Nepal’s Digital Payment Boom Exposes a Growing Regulatory Gap

Nepal's digital payment industry expanded at one of its fastest rates on record in fiscal year 2024/25, with QR transactions approaching NPR 1 trillion, mobile banking processing more than NPR 5 trillion and digital wallets handling over NPR 500 billion. The latest figures illustrate the accelerating shift towards digital payment channels as consumers and businesses increasingly use mobile based financial services for everyday transactions.

But the rapid expansion has also exposed growing weaknesses within the country's digital payment ecosystem. Nepal Rastra Bank's latest Payment Systems Oversight Report identified significant numbers of unverified wallet customers, cases where electronic money exceeded funds maintained in settlement accounts, weak cybersecurity controls, governance lapses and deficiencies in regulatory reporting among payment service providers.

The report shows that QR based payments reached 325.97 million transactions worth NPR 958.38 billion during FY 2024/25, up 92.5 percent in volume and 91.8 percent in value from a year earlier. Mobile banking processed 614.13 million transactions worth NPR 5.02 trillion, while digital wallets recorded 400.93 million transactions valued at NPR 506.31 billion. Faster payment systems, including connectIPS and interbank fund transfers, handled 172.67 million transactions worth NPR 5.24 trillion. Together, the figures highlight the growing scale of Nepal's digital payment ecosystem, with QR payments approaching NPR 1 trillion, mobile banking exceeding NPR 5 trillion, digital wallets processing more than NPR 500 billion and faster payment systems handling over NPR 5.2 trillion during the fiscal year.

The figures indicate that transaction growth is substantially outpacing growth in registered users, suggesting that existing customers are using digital payment platforms more frequently and for larger value transactions rather than growth being driven solely by new registrations.

Mobile banking users increased to 27.74 million by mid July 2025 from 24.65 million a year earlier, while wallet users rose from 23.46 million to 26.77 million and internet banking users reached 2.22 million. Over the same period, the value of wallet transactions surged 67.3 percent, nearly five times faster than the 14.1 percent increase in registered wallet users, pointing to deeper adoption among existing customers rather than growth driven solely by new registrations. However, registered accounts do not necessarily represent unique or active users, as individuals may maintain accounts with multiple payment service providers.

QR begins to displace cards and cash

The latest figures also point to a change in the way Nepalis make everyday payments.

While QR, mobile banking and wallet activity rose sharply, debit card transaction volume declined marginally by 0.06 percent. ATM cash withdrawals also fell 0.47 percent to 129.92 million transactions, although the total amount withdrawn increased 2.9 percent to NPR 1.09 trillion.

Debit card transactions stood at 139.73 million, less than half the number of QR transactions. Point of sale transactions increased only 3 percent, far below the growth recorded by mobile based payment channels.

The number of debit cards in circulation continued to increase, reaching 13.67 million by mid July 2025. But NRB observed that the rise of QR payments, interbank transfers and cardless cash withdrawals has reduced the need to use physical cards for routine payments.

Cheque use has also remained below its earlier peak. About 14.89 million cheques were presented in FY 2024/25, compared with 16.73 million in FY 2021/22. However, cheque activity rose 2.5 percent in the latest fiscal year after declining during the previous two years.

Cross border payments gain momentum

Nepal’s digital payment network is also becoming increasingly connected with international systems.

Nearly 994,000 cross border QR transactions worth NPR 2.87 billion were recorded during FY 2024/25. Indian users accounted for almost the entire amount, making 981,654 payments worth NPR 2.69 billion through the Unified Payments Interface.

Alipay and Alipay Plus users conducted 6,102 transactions worth NPR 89.88 million, while WeChat users made 5,701 payments worth NPR 84.53 million. UnionPay recorded 125 transactions worth NPR 1.01 million.

Indian tourists can now use QR codes to make payments at about 1.7 million merchants in Nepal. NRB has also approved arrangements allowing customers of Nepali banks to scan Indian UPI codes for merchant payments in India.

A payment system operator has been authorised to develop cross border person to person transfers by connecting Nepal’s National Payment Interface with India’s UPI network. The service remained in a closed testing phase during the reporting period.

Another major infrastructure development was the launch of the National Card Switch and the NEPALPAY domestic card scheme on March 31, 2025.

NRB plans to route and settle a larger share of domestic electronic payments through the National Payment Switch, which also includes the Retail Payment Switch and a separate platform for cross border payment integration.

The central bank says the shared infrastructure should improve interoperability, reduce duplication of investment and lower the cost of payment services.

Unverified customers found in wallet systems

Despite the rapid growth, NRB inspections found significant weaknesses among licensed payment service providers and payment system operators.

One of the most serious findings was the presence of a significant number of customers whose Know Your Customer details had not been verified.

The report does not disclose the number of unverified accounts, the institutions involved or the value of transactions conducted through those accounts. It also does not clarify whether the accounts were active, restricted or connected with suspicious transactions.

The lack of disclosure makes it difficult to determine how many of Nepal's 26.77 million registered wallet accounts belong to verified and active users.

Customer verification is particularly important as digital wallets allow instant transfers, merchant payments and transfers between wallets and bank accounts.

NRB has warned that the speed, reach and interconnected nature of digital payments have increased exposure to money laundering, terrorism financing and other financial crimes. The report says digital payment platforms were misused in activities connected with gold smuggling and money laundering during the fiscal year.

The central bank has called on payment companies to strengthen remote customer onboarding and transaction monitoring systems.

Customer funds potentially exposed

NRB also found cases in which payment providers issued e money balances exceeding the corresponding balances maintained in settlement accounts.

Under the settlement model, money held by customers in wallets should be backed by equivalent funds maintained by the payment provider in a designated bank account. Any mismatch between customer balances and settlement funds could expose customers if a provider experiences liquidity stress or fails to meet withdrawal and settlement obligations.

Inspectors also found that some providers had used settlement accounts for activities other than wallet transactions and settlements. The report does not identify the companies involved or disclose the size or duration of the mismatch.

The findings point to weaknesses in the safeguarding of customer money at a time when wallet transaction value has crossed NPR 500 billion a year.

Basic cyber controls missing

Cybersecurity and operational resilience were another major area of concern.

NRB found instances where antivirus software had not been renewed, exposing systems to cyber risks. Some payment companies had not conducted vulnerability assessments or penetration testing of their wallet systems.

Several institutions lacked disaster recovery plans or had failed to conduct recovery drills in their production environments. Inspectors also found wallet sessions that did not expire after a defined period, increasing the risk of unauthorised access.

These weaknesses come as payment companies handle increasing volumes of financial and personal data.

NRB identified cyberattacks, data breaches, malware, fraud and system outages as major risks to Nepal’s payment ecosystem. It warned that prolonged service disruptions could cause financial losses, damage institutional reputations and weaken public confidence in digital payments.

Governance and financial weaknesses

The inspection report also found serious governance and internal control failures. In one case, a compliance officer had been given Super Admin privileges and had transferred money from a settlement account into wallets. NRB described the arrangement as a serious governance and control lapse.

Other problems included failure by boards to review internal control and risk management policies, failure to appoint chief executives within the required period and failure to carry out twice yearly system audits. Some institutions lacked adequate physical and operational infrastructure.

Off-site supervision uncovered further concerns about the financial health and transparency of some providers.

NRB found delayed external audits, failure to appoint anti money laundering compliance officers, rising unpaid liabilities, related party transactions and accumulated negative reserves that raised concerns about business continuity.

Four payment companies were not granted approval to publish their financial statements for the fiscal year. The report does not state the specific reasons for withholding approval from each company.

NRB conducted off site supervision of 24 licensed institutions and on-site inspections of 16 institutions during the year. It also carried out a special inspection of one institution and examined the Real Time Gross Settlement systems of six banks and financial institutions.

Licences cancelled and firms warned

The central bank took regulatory action against several payment companies during the fiscal year.

Prabhu Technology, Khalti, Icash and Fintech were issued warnings. NRB did not renew the licence of Nepal Paytime and dismissed the licences of Paywell Nepal and Sajilo Pay Payment Services.

However, the report does not link individual enforcement actions with the inspection findings, making it difficult to determine which institutions were responsible for specific violations.

The lack of company level disclosure limits the ability of customers and merchants to assess the operational and financial condition of the payment providers they use.

Regulation enters a new phase

NRB has begun developing new mechanisms to oversee the increasingly complex financial technology market.

During the year, the central bank institutionalised the Digital Finance Innovation Hub, which offers nonbinding guidance to companies developing digital financial products. It also continued preparations for a regulatory sandbox that would permit controlled testing of new products under regulatory oversight.

NRB has started implementing a Fintech Strategy for Digital Financial Services and introduced a framework for identifying systemically important payment systems. Operators classified as systemically important will face enhanced supervision because their size, complexity or connections could pose risks to financial stability.

The central bank has also expanded reporting requirements to collect more detailed information on payment services, geographical coverage, merchant transactions, transaction volumes and values.

These steps show that Nepal’s payment industry is moving from an early expansion phase into a period in which regulators must pay closer attention to systemic risk, consumer protection and the financial soundness of service providers.

Nepal's digital payment infrastructure is becoming larger, faster and more interconnected each year. The challenge for regulators is to ensure that customer verification, cybersecurity, governance and financial safeguards keep pace with that growth, so confidence in digital payments is strengthened as the country moves towards a less cash dependent economy.

 

Nepal's Digital Payment Growth in FY 2024/25

Payment Channel	FY 2023/24 Transactions	FY 2024/25 Transactions	Growth (%)	FY 2023/24 Value (NPR Billion)	FY 2024/25 Value (NPR Billion)	Growth (%)
QR Based Payments	169.35 million	325.97 million	92.5	499.79	958.38	91.8
Mobile Banking	424.05 million	614.13 million	44.8	3,478.67	5,018.33	44.3
Wallet	294.54 million	400.93 million	36.1	302.69	506.31	67.3
Faster Payment Systems	128.24 million	172.67 million	34.6	3,920.91	5,241.70	33.7
Internet Banking	3.51 million	4.96 million	41.2	169.74	233.80	37.7
E Commerce	1.47 million	2.06 million	39.9	8.82	13.53	53.5
Prepaid Cards	1.15 million	1.61 million	40.7	7.54	12.56	66.5
Credit Cards	3.24 million	3.32 million	2.2	21.73	24.01	10.5
Point of Sale (POS)	12.17 million	12.54 million	3.0	64.16	70.81	10.4
Debit Cards	139.82 million	139.73 million	(0.06)	1,100.40	1,137.67	3.4
ATM Cash Withdrawals	130.54 million	129.92 million	(0.47)	1,057.85	1,088.71	2.9

 Digital Payment Users and Access

Indicator	Mid July 2021	Mid July 2022	Mid July 2023	Mid July 2024	Mid July 2025
Wallet Users	8.89 million	13.68 million	18.94 million	23.46 million	26.77 million
connectIPS Users	534,615	896,341	1.11 million	1.28 million	1.44 million
Mobile Banking Users	14.19 million	18.31 million	21.36 million	24.65 million	27.74 million
Internet Banking Users	1.16 million	1.68 million	1.86 million	1.92 million	2.22 million
PSP Agents	9,279	12,685	14,123	17,563	427,787
IPS Members	103	111	115	132	139
ECC Members	60	59	53	54	54

 Cross Border QR Payments in FY 2024/25

Payment Network	Transactions	Transaction Value (NPR Million)	Share of Total Value
Indian UPI	981,654	2,693.38	93.9%
Alipay & Alipay Plus	6,102	89.88	3.1%
WeChat	5,701	84.53	2.9%
UnionPay	125	1.01	0.04%
Total	993,582	2,868.8	100%

 Payment Card Issuance Trend

Year	Debit Cards	Growth (%)	Credit Cards	Growth (%)	Prepaid Cards	Growth (%)
2018	5.54 million	—	105,000	—	97,000	—
2019	6.71 million	21.0	123,000	17.1	67,000	(30.9)
2020	7.33 million	9.2	160,000	30.1	64,000	(4.5)
2021	8.84 million	20.6	192,000	20.0	68,000	6.3
2022	10.86 million	22.8	239,000	24.5	109,000	60.3
2023	12.25 million	12.8	284,000	18.8	140,000	28.4
2024	12.89 million	5.3	289,000	1.9	181,000	30.0
2025	13.67 million	6.0	318,000	10.1	251,000	38.0

 Major Problems Found During NRB Inspections

Area	Inspection Finding
Customer Verification	Significant number of KYC unverified customers
Settlement Protection	E money exceeded funds held in settlement accounts
Settlement Governance	Settlement accounts used for non-settlement purposes
Cybersecurity	Antivirus software not renewed
System Security	Vulnerability assessment not conducted
Disaster Recovery	No disaster recovery plan or drills
Access Control	Wallet sessions did not expire
Governance	Compliance officer had Super Admin access and transferred funds
Audit	Mandatory system audits not conducted
Regulatory Reporting	Daily and monthly reports not submitted

NRB Enforcement Actions in FY 2024/25

Payment Service Provider	Regulatory Action
Prabhu Technology Pvt. Ltd.	Warning
Khalti Pvt. Ltd.	Warning
iCash Pvt. Ltd.	Warning
Fintech Pvt. Ltd.	Warning
Nepal Paytime Pvt. Ltd.	Licence Not Renewed
Paywell Nepal Pvt. Ltd.	Licence Cancelled
Sajilo Pay Payment Services Pvt. Ltd.	Licence Cancelled

 

Usage of Payment Systems

Payment System	Transaction Growth	Value Growth
RTGS	4.0%	94.4%
ATM Cash Withdrawal	(0.47%)	2.9%
ECC	5.1%	6.6%
IPS	9.5%	19.5%
Faster Payment Systems	34.6%	33.7%
Debit Cards	(0.06%)	3.4%
Credit Cards	2.2%	10.5%
Prepaid Cards	40.7%	66.5%
Internet Banking	41.2%	37.7%
Mobile Banking	44.8%	44.3%
Branchless Banking	2.0%	4.6%
Wallet	36.1%	67.3%
QR Based Payments	92.5%	91.8%
Point of Sale (POS)	3.0%	10.4%
E Commerce*	39.9%	53.5%
Cross Border QR Acquiring	–	–
Other Retail Payments	60.4%	36.6%

Source: Nepal Rastra Bank.