We are excited to bring you highlights from a recent insightful podcast featuring a seasoned expert with extensive experience across banking, education, and FinTech. The conversation delved deep into Nepal’s FinTech journey, current landscape, and future possibilities, offering a unique perspective from someone who has worked with bankers, regulators, and the FinTech community.
Nepal’s FinTech Journey: From Automation to Digital Transformation Nepal’s banking sector has a strong foundation, with early adoption of automation and digital transformation dating back to the 1990s, even surpassing many Indian banks in adopting Core Banking Solutions (CBS). The expert, who started his banking career at Greenlays Bank 33 years ago, noted that it was automated from day one, even having email access before commercial internet was widely available.
However, there was a period around 2010 where the industry mistakenly believed that CBS was a digital transformation, which was a “wrong calculation”. Fortunately, innovative Nepali FinTech companies like Fonepay, F1Soft, Khalti, and IME Pay have since paved the way for the digital FinTech journey, particularly in payments, by providing essential backend solutions and connectivity.
The Vision for a “New Mount Everest”: Exporting FinTech Expertise A central theme of the discussion was Nepal’s ambition to build a “new Mount Everest” in the digital realm. This isn’t just about scaling existing peaks, but defining new heights by exporting IT services and products globally. The current base camp for this new “Sagarmatha” is already at $515 million in IT service and product exports, with FinTech contributing around $15 million. Informally, this figure is estimated to be at least double, potentially around $1.5 billion from two years ago.
Nepali FinTech companies are already making strides internationally:
• A Nepali FinTech company is powering transport payments in Tanzania.
• Nepali FinTechs are powering major bank payments and voice authentication in Bangladesh.
• They are also expanding into other African and Southeast Asian markets.
This global expansion is possible because digital solutions are “borderless” and “credential-based,” not requiring traditional export documentation. The expert highlighted the availability of skilled Nepali tech talent across the country, who are “building for the world, not for Nepal,” and speak the “same language” as global tech talent. This talent pool is proficient in key programming languages such as C++, Python, JavaScript (JS), Go (GoLang) etc.
Addressing the “Credit Light” Economy with Digital Public Infrastructure (DPI) While Nepal has achieved significant success in making payments “transaction-heavy,” the financial ecosystem remains “credit-light,” meaning it hasn’t effectively solved real economic problems for sectors like agriculture, MSMEs, and individuals seeking financial inclusion.
To facilitate a “leapfrog” to a mature financial ecosystem, Nepal needs to focus on Digital Public Infrastructure (DPI), which is the modern equivalent of traditional public infrastructure like roads and electricity. The three main pillars of DPI are:
1. Digital ID (KYC): A robust national digital identity system, possibly enhanced with blockchain technology for powerful applications.
2. Interoperable Payment Rail: A seamless payment rail that ensures connectivity and efficiency.
3. Data Exchange Platform: A unified, interoperable platform for integrated data, allowing data sharing based on individual consent while ensuring privacy and security. This would address the current issue of data residing in “silos” across various government and private entities.
DPI would empower digital lending, especially for “sachet-size” loans (small ticket sizes) by enabling credit scoring through alternate data sources (e.g., utility bills, mobile recharge history, digital payment history, behavioral data) for individuals without traditional credit histories. The expert emphasized that this is a “statistical model” and “predictive analysis” achievable with AI and Machine Learning, not “rocket science”.
The Role of Regulators: Catalysts, Not Barriers Regulators play a vital role in the evolution of FinTech. While global practice often sees regulation follow technological trends, Nepal Rastra Bank (NRB) has been proactively promoting digital payments, with a former governor even personally promoting QR codes.
The challenge lies in balancing over-regulation, which can stifle innovation, with under-regulation, which can risk financial stability. The expert suggests a balanced, “midway” approach, citing the regulatory sandbox as a classical example. The NRB has already released a sandbox paper, indicating a promising path forward.
However, both banks and regulators need to invest in tech talent, such as data scientists and software engineers, to bridge the current knowledge and capacity gap.
CBDC and Global Models Regarding Central Bank Digital Currency (CBDC), the expert believes the NRB is actively studying it, with a timeline for wholesale piloting by 2026. While the retail use case for CBDC might be limited in Nepal given the existing robust digital payment systems, wholesale use (B2B, G2P) could be beneficial for tracking and transparency. The discussion also touched upon the US legislation on stablecoins, emphasizing that they are backed by fiat currency reserves to ensure redeemability and efficiency in payment systems. For Nepal, the expert noted that cross-border CBDC use cases are currently limited due to Nepal’s non-convertible currency.
For inspiration, Nepal can look at collaborative models like India’s UPI and Kenya’s M-Pesa. M-Pesa, initially developed 22 years ago for feature phones, provided digital money movement and even pushed digital lending based on transaction history, demonstrating its roots in financial inclusion. Similarly, UPI acts as a powerful “economic enabler” by creating an ecosystem where FinTech companies build various engines on top of it.
Financial Inclusion: Hype vs. Reality The expert asserts that FinTech’s role in financial inclusion is not overhyped. Historically, FinTech solutions like M-Pesa were developed to serve the poor who faced risks carrying cash. While adoption in Nepal has been more “top-down” (glamorized in urban settings), in countries like Kenya and India (post-demonetization), it was “bottom-up,” driven by necessity among the masses.
To truly foster inclusion, Nepal needs a “physigital” approach—a mix of physical and digital. If individuals can use smartphones for social media, they can also use banking apps. However, some segments may still require agent networks, indicating a need for a hybrid model. The shift towards digital payments also implies a potential “scale down” or “realignment” of physical bank branches, as their primary footfall for retail payments is moving out of the branches.
The Road Ahead: Frontier Technologies and Capital For the “next big leap,” Nepal needs to embrace frontier technologies. This includes AI-driven underwriting for credit, blockchain for remittances, and embedded finance, especially for SMEs and MSMEs. The expert stressed that banks must embrace a “tech-led banking” approach as there’s no other scalable model.
The high cost of IT infrastructure and compliance makes Open Banking and “Banking-as-a-Service” (BaaS) models increasingly relevant, where banks provide services on a “per-use” basis. The long-term viability of current banking models might be questioned, with the possibility of a shift towards decentralized finance (DeFi) in the future.
To fund this transformation and scale globally, Nepal needs foreign capital. While recent policies allow limited foreign direct investment (FDI) in payment service operators, it’s “not enough” to create significant excitement. The recent high valuation of PhonePe in Nepal is a positive signal for investors, demonstrating that promoters can “cash out,” which is crucial for startups.
Advocacy and Leadership Platforms like Kathmandu FinTech play a crucial role in building the FinTech ecosystem by bringing together investors, industry players, solution providers, and demand sides. These forums foster awareness, knowledge exchange, and networking, inspiring new innovations. The expert is personally driven by a desire to “connect the dots” and celebrate the success stories of Nepali FinTech companies and their young, innovative teams, such as Khalti and Fonepay. These pioneers and new companies are his “inspiration”.
Quickfire Insights from the Expert:
• UPI in Nepal: Nepal is capable of building its own UPI equivalent, so it’s not strictly necessary to adopt India’s. NCHL and ConnetIPS is moving towards the similar direction.
• CBDC in 5 Years: Possible for wholesale use, but retail use cases still need to be clearly defined.
• First Nepali FinTech Unicorn by 2030: Unlikely, perhaps too early. 2040 is more plausible for a billion-dollar valuation.
• Biggest FinTech Hype Today: Could be Blockchain, though its use cases haven’t fully materialized yet.
• FinTech Hero in Nepal: Driven by homegrown innovation, with pioneers like Hello Paisa and early bank support.
The future of FinTech in Nepal looks promising, with a clear path towards becoming a global FinTech hub, provided there’s continued investment in talent, strategic policy decisions, and a commitment to innovation
