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The rise of decentralised finance: How blockchain-based payment systems challenge traditional banking

The rise of decentralised finance: How blockchain-based payment systems challenge traditional banking

By Femi Adeyemo

In 1994, as his company was revolutionising technology and software, Bill Gates famously said, “Banking is required, banks are not.” At the time, due to his vantage position, Gates saw a future where technology could deliver the core function of banking—storing money, facilitating payments, and providing credit—more efficiently than traditional banks.

Thirty years later, Gates is on course to be proven right, as online banking, mobile payments, digital lending, and other digital financial services have emerged as valid alternatives to bank branches.

Even with these alternatives, just ask any Nigerian about their banking experience, and they will probably give you a list of different issues, including network outages, failed transfers, and chargeback issues. These issues, which have long existed in Nigeria’s banking system, are a direct result of the centralised nature of the banking system, which relies on a centralised IT infrastructure. These issues have also created a gap that has led some Nigerians to seek alternative means of saving, sending, and lending their money.

For some Nigerians, decentralised finance (DeFi), the use of blockchain technology to send, purchase, save, and exchange financial assets, has filled that gap. The introduction of peer-to-peer transactions without the need for a central body has revolutionised how Nigerians interact with their money.

In 2023, Nigerians had the most volume for peer-to-peer trades on exchanges and were second in crypto adoption, according to Chainalysis’ 2023 Global Crypto Adoption Index. Most of these transactions can be traced to Nigerians using stablecoins as a hedge against the country’s rising inflation—which is near a three-decade high—and poorly performing currency. The opportunity to send money across borders with stablecoins is also a big driver for DeFi adoption.

Nigerian banks and regulators are also turning to blockchain technology to facilitate payments. In 2022, the Central Bank of Nigeria approved a payment license for Zone, Africa’s first regulated blockchain payment infrastructure company. Since it received its license, Zone now powers payments for over 15 of Africa’s biggest banks.

Even Gates could not have predicted how much blockchain technology now powers banking and offers an alternative to traditional banks.

Even though blockchain-based financial services are emerging as challengers to traditional banking systems, blockchain-based technology is also enabling banks to reach new heights. The blockchain’s architecture, transparency, and trust layer enable instant payment settlement without the need for intermediaries, significantly reducing susceptibility to fraud and eliminating single points of failure.

Banks also use blockchain-based systems to help their customers move money around the world. JP Morgan, the biggest bank in America with $3.3 trillion in assets, has created JPM Coin, its dollar-backed stablecoin that it uses for business-to-business transactions. The coin allows JP Morgan’s clients to move money internationally around the clock instead of waiting several days. Due to its speed, the coin already handles $1 billion in daily transactions and could handle up to $10 billion daily in the next two years, according to a senior bank executive.

Other international banks like Deutsche Bank, Barclays Bank, and BNP Paribas are also using blockchain for cross-border payments because it reduces remittance costs.

Blockchain technology can also be applied creatively to solve banking problems. Last year, JP Morgan introduced programmemable payments, which operate like smart contracts and allow the users of JPM Coin to programme their accounts to make payments automatically according to preset conditions. The payment system is already being used by multinational companies like Siemens AG, FedEx, and Cargill.

In Nigeria, Zone, Africa’s first regulated blockchain company, currently operates a blockchain-based payment network that allows 15 of Africa’s biggest banks and fintechs to process ATM and POS transactions.

The company is currently processing ATM transactions for nine Nigerian banks at more than 6,000 ATMs for about 10 million cardholders. Within three months of the launch of its ATM product, the company was already processing $1 million in daily transactions.

Zone’s blockchain network makes every financial institution a node that can connect to any other node and exchange financial messages without an intermediary, allowing transactions between nodes to be verified immediately and stored as immutable records on a shared ledger. The company is also expanding the use cases for its blockchain network by connecting fintechs directly to banks as well as other fintechs. This will allow fintechs to process point-of-sale (POS) transactions faster and more reliably—crucial drivers for scaling POS transactions.

“The reliability goes up significantly because we don’t have any scenario where they have to rely on a middle intermediary and the fintech has control over their switch because it’s sitting in their environment on their servers or the cloud,” Obi Emetarom, Zone’s CEO, told TechCrunch.

Challenges of blockchain-based payment systems

Blockchain-based payment systems are not without fault. There are a myriad of challenges that can serve as roadblocks for blockchain-based payment systems, but the biggest challenges remain the scalability of infrastructure and regulatory approval.

Scalable infrastructure is required if blockchain-based payments are to have any chance of replacing traditional payments. The vast scale of global finance mandates a system that can process trillions of transactions, something that almost all blockchains have yet to achieve. Verifying and recording every transaction on a shared ledger can be computationally expensive, and this can limit the number of transactions a blockchain network can handle per second, making it difficult to scale to meet the demands of a global payment system. For instance, the JPM coin processes only $1 billion daily, which pales in comparison to JP Morgan’s daily transaction capacity of $10 trillion.

Another challenge is regulatory approval and uncertainty. The global regulatory landscape surrounding blockchain is still evolving, and not all countries are receptive to blockchain-based payment systems. The lack of harmonisation across jurisdictions regarding legal frameworks for blockchain also creates uncertainty in determining applicable regulations and compliance requirements. These regulatory challenges also limit the adoption and scale of blockchain-powered payments.


Blockchain technology has the power to revolutionise how banks move money around. The outdated approach of relying on intermediaries to process payments increases the risk of failed transactions and introduces operational friction, both of which have crippled the Nigerian payment system on several occasions.

The success of JPM Coin and Zone’s ATM processing are testaments to how much innovation the application of blockchain technology can bring to traditional banking. The Central Bank of Nigeria also seems to believe that blockchain can inspire the next wave of improvement, given that it granted Zone a license to process payments with its blockchain-powered infrastructure and established the eNaira, a central bank digital currency, as legal tender.

The implementation of blockchain in traditional banking has the potential to address several existing issues simultaneously and holds immense promise for preventing many others.


Adeyemo is a financial analyst from Lagos.