Shashi Dhungel 

A few statistics are very compelling for banking revolution in Nepal. More than 65 per cent of the population is below 35 years of age, 45 per cent of the population is not yet banked, cell phone subscription is more than 1.3 times the population of the country and 65 per cent of the population have access to the internet with the government aiming for 100 per cent by 2024.
The amalgamation of technology savvy customers, young and energetic bankers and a new brood of computing and technology graduates in Nepal have primed the banking sector for a facelift. Top it off with the legacy system, lengthy bureaucratic processes and status quo of the prevailing banking system and you get an environment that could not be more conducive for disruption.
According to CB Insights - a leader in financial technology (fintech) survey reports, global fintech investment topped USD 40 billion in 2018. A large portion of the investment has been in developing economies. Simply put fintech adoption is on the rise globally. They are extremely cost effective in reaching the last-mile customers. To paraphrase Jack Ma, adding one million new subscribers could merely mean adding an additional server for digital service providers, while for the brick and mortar service model it requires a building, staff, and multiple bureaucratic regulations to comply at the least.
Fintech solutions come mostly in two flavors. First, they help banks reduce their operational costs by automating and digitising existing services. Second, they offer products that can be fully serviced through digital channels. It is always more cost effective for banks to partner and build fintech solutions than building it entirely in house. Bret King in his book Bank 4.0 summarises it well, “ Who is going to be faster and cheaper at building new tech for financial services? A company that only focuses on tech, has a smaller more agile structure, works with multiple financial institutions and has to answer to a board full of VC? Or a bank that has to deal with legacy systems, compliance and risk issues, and significant challenges with recruiting the right skills to build these new technologies in the first place?”
There is a great enthusiasm in the banking sector in Nepal to embrace new technologies. Artificial Intelligence, analytics, predictive modeling, chat bots, e-banking, digital banking and data based decision making using Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs) are of interest to C-Level banking executives. Solutions that enhance customer experience vis-a-vis supporting the bottom lines are in high demand.
A collaboration between banks and fintech solution providers is a win-win scenario. Banks do not have to invest a huge amount of resources and manage a team of developers, instead fintech service providers can use their agile and nimble product development processes to reduce development costs, and the windfall of this process is new products and services that enhance customers’ banking experiences. In the last decade technology adoption has skyrocketed while technology costs have nosedived. Shying away from using technology based solutions and maintaining either the status quo or even wait-and-see positions are recipes for increasing cost in delivering banking services.
The success of fintech in Europe, the Americas, Asia and everywhere else has been primarily driven by their ability to jump bureaucratic hurdles and avoid unnecessary red tape. One of the key players in the promotion and development of fintech in Nepal will be Nepal Rastra Bank. While the central bank enthusiastically promotes digital banking and envisions a cashless economy, it still lags in progressive policies. Fintech developments in Nepal are handicapped by antiquated rules like the ‘wet ink’ signatures. Similarly the Know Your Customer (KYC) requirement has created more friction between the banks and the customers rather than helping increase the quality of service. Fintech and other digital service solutions will proliferate as antiquated policies sunset.
The policy responsibility however, cannot be fully put on the shoulders of the government or a regulatory body. Banks and Financial Institutions (BFIs) will need to collaborate with the regulators to identify and revise policies. Such revisions shall duly consider customers privacy and data protection issues. Favorable fintech policies can unleash a plethora of innovative banking solutions that support GDP growth aspirations.
Fintech solutions like the e-wallet are already flourishing. Required infrastructures like the Nepal Clearing House Limited (NCHL), Smart Choice Technologies (SCT) and the ill-fated Nepal Electronic Payment Systems (NEPS) have a broad user base. BFIs are offering some services through digital and mobile channels. While the recent hacking highlights the challenges in securing digital systems for banking services, it nevertheless has invigorated new interest and raised awareness on digital strategies for banking services.
Fintechs are here to stay. There will certainly be challenger banks, digital only banks and custom service providers that compete directly with the traditional banking products. In an era where automation and AI is reducing operational costs and opening new avenues for service delivery and product diversification, defending legacy systems and lagging in technology adoption will only hurt the financial institutions.

(Dhungel is a data scientist with a decade of experience in designing data and analytics solutions. He can be reached at shashi@esrtech.io)