Last year, Appzone rebranded as Zone, the first payment infrastructure company running on blockchain technology to be licenced in Africa. At the time, Obi Emetarom, Zone’s CEO, told TechCabal that the company was building “a new architecture, what we consider the next generation of infrastructure for payments.”
Considering that in just a matter of months, the startup claims to now process $1 million in daily transaction volume, it appears that Emetarom might have been right. According to Emetarom, Zone reached this milestone through ATM transactions around the country. He also shared that 16 Nigerian banks use Zone’s blockchain network to process all their ATM transactions.
When asked how Zone was able to convince the banks to use its blockchain network, Emetarom told TechCabal that Zone used a three-pronged approach. “First off, we did quite some proof of concepts to show the banks that the technology works. Secondly, we got a letter of no objection from the Central Bank of Nigeria (CBN) showing that we were not in violation of any guidelines. The last thing that helped us over the line was the Payment and Switching License from the CBN, this gave the final boost to potential clients for them to accelerate signup.”
Blockchain technology has often been used interchangeably with cryptocurrencies, but they are very different. Blockchain technology is a sophisticated database system that enables open information sharing within a business network. Cryptocurrencies leverage blockchain technology to create digital currencies.
When asked how Zone’s blockchain network has impacted ATM transactions, Emetarom said that his company’s blockchain network has improved the reliability, consistency, and speed of transactions and the reconciliation process for ATM transactions. “With the older switching architecture, ATMs had to send transaction data to some middle switch. When that middle switch is down, then the network is completely done. With our own system, when you make a transaction at a bank’s ATM, the ATM sends the transaction through our blockchain straight to your bank; you just connect from bank to bank. Our network is faster and more reliable because there is no situation where that middle switch is down.”
On how Zone has changed the reconciliation process, Emetarom explained that because the CBN mandated that the process for failed ATM reconciliations should not take more than 72 hours, a lot of banks struggled with false claims, particularly with the former infrastructure. “What a few unscrupulous people have typically done is go and report a fraudulent claim and hope that the reconciliation will not be completed before the deadline. If that happens, they automatically get a refund, and the bank that owns the ATM pays. On Zone, this problem goes away because the reconciliation process between the banks is completely automated,” he told TechCabal.
Last year, the Central Bank of Nigeria implemented a nationwide policy to demonetise the economy and move Nigeria toward a cashless future. The policy included a redesign of the Naira, cash withdrawal limits of ₦5 million for businesses and ₦500,000 for individuals, and a fine on anyone who went above the limit. When asked if the policy affected Zone’s ATM infrastructure, Emetarom replied in the negative. “We found that the average transaction amount is a little over ₦8,000 and the average monthly frequency is between 4 and 5 times.” According to the numbers shared by Emetarom, there is a sizable difference between the CBN’s imposed limit and the typical monthly withdrawal amount made by Nigerians at ATMs.
However, it is also important to note that according to the CBN’s most recent data on payment channels, the volume of POS transactions outweighs ATM transactions by a billion. This is not unsurprising, as for the majority of Nigerians, agency banking represents the easiest way to access much-needed cash.
Although still in its infancy, Zone’s blockchain solution is currently being used by more than a third of all commercial banks in Nigeria for their ATM transactions. According to Emetarom, the same solution could also be applied to POS transactions across Nigeria. He shared that in the coming months, the company will roll out more use cases, including online payments and direct debit, for its network.
In recent weeks, Nigerians have had to contend with a cash crisis as commercial banks have been unable to cope with the demand for the redesigned Naira notes. When asked, bank officials hinted that the CBN’s process has been slow and opaque. The speed, reliability, and transparency that blockchain technology brings to financial transactions might provide an alternative source of infrastructure for payments across Nigeria.
Electronic transfers are far from seamless in Nigeria, and most times, the disappointing experience of failed transactions reaches a peak during holiday seasons when moving money around becomes a pressing need.
In June 2020, NIBSS reported that more than one-fifth of POS transactions nationwide failed. Whether things got better by 2022 remains unknown, especially as the year ended with widespread laments over the inability to move money between banks. As cash got dethroned towards the year’s end, failed transactions seemed to take up the crown. And Nigerians suffered for it.
ATMs are not left out of this. ‘Issuer or switch inoperative’ is the common error code that pops up when ATM machines in Nigeria are unable to dispense cash. Sometimes, the customer’s account is debited without the cash being dispensed, leaving the money stuck in limbo until the banks involved—alongside the middleman switch company—are able to resolve the problem with their slow and manual processes.
Now, in a country where less than two ATMs are available per 10,000 adults, and the average person needs an hour to get to an ATM, the frustration that accompanies failed ATM transactions can only be imagined. Thankfully, such painful imaginations are less important to Zone than solving the problem.
Through its proprietary blockchain technology, Zone boasts a 12% increase in the success rate of ATM transactions nationwide. While competitors average between 87% and 91% “on a very good day”, Zone puts its average success rate at 98.73%— a testament to what could happen if the solutions are deployed across other electronic payment options.
Zone’s latest blockchain product positions the company as an alternative to the Central Bank-controlled NIBSS, as it ultimately eliminates the middleman structure while allowing the payment providers/financial institutions to interact in a direct peer-to-peer fashion. Again, this ensures that adopters of this technology would record fewer ATM reconciliation disputes, as Zone’s technology allows for almost instant reimbursement when ATM transaction failures occur, aggressively skyrocketing the overall customer experience.
Zone may have been the first to toe the blockchain path as a switch provider, but its competitors won’t let it have all the shine. Interswitch is reportedly building an enterprise blockchain solution, Interstellar, which will “develop blockchain-powered infrastructure services and solutions.” With more solutions like this deployed nationwide, a future where failed transactions are less likely becomes increasingly possible.