Payment in Nigeria has come a long way. From the creation of the Nigerian Inter-Bank Settlement System (NIBBS) in 1993 to the introduction of NIBSS Instant Payments (NIP) in 2011, the industry has seen watershed moments that have made it what it is today.
Financial institutions that have leveraged these creations to build amazing technologies have the Nigerian Bankers Committee to thank for it.
It is also noteworthy to mention early fintechs like eTranzact and Interswitch — who launched in 2003 and 2002 respectively — and their contributions to digital payment services.
Additionally, the Central Bank of Nigeria’s (CBN) decision to formally appoint NIBSS National Central Switch (NCS), and mandate it to connect all licensed banks, switches, and mobile money operators in Nigeria, to ensure interoperability was pivotal to the growth of digital payments in Nigeria.
However, this legacy payment infrastructure might need a significant upgrade as more Nigerians adopt digital payment.
McKinsey estimates that by 2025, the e-payments market will grow by 150%, and even then cash might still be the king of payments, which means there’s significant additional room for growth.
Preparing Nigeria’s payment infrastructure for scalability
As digital payment numbers are expected to explode, existing payment infrastructures would require significant upgrades to handle this scale of adoption. This projected surge in digital payments will ultimately require innovation at the infrastructure and product levels to accommodate the increased demand.
A possible attempt at this was the creation of the central bank digital currency (CBDC) — eNaira — in 2021 by the CBN. The eNaira was poised to be a faster, frictionless, and less expensive way to initiate digital payments, but it didn’t take off.
According to the International Monetary Fund, only 8% of downloaded wallets were in use. However, there’s Zone, another regulated blockchain solution for scaling payments that seems to be gaining traction.
Zone is a payment infrastructure company that has developed Africa’s first decentralized and regulated payment network based on Blockchain technology. It recently announced that major Nigerian banks like Zenith Bank, First Bank and United Bank for Africa, joined its network.
It has also launched a PoS payment gateway and processes $1 million in daily transaction volume
Unlike CBDCs, Zone’s solution isn’t consumer-facing. It simply provides a one-of-a-kind platform for banks and other financial institutions to do what they already do but do it better.
Leveraging its payment switching license in Nigeria, the company is pioneering an innovative use case for its blockchain technology which allows direct digital transactions between financial institutions.
Leveraging its payment switching license in Nigeria, the company is pioneering an innovative use case for its blockchain technology which allows financial institutions to connect directly with each other and perform digital transactions without a central intermediary.
Connecting banks directly means the Zone network can tackle problems like chargeback and chargeback fraud. According to this article, which explains how its PoS payment gateway works, “chargeback is almost impossible with Zone because all parties involved in the transaction can immediately see the state of the transaction on both ends.”
This solution is important because chargeback fraud is a big headache for financial institutions. For example, it was announced in 2023 that fintech giant, Interswitch lost ₦30 billion to chargeback fraud.
Payments in Nigeria: What is and what could be
When you hit send on your bank app or enter your PIN in a PoS machine, several things happen on the backend that you don’t see.
In the case of PoS payments, the device transmits your card details to a payment processor, which then routes the information to a payment switch or card scheme, such as Visa or Mastercard.
The card scheme or switch requests authorization from your bank for the transaction. Once approval is granted, your bank debits your account and transfers the funds to the recipient within 24 hours.
If one of these backend processes fails even if others work properly, then some aspects of the payment will be successful while other aspects will fail which means the transaction is incomplete. Resolving incomplete transactions becomes an even bigger issue because the different parties that have facilitated the payment do not communicate seamlessly.
With Zone, these parties being banks and financial institutions, are connected directly to each other making them privy to the state of the transaction on both ends.
The way Zone achieves this is with its regulated blockchain solution. For example, Bank A will be privy to the status of a transaction on Bank B’s end, meaning issues can be resolved immediately.
Described as the most innovative financial technology in Nigeria since the creation of the NIBSS Instant Pay (NIP), Zone also combines transaction processing and settlement on the same system.
Normally, when a payment is initiated, the sender account gets debited, while the recipient gets credited as part of transaction processing. However, money does not leave the sender bank until settlement is completed on a separate system that was not involved in transaction processing. The separation of transaction processing systems from settlement systems is the reason why merchants typically wait 24 hours before they receive value for payments made.
According to this interview with Obi Emetarom, CEO & Co-founder of Zone, he said, “We’ve been able to combine the transaction processing and the settlement systems so that the settlement system knows that this transaction has happened and it can be settled immediately instead of waiting for a batch process to send settlement at intervals.”
Zone’s decentralized payment infrastructure represents a potential paradigm shift for Nigeria’s financial landscape as it tackles some of the most pressing challenges in the continent’s payment ecosystem.
As Nigeria continues its rapid digital transformation, the future of payments in the country may well be on the Blockchain hence decentralised, reliable and secure with innovations like Zone unlocking a new era of trust and mainstream adoption.
