In March 2024, the Zone blockchain network was described as the most innovative financial technology in Nigeria since the creation of the Nigerian Inter-Bank Settlement System (NIBSS).
NIBSS, which is partly owned by the Central Bank of Nigeria (CBN) and functions as Nigeria’s central switch, has partnered with the blockchain payment infrastructure to perform payment terminal service aggregator (PTSA) functions on the blockchain.
Established by the Bankers Committee in 1992, NIBSS was created to efficiently manage interbank transfers, and today, NIBSS Instant Payments (NIP) is the largest instant payment service in Africa.
In fact, NIP processes more transactions than many payment systems in more developed economies, which was why Nigeria was ranked the 6th most developed real-time payments market globally in 2021.
With over 3.7 billion real-time transactions in 2021, the incorporation of NIBSS has been a net positive for the Nigerian financial system, and its partnership with Zone Blockchain could take its success to a new level.
Zone’s regulated blockchain network creates real-time peer-to-peer communication between financial institutions through decentralisation. This means that institutions on this network interact in a bidirectional way, which allows counterparties to be aware of the state of transactions on both ends.
This arrangement guarantees transaction reliability, reduces transaction errors, and makes it possible to resolve transaction issues immediately.
With its partnership with NIBSS, Zone brings this same architecture and improved efficiency to payment terminal service aggregator (PTSA) functions.
Read also: Zone, NIBSS revolutionise payment terminal service aggregator with partnership
PoS, PTSA, and blockchain—what does it all mean?
A Payment Terminal Service Aggregator (PTSA) ensures that PoS machines are duly registered and certified for transactions. This licence category was created by the CBN to tackle problems like PoS fraud and interoperability while improving the payment experience on PoS machines.
Although PoS terminals are gradually becoming a big part of digital payments in Nigeria, increasing fraud rates threaten the growth of the payment system. In the first quarter of 2024, PoS fraud rates surged by 31 percent.
Consequently, PoS terminals are now required to have technical and operational standardisation, which enables interoperability and helps regulators identify and monitor transactions completed on these terminals. It is also one of the reasons why PoS transactions need to go through a payment switch.
While these processes ensure the secure and regulated operation of PoS terminals, they create additional payment layers, increasing points of transaction failure.
Zone solves this problem with its regulated blockchain network for payments by providing each participating financial institution on the network with a node that has the capabilities to perform both PTSA and payment-switching functions.
Through these nodes, banks and financial institutions on Zone’s blockchain network connect directly with each other while performing the same routing and screening functions typically performed by the payment switch and PTSA, respectively.
In contrast, these institutions would have to route transactions through a switch and then a PTSA before it is completed. In the event of a transaction error such as a chargeback, the switch would have to make a series of requests to affirm the state of the transaction on both ends, which could take several days.
However, all participants on Zone’s blockchain network are immediately aware of the state of the transaction, which means all chargeback problems are solved immediately.
Essentially, Zone is a decentralised payment switch that gives participating banks within its network the power to become switches and PTSAs themselves. So where does the NIBSS partnership come in?
Like the banks on Zone’s regulated blockchain network, NIBSS has also joined the network as a participant, in the capacity of a regulator, with real-time access to records of all PoS transactions, PoS terminals, and card issuers on the network.
The brilliance of Zone’s regulated blockchain network is not only that it gives each bank the ability to function as its own payment switch, but that it makes the regulator’s job even easier, a phenomenon that has never been seen anywhere else in the world.
Blockchain, being a relatively new technology, has constantly faced regulatory hurdles in many parts of the world, but Zone has found a way to create a blockchain solution that not only complies with but also eases regulation.
It is no surprise that some of the largest banks in Nigeria are now aboard the network. As more institutions join Africa’s first blockchain payment network, payments in Nigeria could experience an upgraded level of scalability and interoperability.
Yemisi Yinka writes from Lagos.
