Zone, a Nigerian blockchain-enabled payments infrastructure, has partnered with the Nigerian Inter-Bank Settlement Scheme (NIBSS) to introduce blockchain technology to Point-of-sale (POS) terminal payments. 

The partnership will allow participating financial institutions to view the blockchain ledger that contains all recorded transactions. Banks and fintechs will use this data to reconcile transactions, settle disputes quickly, cut customer wait times, and reduce chargeback and other POS-related fraud.

There are two intermediaries in POS transactions: the payment switches and the Payment Terminal Service Aggregator (PTSA). When a POS transaction is initiated, the PTSA manages the interaction between the cardholder and the terminal, while the payment switch receives this transaction data from the PTSA and routes it to the cardholder’s bank. 

This siloed communication pattern makes reconciliations difficult when there are downtimes. Zone, a payment switch itself, is shortening the communication path for processing POS transactions with this decentralised blockchain ledger. 

“We’ve built the PTSA functionality into the blockchain network so that every node [on the blockchain] can perform these checks,” Zone CEO Obi Emetarom told TechCabal in an interview.

“The PTSA [NIBSS] will use that function to screen payment terminal transactions which they perform today on a central system.”

NIBSS will perform its PTSA functions in the blockchain system. The data from both systems will be harmonised into a central repository that better serves the PTSA.

Zone first implemented its blockchain technology in automated teller machines (ATMs) before creating a module within its layer-1 blockchain system to accommodate POS payments. Unlike ATM transactions that did not need a PTSA, Zone says the partnership with NIBSS was crucial as its switching licence was not enough to grant it access to POS payments.

Emetarom acknowledges that for the blockchain-based PTSA to work, it has to achieve a wider scale. Banks and fintechs with interests in the agency banking sector have to come onboard—many, if not all of them. Currently, over 30 financial institutions are integrated with the Zone network. 

Zone currently offers this integration service at no upfront cost. If there’s no chance for these banks and fintechs to lose money, then it incentivises them to sign up; and if they’re impressed by this technology, they’ll sign on for a longer term.

Despite what looks like a win for Nigeria’s payments system, Zone has to keep an eye out for the transaction volume on its system. One of the arguments around NIBSS is the need to scale its infrastructure to accommodate the growing volume of daily digital payments.

“The only issue with it is transaction throughput. Some [blockchain] layers take about 5 minutes to reach finality, and the receiving party cannot access the money until then, causing a lag in moving money around,” said one blockchain developer who asked not to be named.

While Zone didn’t specify the transaction volume it has processed, the company claims the success rate is over 99%. 

“In 5 years, POS-related fraud activities—particularly the ones related to cashback—will be zero or very close to zero because we expect to have achieved the scale to have the level of impact required to reduce the cases by more than 99%.”

Emmanuel Nwosu