Registration and Licensing of Payment Service Providers (PSPs) and Payment System Operators (PSOs) in Nepal

1. Introduction 

In Nepal, digital payment services are strictly regulated under the oversight of Nepal Rastra Bank (NRB). The regulatory framework establishes a clear functional distinction between customer-facing service entities and backend digital infrastructure operators:

• Payment Service Provider (PSP): A customer-facing entity that provides payment services directly to consumers and merchants. PSPs facilitate electronic payments, operate digital wallets, process transactions through electronic instruments, and provide other permitted payment services.
• Payment System Operator (PSO): An infrastructure-focused entity that operates the backend systems through which payment transactions are processed, cleared, or routed. PSOs operate switches, card networks, clearing houses, and interoperability systems that connect banks and financial institutions.

Under Section 12 of the Payment and Settlement Act, 2075, merely incorporating a company with payment-related business objectives does not grant the right to commence operations. Every entity must secure an explicit operational license from NRB’s Payment Systems Department prior to offering services.

2. Governing Laws and Relevant Statutory Provisions

The regulatory framework governing the registration, licensing, cybersecurity, and supervision of PSPs and PSOs includes:

• Payment and Settlement Act, 2075 (2019): Primary statutory act governing payment operations.
  • Section 12: Mandates compulsory licensing from NRB before operating any payment system or service.
  • Section 13: Governs the application for a Letter of Intent (LOI).
  • Section 14: Governs the application for an operational license after corporate incorporation.
  • Section 15: Specifies evaluation, physical/technical inspection, and grant of license by NRB.
  • Section 16: Grants NRB power to impose, amend, or alter license conditions.
  • Section 17: Details statutory grounds for refusal of license (e.g., inadequate infrastructure, incomplete documentation, unpaid security deposit).
• Payment and Settlement Bylaw, 2077 (2020):
  • Rule 10 and 16: Authorizes NRB to issue detailed licensing policies and guidelines.
  • Rule 12: Mandates execution of a Settlement Bank Agreement (under Schedule 1) within seven (7) days.
  • Rule 13 and 14: Governs license renewal procedures, timeline, required submissions, and prescribed fee schedules.
• Licensing Policy for Institutions Performing Payment-Related Work, 2079 (2023):
  • Prescribes capital adequacy, application/LOI fees, collateral security deposits, fit-and-proper governance criteria, promoter lock-in periods, and foreign investment caps.
• Payment Systems Inspection and Supervision Bylaw, 2078: Framework governing ongoing NRB audits, operational supervision, and compliance oversight.
• Payment Systems-related Unified Directives: Periodically updated technical, operational, and financial compliance standards issued by NRB.
• Nepal Rastra Bank Act, 2058 (2002): Foundational statute empowering NRB to formulate payment policy and ensure financial system stability.
• Electronic Transactions Act, 2063 (2006): Governs digital authentication, electronic signatures, and cyber laws.
• Anti-Money Laundering Act, 2064 & Consumer Protection Frameworks: Statutory obligations regarding Know Your Customer (KYC), transaction monitoring, and data privacy.

3. Competent Licensing Authority & Functional Scope

Nepal Rastra Bank (NRB), through its Payment Systems Department, is the sol. e statutory authority responsible for evaluating, licensing, inspecting, and supervising PSPs and PSOs. Under Rule 4 of Licensing Policy for Institutions Performing Payment-Related Work, 2079 the scope of the PSPs and PSOs: 

1. Payment Service Provider (PSP) Scope

Subject to its specific NRB license, a PSP may engage in:

1. Facilitating electronic payments for goods, services, or contractual obligations through digital tools or mobile applications.
2. Operating digital wallets, prepaid payment instruments, and electronic payment portals.
3. Providing domestic money transfer and remittance aggregation services.
4. Facilitating merchant payments through integrated arrangements with licensed PSOs.

2. Payment System Operator (PSO) Scope

Subject to its specific NRB license, a PSO may engage in:

1. Operating automated clearing houses (ACH) and payment settlement switches.
2. Operating domestic electronic payment card networks.
3. Facilitating technical interoperability between different payment systems, commercial banks, and financial institutions.

4. Minimum Capital Requirements & Key Financial Conditions

Under the Licensing Policy for Institutions Performing Payment-Related Work, 2079, strict financial and capital standards apply:

Key Statutory Financial Conditions:

• LOI Application Fee: Non-refundable fee of NPR 100,000 for PSP applicants and NPR 50,000 for PSO applicants.
• Security Deposit Collateral: Licensees must deposit 1% of their total issued capital as refundable collateral with NRB prior to receiving the operational license.
• Promoter Lock-in Period: Shares held by founding promoters cannot be transferred or sold for a mandatory period of five (5) years from the date of license issuance.
• Foreign Direct Investment (FDI) Cap: Foreign investment in a licensed PSP or PSO is restricted to a maximum threshold of 15% of total paid-up capital.

5. Step-by-Step Registration & Licensing Workflow

In accordance with Sections 13–15 of the Payment and Settlement Act, 2075, the regulatory workflow strictly requires securing a Letter of Intent (LOI) from NRB prior to company incorporation at the Office of Company Registrar (OCR).

1. Step 1: Application for Letter of Intent (LOI) [Section 13]: Submit an application to NRB including promoter disclosures, feasibility study, governance structure, and preliminary technical plans. NRB processes and decides on the LOI within 90 days.
2. Step 2: Company Incorporation: Upon receiving the LOI, register the entity as a Private Limited Company at the Office of Company Registrar (OCR) under the Companies Act, 2063. Complete PAN/VAT registration with the Inland Revenue Department (IRD). Note: The final license application must be filed within six (6) months of receiving the LOI, or the LOI automatically lapses.
3. Step 3: Capital Injection & Technical Setup: Deposit the mandatory minimum paid-up capital into a designated bank account and establish IT, server, and cybersecurity systems.
4. Step 4: Settlement Bank Agreement [Rule 12]: Execute a formal settlement agreement with a licensed commercial bank acting as a Settlement Bank and submit a signed copy to NRB within seven (7) days of signing.
5. Step 5: Final License Application [Section 14]: Submit the complete corporate, financial, technical, and compliance dossier to NRB’s Payment Systems Department.
6. Step 6: Inspection & System Audit [Section 15]: NRB inspectors conduct physical, technical, data security, and disaster recovery audits of the facility within 30 to 60 days.
7. Step 7: Collateral & Fee Payment: Upon pre-approval, pay the 1% issued capital security deposit and prescribed license fees.
8. Step 8: Grant of License [Section 15]: NRB grants the operating license, valid for five (5) years.

6. Comprehensive Document Checklist for Application

Under the Payment and Settlement Bylaw, 2077 and Licensing Policy, 2079, applicants must compile a comprehensive dossier:

A. Legal & Corporate Filings

1. Application form in the format prescribed by NRB.
2. Original or certified copy of the LOI issued by NRB.
3. Company Certificate of Incorporation from OCR.
4. Approved Memorandum of Association (MOA) and Articles of Association (AOA).
5. PAN and VAT Registration Certificates.
6. Board Resolution authorizing the license application and appointing the Executive Head.
7. Shareholder list, promoter profiles, and Ultimate Beneficial Owner (UBO) disclosures.
8. Police clearance reports and tax clearance certificates for all Promoters, Directors, and Executive Officers.

B. Financial & Capital Evidence

1. Bank certificate proving deposit of the required minimum paid-up capital.
2. Documented legal source of promoter funds.
3. Detailed 5-year business plan, financial projections, and market analysis/feasibility report.
4. Voucher evidencing payment of the non-refundable LOI/application fee.

C. Technical, Security, and Compliance Policies

1. System architecture, data flow diagrams, network layout, and hardware/software specifications.
2. Information Technology (IT) and Cybersecurity Framework aligned with NRB directives.
3. Anti-Money Laundering (AML/CFT) Policy, Know Your Customer (KYC) procedures, and transaction monitoring setup.
4. Comprehensive Risk Management Policy and Internal Control System.
5. Consumer Protection, Fraud Mitigation, and Grievance Handling Policy.
6. Business Continuity Plan (BCP) and Disaster Recovery (DR) operational setup.

7. Renewal Protocols and Fee Structure

Under Rules 13 and 14 of the Payment and Settlement Bylaw, 2077:

• License Validity: Licenses are valid for five (5) years from the date of issuance.
• Renewal Deadline: The application for renewal must be submitted to NRB at least three (3) months prior to license expiration.

• Renewal Fee Structure:
  • NPR 50,000: For institutions with paid-up capital up to NPR 50 Million (5 Crore).
  • NPR 100,000: For institutions with paid-up capital exceeding NPR 50 Million.
• Renewal Documentation: Submission of updated constitutional documents, annual reports, audited financial statements, tax clearances, police clearance reports for board/management, and proof of non-blacklisting.

8. Conclusion

Operating a PSP or PSO in Nepal requires navigating specialized regulatory steps led by Nepal Rastra Bank. Unlike general commercial incorporations, applicants must obtain a statutory Letter of Intent (LOI) under Section 13 of the Payment and Settlement Act, 2075 prior to registering at the Office of Company Registrar. By enforcing capital adequacy, fit-and-proper governance, cybersecurity controls, and settlement bank protocols, NRB ensures a secure, transparent, and resilient digital payment ecosystem.

Disclaimer: This article is provided for general informational and educational purposes only and does not constitute formal legal advice. Regulatory directives issued by Nepal Rastra Bank are updated periodically; prospective promoters and investors should consult qualified legal counsel and verify current NRB directives prior to initiating applications.