Zone and NIBSS want to reduce the failed POS transaction rate in Nigeria with this blockchain solution

Nigeria's traditional payment systems have long struggled with inefficiency, security risks, and regulatory hurdles. Despite these challenges, Point of Sale (POS) transactions have surged in popularity. 

The average Nigerian increased their POS usage from 1.4 transactions in 2018 to 6.2 in 2023, a staggering 384% growth according to NIBSS. Consequently, the total number of POS transactions skyrocketed from 286 million in 2018 to 1.3 billion in 2023. This upward trend is reflected in the transaction value, which climbed 27.85% from ₦8.39 trillion ($5.59 billion)  in 2022 to ₦10.73 trillion ($7.15 billion)* in 2023.

As Nigeria's digital economy continues to flourish, the demand for efficient and secure payment solutions has never been greater. To address these issues, Zone, a leading fintech innovator, today announced the launch of its regulated blockchain solution in partnership with Nigeria Inter-Bank Settlement System (NIBSS), Nigeria’s renowned Clearing House and National Central Switch.

The partnership between NIBSS and Zone is set to enhance the POS payment rail by utilising blockchain technology to facilitate transaction processing between banks and other financial service providers. Unlike traditional systems that rely on a central hub to process transactions, this new solution distributes the processing across a blockchain network.

“There are too many reasons why the [POS] network is always down,” Obi Emetorom, Zone CEO explained over a call. “But in this solution where the Payment Terminal Service Aggregator (PTSA) and switch are no longer in the middle, it means that the network is never down, even if one bank is down, other banks will continue transacting.” 

Over a conversation, Emetorom talks about Zone’s novel solution that has no failure point and why the fintech is championing the concept of a regulated blockchain as a solution to the challenges hindering widespread adoption of public blockchains.

Why does this partnership and new solution matter?

Let’s go back to the history of the POS, as a sub-segment of the payment industry. Originally, when POS was created, the POS industry relied on a straightforward structure: POS providers interacted with cardholder banks through a central switch. This model functioned but introduced a single point of failure. If the central switch was down transactions failed.

The initial path looked like this:  POS provider → Switch → Bank.

The introduction of the Payment Terminal Service Aggregator (PTSA) regulation mandated an additional intermediary. While intended to enhance industry control and security, the PTSA inadvertently introduced a new point of potential failure, slowing down transactions and compromising service quality.

This path looks like this:  POS provider → PTSA → Switch → Bank.

This regulatory imposition created a significant challenge for POS providers. They were confronted with a stark choice: adhere to the PTSA regulations and accept reduced performance, or bypass the regulation and risk non-compliance. The industry found itself in a precarious position, caught between regulatory obligations and the imperative to deliver optimal customer experiences.

Our solution offers a novel approach to this longstanding industry dilemma. By incorporating PTSA functionalities directly into a blockchain node or gateway, we eliminate the need for a separate PTSA entity entirely. This innovative architecture streamlines the transaction process, significantly reducing latency and enhancing overall system reliability.

Furthermore, our solution empowers POS providers to establish direct connections with cardholder banks, bypassing the PTSA bottleneck altogether. This direct integration not only accelerates transaction speeds but also strengthens security by minimising the number of intermediaries involved.

Zone’s path looks like this: POS provider → Blockchain node → Bank.

How is your solution better? How many failure points does it have?

There are no failure points. Let me explain. The reliance on central entities like the PTSA and switch created single points of failure. If either of these components went offline, the entire network could be impacted, leading to widespread transaction failures.

Our solution eliminates these intermediaries. By integrating both PTSA and switch functionalities into a gateway installed directly at the POS provider, we create a direct, efficient path between the merchant and the customer's bank. This streamlined approach significantly improves transaction speed and reliability.

Importantly, this gateway is distributed across the network. All participants, including banks and fintechs, possess a copy of this node. While we also operate a node on the network to access transaction records, our system does not handle the actual processing of transactions. This decentralised architecture ensures data integrity and security while optimising transaction efficiency.

NIBSS maintains a node on the network to capture transaction records after each transaction is completed. This ensures that NIBSS can continue its reporting, monitoring, and other regulatory obligations even if its system experiences downtime. Once the NIBSS system is operational again, it can retrieve a complete record of transactions that occurred during the outage.

Our decentralised architecture significantly enhances system resilience. By eliminating the PTSA and distributing processing capabilities across the network, we mitigate the risk of widespread outages. Even if one bank experiences downtime, the rest of the network can continue to operate normally. This distributed approach results in substantially higher uptime and improved overall system reliability.

Additionally, our solution addresses scalability and performance challenges. As we saw during the cash crunch period last year, the centralised model often struggled to handle peak transaction volumes, leading to slowdowns and failures. Our decentralised architecture distributes the processing load across multiple nodes, preventing bottlenecks and ensuring smooth operations even during periods of high demand. By removing the single point of congestion, we enable faster transaction processing and a more efficient payment ecosystem.

What will happen to the existing centralised POS Payment architecture?

It’ll still exist. NIBSS has historically served as the centralised PTSA for the industry. This centralised system fulfilled the regulatory requirements for POS operators. In collaboration with us, NIBSS has developed a decentralised PTSA solution. This innovative approach offers POS operators an alternative to the traditional centralised model.

It’s important to note that the centralised PTSA remains an option for those who prefer it. NIBSS's dual-option strategy expands the range of choices available to POS operators, enabling them to select the solution that best aligns with their business needs and preferences while ensuring compliance with PTSA regulations. Businesses can use our solution for free with no additional charges.

How does blockchain fit into all this and what type of blockchain is this?

This type of payment architecture and solution is only possible because of the advancement in technology and the capabilities of the blockchain, which ensures the integrity of the data collected is preserved irrespective of downtime.

With this solution, we’ve introduced the concept of a regulated blockchain as a solution to the challenges hindering the widespread adoption of public blockchains.

For a long time, public blockchains have struggled to gain mainstream acceptance due to their lack of regulatory oversight and compliance issues. Even though the blockchain is built for trust, it's still not trustworthy, which is weird. 

We believe that a regulated blockchain can bridge this gap by combining the decentralisation and efficiency of public blockchains with the security and trust of traditional financial systems. After all, a tool is only as good as how you use it.

A regulated blockchain incorporates regulatory compliance directly into its core infrastructure. Rules and restrictions are embedded in the blockchain's code, ensuring that all activities adhere to regulatory standards. This removes the burden of compliance from individual users and businesses.

Moreover, the blockchain's transparency allows regulators to monitor activities in real time, enhancing oversight and risk management. By requiring licensed entities to operate nodes, the system further strengthens its regulatory framework. I’d to add here that the access to information is tiered, such that each respective party (merchants, regulators, banks), only sees what they’re meant to see.

This approach effectively merges the best aspects of both worlds: the innovation and efficiency of blockchain technology with the stability and trust of traditional finance. The result is a platform that is both secure and accessible, capable of supporting a wide range of financial services.

Ultimately, the challenge with public blockchains lies in the complexity of their underlying technology and the potential for misuse. A regulated blockchain simplifies this complexity by providing a clear framework for compliant operations. This increased trust and security will be essential for driving mass adoption of blockchain technology.

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