How Nepal Regulates Fintech Compared to India and Bangladesh in 2026

Behind every QR code scan, wallet top-up, and merchant payment in South Asia sits a legal and regulatory framework most users never think about — until something changes. Nepal is currently in the middle of a genuinely consequential debate over how tightly its fintech sector should be regulated, with a proposed law amendment stirring real concern among industry players. This is a good moment to step back and ask: how does Nepal's approach to regulating fintech actually compare to what India and Bangladesh have built next door? The differences turn out to be more revealing than a simple "who's stricter" comparison.

1. Why Compare Regulatory Approaches, Not Just Products

Most comparisons of South Asian digital payments focus on user numbers and transaction volumes — but the regulatory architecture underneath is what actually determines how fast an industry can innovate, how safe consumer money is, and how easily foreign capital can enter the market. Comparing how Nepal regulates fintech compared to neighbors reveals something more interesting than a simple ranking: three genuinely different philosophies, each shaped by the specific banking and economic conditions of that country.

2. Nepal's Framework: PSPs, PSOs, and NRB's Central Role

Nepal Rastra Bank sits at the center of fintech regulation in the country, operating under the Nepal Rastra Bank Act 2002 and, specifically for payments, the Payment and Settlement Act 2019. Within this structure, licensed entities fall into two distinct categories:

• Payment System Operators (PSOs): Entities that operate the underlying infrastructure — switching, clearing, and settlement between banks, wallets, and card networks. Examples include Nepal Clearing House Limited and Smart Choice Technologies.
• Payment Service Providers (PSPs): Consumer-facing platforms that deliver payment services directly to end users through wallets and QR-based payments — eSewa, Khalti, IME Pay, and Prabhu Pay are the major names operating in this category.

Separately, banks and financial institutions are regulated under an entirely different statute — the Banks and Financial Institutions Act (BAFIA) 2017 — meaning Nepal currently runs two parallel legal tracks: one for traditional banking, and one for payment-specific fintech players.

3. The Current Debate: Redefining Digital Payments Under NRB Law

This dual-track structure is precisely what's now being questioned. A recently drafted bill, published for public consultation, proposes amending the NRB Act to expand the definition of "financial institution" to explicitly include Payment System Operators and Payment Service Providers — effectively pulling fintech players closer into the same regulatory basket as traditional banks.

This has triggered genuine industry concern, for a few concrete reasons:

• Tax implications: Banks and financial institutions currently pay 30 percent income tax. If PSOs and PSPs are reclassified as financial institutions, they could face the same tax burden — a significant jump that industry voices argue could discourage investment in a sector Nepal has otherwise been trying to encourage.
• Ownership structure requirements: Classification as a financial institution could also require PSOs and PSPs to divide shares into promoter and public categories, mirroring rules designed for traditional banks rather than tech-driven payment companies.
• Legal overlap and ambiguity: Industry stakeholders have raised concern that folding PSOs/PSPs into the same governing law as BAFIA-regulated entities risks conflicts between the two Acts, without clear provisions specifying which rules would prevail in case of contradiction.

4. Known Gaps in Nepal's Current Approach

Beyond this specific debate, a few structural gaps have been consistently flagged in how Nepal currently regulates its fintech sector:

• Limited inspection frequency: Unlike India's system of thorough, regular inspection of licensed institutions, Nepal doesn't currently have an equivalent mechanism allowing NRB to conduct frequent, in-depth inspections of PSPs and PSOs.
• A meaningful VAT discrepancy: Banks and financial institutions are exempt from VAT since their services are classified as financial services. PSOs, by contrast, must charge VAT (currently 13 percent) on many of their services — creating a built-in cost disadvantage for fintech companies competing against banks offering similar functionality.
• A tight foreign investment ceiling: Current policy caps foreign investment in a licensed PSP at 15 percent of paid-up capital — a comparatively restrictive limit that can meaningfully constrain how much international capital and expertise Nepali fintech companies can attract.
• Language accessibility: Much of Nepal's regulatory documentation for the payment sector remains available primarily in Nepali, creating a genuine barrier for foreign investors trying to understand the rules before committing capital.

5. India's Framework: A Single Regulator, Two Distinct Laws

India's approach centers everything under a single institution — the Reserve Bank of India — but splits the underlying legal authority cleanly between banking and payments. Commercial banks operate under the Banking Regulation Act 1949, while payment systems operate under a dedicated separate statute, the Payment and Settlement Systems Act 2007. Within RBI itself, a specific body — the Board for Regulation and Supervision of Payment and Settlement Systems — is tasked with overseeing digital payments, prepaid instruments, and wallets specifically.

This structure gives India a genuinely mature model: one central authority, but with legally distinct regimes tailored to banking versus payments, rather than trying to force both into identical rules. It's also a system built for deep oversight — RBI's inspection regime allows considerably more thorough, regular scrutiny of licensed institutions than Nepal's current framework permits.

6. Bangladesh's Framework: Bank-Led Mobile Financial Services

Bangladesh takes a philosophically different approach, shaped directly by its unique starting conditions — extremely low credit card penetration and a large unbanked population that mobile money needed to reach directly. Bangladesh Bank regulates mobile financial services (MFS) as explicitly bank-led products, meaning providers like bKash operate under close integration with formal banking rules from the outset, rather than as a separate wallet category regulated apart from banking law.

This bank-led design means Bangladesh never really had Nepal's current dilemma of "should fintech be folded into banking law" — the answer was baked into the model from day one. The trade-off is less room for standalone, non-bank-affiliated fintech innovation compared to a more open PSP licensing model like Nepal's or India's.

7. Head-to-Head: Licensing, Oversight, and Foreign Investment

8. Why These Frameworks Differ So Much

These differences aren't arbitrary — they reflect each country's starting point:

• India built its framework around a large, increasingly banked population and a central bank with substantial regulatory capacity, allowing it to run two sophisticated, distinct legal regimes side by side.
• Bangladesh built its framework around genuine financial inclusion urgency, with a population where formal banking penetration remained thin — making a bank-led MFS model, closely supervised from the start, the more sensible design.
• Nepal sits somewhere in between — a fintech sector that grew relatively fast on top of a regulatory framework still being actively refined, which is precisely why the current debate over merging PSP/PSO oversight into banking law is happening now rather than having been settled years ago.

9. What This Means for Businesses, Investors, and Users

10. What Nepal Could Learn From Its Neighbors

A single, well-resourced regulator running two clearly distinct legal regimes — rather than merging fintech and banking law into one framework — has let India pursue deep oversight without collapsing the meaningful differences between how banks and payment companies actually operate.

Deciding on a clear philosophical model early — bank-led versus independently licensed — reduces the kind of prolonged, unsettled debate Nepal is currently experiencing, since the ownership and oversight structure is unambiguous from the start rather than being renegotiated years into an industry's growth.

Addressing the VAT discrepancy between banks and PSOs, reconsidering the 15% foreign investment ceiling, and publishing regulatory documentation in both English and Nepali would all meaningfully improve Nepal's fintech investment climate, independent of how the current BAFIA/NRB Act debate ultimately resolves.

11. Frequently Asked Questions

Is Nepal's fintech sector currently regulated the same way as banks?

Not currently — Payment System Operators and Payment Service Providers are regulated under a separate Payment and Settlement Act 2019, distinct from the Banks and Financial Institutions Act governing traditional banks. A proposed amendment could change this by redefining PSOs/PSPs as financial institutions, but this remains under debate.

Why does Bangladesh's fintech model look so different from Nepal's or India's?

Bangladesh built its mobile financial services model explicitly bank-led from the outset, driven by the urgent need to extend formal financial services to a largely unbanked population with very low credit card penetration — a different starting problem than Nepal or India faced.

Does India's more mature regulatory framework mean it's "ahead" of Nepal?

In terms of regulatory codification and inspection depth, yes — but this reflects India's much larger economy, longer fintech history, and greater regulatory resourcing, not necessarily a simple failure on Nepal's part. Nepal's framework is earlier-stage and still actively evolving.

How does Nepal's foreign investment limit for fintech compare to its neighbors?

Nepal's current 15% cap on foreign investment in a licensed payment service provider is comparatively restrictive, and has been flagged as a genuine barrier to attracting the international capital and expertise that could help the sector grow further.

Comparing how Nepal regulates fintech against India and Bangladesh isn't really about crowning a winner — it's about recognizing that each country solved a different problem with the regulatory tools available to it. India built depth and codification around a mature, large-scale banking system. Bangladesh built inclusion directly into its bank-led mobile money model. Nepal is still actively working out where the line between fintech innovation and banking-style oversight should sit — a genuinely live debate playing out right now through the proposed NRB Act amendment. Whichever direction that debate resolves, it will shape how Nepal's digital payment sector operates for years to come.