Central Bank's Digital Finance Innovation Hub Remains Inactive

Nepal Rastra Bank’s (NRB) Digital Finance Innovation Hub, launched to promote electronic financial services and support fintech startups, has remained largely inactive since its establishment eight months ago.

NRB set up the Innovation Hub in late March 2025 with the objective of modernizing digital financial services and payment systems, providing a regulatory-friendly environment for fintech startups, and expanding financial access. Eight months after its launch, however, no digital finance product has been tested through the platform.

The central bank says the hub is intended to guide financial innovators working in banking and payment systems by providing regulatory clarity, assessing innovative proposals, and offering feedback on opportunities and challenges to stimulate fintech development.

In practice, however, the hub has failed to gain traction, acknowledged Krishna Ram Dhuju, Director at NRB’s Payment Systems Department. “Only one or two institutions have shown interest so far,” he said. “But no digital finance product has progressed to the development stage through the hub.” He added that the proposals received are still at a preliminary stage but declined to provide further details.

Since participation in the hub is voluntary and not mandatory for companies, NRB officials say fintech firms may prefer to rely on their own capabilities for product development, resulting in limited interest in the central bank’s platform.

Regulatory Sandbox Also Delayed

NRB has also fallen behind schedule in setting up a Regulatory Sandbox—a controlled environment for safely testing innovative financial services. The central bank had published a draft of Sandbox Operation Procedure in July and sought feedback within August 31. However, the final procedure is yet to be issued.

Director Dhuju said discussions are ongoing to finalize the rules. “We are incorporating suggestions received from stakeholders and are in the final stage of issuing the procedure,” he said.

According to the draft, the regulatory sandbox will allow licensed financial institutions, payment service providers and operators, remittance companies, fintech firms, and other entities using new technologies to test their products in a controlled environment. Testing will be allowed for an initial six months, extendable by another six months. Only products that pass the testing phase will be eligible for full licensing or market rollout.

Companies may test digital KYC, mobile money, cybersecurity tools, and API platforms, but high-risk technologies such as cryptocurrencies and digital currencies will not be permitted. To encourage participation, NRB has proposed regulatory flexibility—such as eased reporting, minimum capital, and liquidity requirements—along with mandatory customer disclosure that the product is under sandbox testing.

Private-Sector Product Suspended

Despite NRB’s stated commitment to supporting digital innovation, it has suspended a private-sector digital banking product. The central bank halted the Orange NXT digital bank launched by Phone NXT Pvt Ltd in partnership with Laxmi Sunrise Bank.

Orange NXT, a neo-banking platform designed to offer full banking services through a mobile app, was launched within Laxmi Sunrise Bank’s system. However, NRB ordered the service to be suspended, saying there was no legal basis for its operation and instructed that customer transactions be integrated back into the bank’s system.

Orange NXT was developed by Fonepay’s subsidiary Phone NXT. Dhuju said the service was suspended because the company had not obtained the required authorization for operating payment services.

“As a regulator, NRB must ensure legal compliance and safeguard customer funds,” he said. “Some gaps were identified, so we asked them to suspend the service temporarily. This should not be interpreted as opposition to innovation.”