Fintech Shake-Up: Merger, Acquisition and Tighter Oversight

Nepal’s fintech industry witnessed a transformative month this July, marked by the sector's first major merger, a high-profile equity acquisition and sweeping regulatory directives from the Nepal Rastra Bank (NRB). Together, these developments signal a new chapter in the country’s rapidly evolving digital payments landscape.

The merger of IME Pay and Khalti, two of Nepal’s largest payment service providers (PSPs), was finalized in mid-July, creating a unified platform now operating under the brand IME by Khalti. This landmark merger, the first of its kind in Nepal’s payment service provider (PSP) sector, combines a user base of 12.7 million and a paid-up capital exceeding Rs 540 million, creating a formidable competitor to market leader eSewa.

Soon after, the House of Raj, which is led by prominent businessman Rajendra Khetan, announced its acquisition of a 20% stake in Fonepay Services Ltd — Nepal’s leading payment system operator (PSO), in a deal valued at Rs 1.4 billion. The investment, which is subject to approval by the regulator, reflects growing investor confidence in fintech and is part of House of Raj’s broader shift toward financial services, including insurance and capital markets.

In parallel, the Nepal Rastra Bank (NRB) introduced new regulatory measures for the fintech sector. On July 20, the central bank issued guidelines requiring all non-BFI licensed PSPs and PSOs to obtain prior approval before distributing dividends. The rules aim to strengthen transparency, financial sustainability and stability in a sector that has remained thinly profitable despite rapid user growth.

IME Pay-Khalti Merger

The IME Pay-Khalti merger has been described as a milestone for Nepal’s digital finance ecosystem, enabling scale and resource consolidation in a crowded market.

"The historic consolidation marks a new era in Nepal’s digital financial services,” said Manoj Kumar Agrawal, Chairman of Khalti. “We believe Khalti by IME pay will usher in a new era of financial access and inclusion across the country."

Similarly, Binay Khadka, CEO of the merged entity, said the company’s focus will be on expanding digital access, enhancing financial literacy and driving inclusion across Nepal’s underserved regions.

The merger was facilitated by the amendment to the Payment and Settlement Bylaw, 2020 (Amended 2023) by the NRB, which formally enabled mergers and acquisitions among licensed PSPs. The move is widely seen as a regulatory push toward consolidation in a market with over two dozen digital wallet providers, many of which are struggling to achieve profitability.

Industry experts say that Khalti brought strong digital engagement among youth, while IME Pay offered robust back-end infrastructure and deep institutional linkages with banks, insurers, and cooperatives—synergies that are now expected to drive future growth.

Following the merger, IME Khalti Ltd, the merged entity, has a paid-up capital of over Rs 540 million and a combined user base of 12.7 million. For comparison, eSewa is reported to have around 13 million registered users.

Krishna Prasad Sharma, Chairperson of IME Digital Solutions Ltd, will lead the board of IME Khalti Ltd. Other board members include Diwakar Paudel, Sitaram Thapa, Praveen Regmi, Amit Agrawal, Arvind Shah and Manish Modi.

House of Raj Bets Big on Fonepay

The acquisition of a 20% stake in Fonepay by House of Raj reflects strong investor confidence in Nepal’s PSO segment. Fonepay, which operates under F1Soft International, facilitated over Rs 2 trillion in interbank transfers in 2023/24 and continues to lead the QR-based payment revolution in Nepal.

According to Manish Thapa, Managing Director of Global Equity Fund, which is an affiliate of the House of Raj, the deal was finalized two months ago after a detailed valuation and due diligence audit.

Fonepay’s innovations have extended beyond national boundaries. Its integration with India’s UPI platform has allowed Indian tourists to use their domestic apps for QR payments in Nepal. The platform recorded over 1 million cross-border transactions within months of launching the service in March 2024.

The House of Raj’s move is part of a broader financial-sector focus following the group’s restructuring. “Fintech is a long-term play, and strategic stakes in operators like Fonepay align with our vision of driving digital transformation in Nepal,” said a source familiar with the investment.

Dividend Distribution Comes Under Scrutiny

On the regulatory front, the NRB's newly issued Guidance on Dividend Distribution, 2025, has set a stricter compliance regime for non-BFI PSPs and PSOs. Effective immediately, the rules bar these entities from distributing dividends without prior approval from the central bank. Companies must now also submit audited financials, dividend proposals, tax clearance and credit history and evidence of retained earnings and net positive worth to the central bank while seeking approval.

Importantly, cash dividends cannot be paid from share premiums or one-time gains, and stock dividends are subject to stringent capital adequacy and reserve requirements. Institutions flagged for compliance risks during inspections will be barred from declaring dividends altogether.

“These guidelines aim to build financial discipline in a sector where growth has often outpaced governance,” said an NRB official. “It’s about protecting users, ensuring business continuity and aligning fintech with the broader financial system’s stability.”

The guidance also requires companies to set up specific reserves—risk bearing, general and infrastructure development—under board-approved dividend policies.

Consolidation, Capital and Compliance

These developments highlight three emerging trends in Nepal’s fintech future: consolidation of PSPs, strategic capital inflow into PSOs and tightened regulatory compliance.

While the merger of IME Pay and Khalti has set a precedent, more such consolidations may follow as smaller PSPs seek sustainability in a crowded market. Similarly, the Fonepay acquisition hints at a maturing investor outlook toward fintech platforms with proven transaction volumes and technological scalability.

The central bank, meanwhile, is setting the tone for a more stable and compliant industry, positioning Nepal’s fintech ecosystem for growth, not just in size, but in financial resilience and consumer trust.

These developments may mark July 2025 as a turning point in Nepal’s digital finance landscape, where bold investments, strategic consolidation, and prudent regulation began reshaping the future of money.

(This report was originally publihsed in August 2025 issue of New Business Age Magazine.)