

AI scoring and other advanced fintech solutions (blockchain, open banking) are being implemented more gradually, in an evolutionary way. Here, the main constraints are not only technological complexity and cost, but also regulatory issues, problems with the quality and availability of data, and a shortage of qualified personnel.¹²⁹

Short-term and long-term forecasts:

Short term (1-3 years):

Further growth in popularity of digital wallets and QR payments, increased competition between existing players and banks.
The emergence of the first pilot projects of neobanks or neobank services based on traditional banks.
Active testing and limited implementation of AI technologies by banks, primarily for the automation of customer service (chatbots) and improvement of risk assessment processes.
Increased attention from the regulator to issues of cybersecurity and data protection.

Long term (3-7 years):

Formation of a more mature fintech market with clear regulation and standards.
The possible emergence of full-fledged neobanks that successfully compete with traditional players in certain niches.
Wider use of AI scoring, which will lead to increased availability of loans for previously unreached segments of the population and SMEs.
Transformation of bank branch networks into consulting centers with a high degree of automation of routine operations.
Blurring the lines between traditional banks and fintech companies through partnerships, mergers and acquisitions.

Key recommendations:

For Nepalese banks:

Accelerate digital transformation: Not just implementing individual technologies, but rebuilding business processes and organizational culture with a focus on digital channels and customer focus. This includes investing in modern IT infrastructure, developing convenient and functional mobile applications, and ensuring a high level of cybersecurity.⁹⁴
Develop a flexible “phygital” strategy: Combine the development of digital channels with the modernization of the branch network, turning branches into centers of consultation and customer support, especially for complex products and digital skills training.⁵⁸
Invest in AI and data analytics: Start with pilot projects on AI scoring, implementing chatbots and personalizing offers. At the same time, solve data quality problems and train specialists.¹³
Actively develop partnerships with fintech: Don’t view fintech companies solely as competitors, but look for opportunities for mutually beneficial cooperation, joint product development, and entry into new markets.¹¹⁶
Overcome internal barriers: Fight bureaucracy, encourage innovation from below, move towards data-driven decision making, minimizing the impact of informal connections (“afno manche”) on key business processes.⁹⁶
Focus on customer experience (CX): Continuously collect feedback, improve customer service (CSAT), simplify procedures and offer real value to customers.¹⁵¹Remember that trust and personal relationships play an important role in Nepalese culture.⁹⁶

For regulators (Nepal Rastra Bank):

Continue to support innovation: Actively use the regulatory sandbox to test new fintech solutions and quickly adapt the regulatory framework.¹
Develop clear rules for neobanks and AI technologies: Ensure transparency of requirements and predictability of the regulatory environment to attract investment and stimulate healthy competition.¹²
Prioritize cybersecurity: Develop and update security standards, facilitate the exchange of information on threats between market participants, and raise public awareness.⁶
To promote digital and financial literacy among the population: In collaboration with banks, educational institutions and NGOs, implement training programmes, especially in rural areas and among vulnerable groups.³⁶
Stimulate infrastructure development: Support initiatives to expand access to reliable and affordable internet across the country.

For other market participants (fintech startups, educational institutions):

Fintech startup: Focus on solving real problems of Nepalese consumers and businesses, offering simple and affordable solutions, actively seeking partnerships with traditional banks.
For educational institutions: Develop and implement modern educational programs to train specialists in the field of fintech, data analysis, AI and cybersecurity, collaborate with the industry to ensure practical orientation of training.¹²⁸

Fintech transformation in Nepal is a complex but irreversible process. Success in this journey will depend on the concerted efforts of all market participants – banks, fintech companies, regulators and the society itself. Those who can demonstrate flexibility, readiness for innovation and deep understanding of customer needs will undoubtedly maintain and strengthen their leadership positions in the new digital era of the Nepalese financial sector.

Sources used