Nepal

The infrastructure story centres on the India-Nepal corridor. A direct, real-time linkage between India's Unified Payments Interface (UPI) and Nepal's NPI went live 6 June 2026, built via Nepal Clearing House Limited and NPCI International, with a formal announcement following on 9-10 June. The mechanism replaces correspondent-banking-style settlement, which typically takes one to three business days, with instant peer-to-peer transfers routed through Virtual Payment Addresses. It sits alongside an earlier Fonepay-NIPL partnership that enables Indian UPI users to pay Nepali merchants via QR with instant INR-to-NPR conversion, a deployment described as the first full-scale commercial UPI merchant-acceptance rollout outside India. Together, the two initiatives mean Nepal's largest and cheapest remittance corridor - India already ranks among the least costly South Asian channels into Nepal, at roughly 1.9% - now has both a P2P and a P2M real-time rail running in parallel with the correspondent-banking system that has historically carried this traffic.

The compliance story is less celebratory. Nepal remains on the FATF grey list as of the June 2026 plenary, with a 6-point action plan outstanding, having been placed under increased monitoring in February 2025 for the second time in its history (the first stint ran 2008-2014). The consequence for the payments sector is concrete rather than abstract: heightened due diligence and expanded documentation requirements are now attached to the correspondent and trade-finance relationships that Nepali commercial banks depend on, since foreign banks cannot branch directly inside the country. Every Nepali bank's cross-border capability - including, in principle, the new UPI-NPI rail's underlying settlement arrangements - now operates against a backdrop of intensified correspondent-bank de-risking pressure. The juxtaposition is the defining feature of this baseline: a jurisdiction building faster, cheaper cross-border rails at precisely the moment its access to the correspondent-banking system that underpins conventional cross-border settlement is coming under the most sustained pressure it has faced in over a decade.

For payments businesses and their counterparties, the practical read is that Nepal's real-time corridor build-out should not be read as an all-clear signal on country risk. The two dynamics will likely continue to run in parallel for some cycles: infrastructure modernisation proceeding under NRB's active stewardship, while grey-list-driven de-risking continues to shape the correspondent relationships on which the broader banking sector - and, by extension, most PSPs and PSOs plugged into it - ultimately depends.

Other Developments

Beneath the corridor and grey-list story, this baseline surfaces a full spine of structural findings across Nepal's licensing, safeguarding, digital-asset, resilience, scheme, market-structure, litigation, merchant-acquiring and consumer-protection domains.

On licensing, Nepal Rastra Bank operates a dual-category regime distinguishing Payment System Operators (PSOs, infrastructure/switching) and Payment Service Providers (PSPs, customer-facing) under the Payment and Settlement Act 2075 (2019), with an exclusivity bar preventing a single entity from holding both licence types except banks and financial institutions. Capital thresholds are tiered by category: PSO Class A requires NPR 500 million, PSO Class B requires NPR 100 million, and PSPs require NPR 50 million minimum paid-up capital, with foreign ownership capped at 80% subject to a minimum FDI contribution and NRB approval. A draft NRB Act amendment now circulating would reclassify PSOs/PSPs into the statutory definition of financial institutions - a horizon issue with unresolved tax and prudential implications that remains at an early, non-final stage.

On conduct and safeguarding, licensed PSPs must enter a formal settlement-bank agreement for clearing/settlement before commencing operations, and this arrangement functions as the core customer-fund-protection mechanism in the absence of a dedicated client-money segregation or trust regime of the kind seen in more developed payments markets - a structural gap this baseline flags as a standing consumer-protection consideration.

On digital assets, Nepal maintains a comprehensive, judicially-upheld prohibition covering trading, holding, mining, membership, investment, ownership, transfer and promotion of any virtual currency/cryptocurrency, including stablecoins, NFTs and DeFi. Separately, NRB is exploring a central bank digital currency ('digital rupee') and has appealed for enabling legislation, but the programme remains at concept/study stage with no live retail pilot as of mid-2026, and any CBDC path would not extend to legalising private crypto or stablecoins.

On operational resilience, NRB's Cyber Resilience Guidelines mandate biennial system audits for all licensed PSPs/PSOs and BFIs alongside vulnerability assessments, penetration testing and disaster-recovery provisioning, aligned to BIS PFMI principles; a Systemically Important Payment Systems framework (September 2025) and AI-specific incident-reporting guidelines (December 2025) have since extended this regime.

On scheme compliance, the NepalQR Standardization Framework mandates EMVCo 4.3-based QR specifications across scheme operators, part of a wider National Payment Switch consolidation of a historically fragmented multi-scheme landscape; separately, the domestic NEPALPAY card scheme is being extended to international acceptance through the Discover Financial Services network.

On market structure, IME Pay and Khalti merged in 2025 to form IME Khalti, a consolidation explicitly aimed at challenging eSewa's roughly 70% share of Nepal's digital-wallet market, approved under NRB's revised settlement bylaw permitting wallet-provider consolidation.

On litigation and enforcement, Nepal's Supreme Court in 2022 dismissed a Public Interest Litigation challenging NRB's crypto-ban notice, a precedent that continues to underpin the durability of the ban; separately, in FY2023/24 NRB dismissed the licences of two payment operators and froze the accounts of two others for non-compliance, evidencing active supervisory capacity against non-bank PSPs.

On merchant acquiring, the E-commerce Act 2081 requires online sellers to use NRB-licensed payment gateways, with fines for breaches shaping merchant-acquiring economics for e-commerce sellers.

On consumer protection, no dedicated mandatory APP-fraud reimbursement scheme akin to the UK PSR model was identified for Nepal; cyber-enabled fraud response instead runs through Nepal Police's Cyber Bureau and FIU-Nepal's STR/SAR analytical channel rather than a bank-liability redress framework.

Cross-Monitor Connections

Nepal's continuing FATF grey-list status and the correspondent-bank de-risking pressure it generates carry illicit-finance significance beyond this monitor's payments-market-structure remit, and are flagged to the Financial Intelligence Monitor for its own AML/CFT analysis; WPM's own treatment is confined to the market-structure and correspondent-access consequences for payments and banking counterparties, not an independent illicit-finance assessment. Separately, the AML/CFT reporting-framework detail carried in this baseline - including FIU-Nepal's STR/SAR guidelines and their coverage of PSPs/PSOs as reporting entities - is sourced from the Sentinel.gi feed and is presented here as payments-sector context rather than original WPM financial-crime analysis.

Outlook

The near-term trajectory to watch is whether the draft NRB Act amendment reclassifying PSOs/PSPs as financial institutions advances beyond its current non-final stage; its tax-rate and prudential-regime implications would be material for every non-bank operator in the market. On the corridor side, the operational maturation of the UPI-NPI link - transaction volumes, participating-bank expansion beyond the initial select group, and any read-across to Nepal's other major remittance corridors in the Gulf - is the clearest near-term indicator of whether real-time cross-border rails begin to erode correspondent-banking dependency more broadly. On the compliance side, movement on Nepal's 6-point FATF action plan will be the key signal for whether correspondent de-risking pressure eases or continues to tighten; absent progress, the cost and friction of cross-border banking access is likely to remain the binding constraint on how much of Nepal's payments modernisation can actually be realised in practice.

Operational resilience is governed by an established and actively-extending Cyber Resilience Guidelines regime, reinforced in 2025-26 by a Systemically Important Payment Systems framework and AI-specific incident-reporting guidelines. Scheme-level fragmentation across multiple closed-loop QR and card operators is being addressed through NepalQR standardisation and National Payment Switch consolidation, alongside the first international network extension of a domestic Nepali card scheme. Market structure shows active consolidation, evidenced by the IME Pay-Khalti merger formed to challenge eSewa's dominant wallet share. NRB's litigation and enforcement record includes a settled 2022 Supreme Court precedent upholding the crypto ban and demonstrated FY2023/24 enforcement actions - licence dismissals and account freezes - against non-compliant non-bank PSPs. Merchant-acquiring regulation channels e-commerce payment collection through NRB-licensed gateways under the E-commerce Act 2081, while consumer-protection provision for cyber-enabled fraud runs through investigative and reporting channels rather than a mandatory reimbursement scheme.

The most consequential single development of this cycle is the live launch, on 6 June 2026, of a direct real-time UPI-NPI cross-border link between India and Nepal, complemented by a Fonepay-NIPL UPI merchant-acceptance deployment - together marking a structural shift in Nepal's largest and cheapest remittance corridor away from correspondent-banking-dependent settlement. This sits alongside Nepal's continuing FATF grey-list status as of the June 2026 plenary, which has intensified correspondent-bank de-risking pressure on the domestic banking sector that underpins most cross-border payments activity, including, indirectly, the settlement arrangements behind newer real-time rails.

Outlook

Three items anchor Nepal's forward trajectory. First, the draft NRB Act amendment reclassifying PSOs/PSPs as financial institutions remains an unresolved horizon issue with material tax and prudential implications should it advance. Second, the operational maturation of the UPI-NPI corridor - participating-bank expansion, transaction-volume growth, and any extension of similar real-time linkages to Nepal's larger-volume Gulf remittance corridors - will determine how far real-time infrastructure displaces correspondent-banking dependency in practice. Third, and most consequentially for the banking sector broadly, progress against Nepal's outstanding 6-point FATF action plan will determine whether correspondent-bank de-risking pressure eases or continues to tighten; absent such progress, elevated due-diligence costs are likely to remain the binding constraint on how much of Nepal's payments-infrastructure modernisation can be fully realised.