Nepal’s Banking Sector at Inflection Point

How Digitisation Is Rewiring Finance, And Everyday Life

Nepal’s banking landscape is undergoing a remarkable transformation, compressing nearly a decade of structural change into just a few years. As of mid-July 2024, the country had 107 licensed banks and financial institutions (20 commercial banks, 17 development banks, 17 finance companies, 52 microfinance institutions and one infrastructure bank). Commercial banks alone still hold over 83% of industry assets, underscoring their dominance and the scale of consolidation that has already taken place. This shift has positioned the sector to invest significantly in digital infrastructure, modernise customer experiences and embrace automation across the board.

A crucial enabler of this transition has been the establishment of a robust public-private payments architecture overseen by the central bank. Under the Nepal Rastra Bank (NRB)-led reforms, the Payment and Settlement Act 2019 and subsequent digital-payment bylaws (2020, 2023) laid the regulatory groundwork. Meanwhile, Nepal Clearing House Ltd (NCHL) built the National Payment Switch (NPS) platform, integrating the Real-Time Retail Payment Switch (RPS), NEPALPAY QR system and API-based settlement flows to keep domestic transactions onshore. Through these mechanisms, all major payments ultimately clear via NRB’s Real-Time Gross Settlement system, enabling faster, more secure and interoperable transfers across banks and payment service providers.

The user-adoption story in Nepal is impressive and even somewhat surprising given the terrain and demographics. By mid-July 2024, mobile banking usage had reached 24.65 million users, internet banking counted 1.92 million users, and e-wallet usage was at 23.46 million users. The connectIPS system alone had reached 1.28 million verified users and in Fiscal Year 2023/24, its volume rose 40% in the number of transactions and 38% in value year-on-year. These figures reflect that Nepalis are going beyond mere enrolment; they are actively using these digital tools in their daily lives, converting once-infrequent digital payments into habitual behaviour.

One of the most tangible signs of the digital pivot lies in QR code payments. The introduction of the NepalQR standard by NRB catalysed a surge in usage: transaction value jumped from Rs 94.5 billion in FY 2021/22 to Rs 245 billion in FY 2022/23, with continued growth into FY 2023/24 as more merchants and banks adopted the codes. In March 2025, one payment service provider processed more than one million merchant QR payments in a single day. This upward momentum underscores a shift in consumer behaviour and merchant acceptance that make digital payments less a novelty and more a rhythm of everyday commerce.

Digitisation is not limited to domestic payments. Nepal is now actively participating in regional interconnected payment ecosystems. Since February 28, 2024, Indian visitors can use UPI-enabled apps in India to pay Nepali merchants by scanning Fonepay QR codes in Nepal. Within the first five months, cross-border QR payments tallied 134,701 transactions worth Rs 321 million. NRB has moreover authorised NCHL to develop cross-border P2P payments with India via the National Payment Interface, a move that supports remittance flows, small-value trade and travel-related payments, thereby strengthening Nepal’s integration into the regional digital economy.

From the service-provider side, banks have reengineered the entire customer journey rather than merely adding a mobile channel. Today, Nepali customers can open an account digitally, link a mobile wallet, make instant fund transfers, pay utilities, scan QR codes at merchants, withdraw cash without a card and redeem loyalty points, all from a single app. On the back end, NPS infrastructure has compressed settlement cycles, reduced overhead costs and made ‘always-on’ retail banking a baseline expectation rather than an aspirational feature. Transaction dashboards show steep month-on-month growth in NEPALPAY QR, instant payments and connectIPS flows throughout late-2024.

The convenience dividend from digitisation is clear for everyday users and businesses alike. The popular ‘2-4-8’ pricing model for connectIPS where users pay Rs 2, Rs 4 or Rs 8 depending on the transfer amount has made bank-to-bank digital transfers cheaper than traditional cheque clearing or cash handling. Government collections routed through NCHL have significantly reduced queues and payment friction. For small merchants, interoperable QR means no POS rental fees, instant settlement to any bank or wallet and immediate digital receipts for business flows. In effect, time saved at counters is time recovered in sales, customer engagement or personal life.

On a broader economic level, the move to digital banking reinforces financial inclusion, improves transparency and enhances regulatory oversight. As of mid-July 2024, Nepal had 12,958 BFI branches and 55.9 million deposit accounts, but the transformative impact is coming from branchless banking, agents and mobile wallets reaching into underserved communities. With commercial banks still intermediating over 86 % of deposits, shifting payments onto traceable electronic rails reduces exposure to the cash-based shadow economy, strengthens Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) compliance and gives regulators clearer visibility into flows, vital in a remittance-dependent economy such as Nepal’s.

Despite the progress, challenges remain and cannot be overlooked. Outages, inconsistent user-interfaces and growing attempts at QR-based fraud and social-engineering scams are testing consumer confidence. NRB has stepped up by issuing stricter authentication regulations, consumer advisories and reminding users of safe behaviour with the slogan: “You scan to pay; you don’t scan to receive.” In addition, rural connectivity, digital literacy gaps and the need for strong agent networks continue to pose hurdles for truly inclusive digital adoption across Nepal’s mountainous and remote regions.

Looking ahead, three strategic shifts will define the next chapter of Nepal’s banking sector. First, full activation of the National Payment Switch for all domestic electronic transactions promises stronger resilience and lower dependence on external payment processors. Second, reciprocal payment acceptance in India for Nepali users via UPI would transform cross-border tourism, trade and remittances, making payments seamless across the border. Third, the massive data trails produced by instant and digital payments offer banks and fintechs the opportunity to underwrite digital credit, working-capital finance and micro-loans based on transactional behaviour. In this way, Nepal is not just digitising banking, it is building a connected financial ecosystem where instant, interoperable, cost-effective transactions become the bedrock of credit, commerce and livelihoods for millions.