13th June 2024

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Business Industry and Financial

How blockchain can facilitate payments in Africa

In Africa, nations such as Nigeria, Kenya, Egypt, Ghana, and South Africa are currently leading the way in digital payments. According to McKinsey, it has been projected that approximately half of the digital payment revenue realized in Africa will come from those five countries, with Nigeria having the fastest annual growth rate at 35%. In 2023, the total transaction value for digital payments in Africa is expected to reach $146.60 billion, per Statista.

Additionally, due to the proliferation of mobile phones and the uptake of digital financial services, there has been an influx of digital financial service providers offering infrastructure and payment solutions. In Nigeria alone, according to this report, there are over 300 fintech platforms.

Challenges Facing Payments in Africa

Despite the growth in digital financial services in Africa and the presence of multiple companies creating payment solutions, the continent’s digital payments landscape continues to face challenges. The effect is that the majority of transactions occurring on the continent are still cash-based.

One of the main reasons for the high rate of physical cash payments is distrust of which failed transactions and reconciliation issues are typically the cause. For instance, in early 2023, Nigeria experienced a ton of disputed transactions, with only 40% of those disputes having been resolved as of April 2023.

How can blockchain facilitate payments in Africa?

The traditional payment infrastructure used by many African countries to facilitate payments makes use of centralised technology infrastructure. However, one of the biggest challenges facing financial service providers is the unreliable nature of centralised payment switches which were not built to manage the large and growing volume of digital payment transactions. Hence, this central authority tends to fail when burdened with too many transactions, and when it does fail, it causes downtime across the entire network. This can lead to delayed payments and reconciliation issues.

The immutability and non-repudiation of records on the blockchain can solve the payment finality problem that most centralized systems suffer when it comes to guaranteeing payment finality. Additionally, under the current payment system, intermediaries are needed to route payment transactions and maintain the integrity of payment records. While these are necessary for any payment network, utilizing intermediaries to achieve them increases transaction time, and cost.

To combat the aforementioned problems, some fintech companies, like Zone, decided to focus exclusively on solving this issue with a pure-play focus as a decentralized payment infrastructure company. Zone evolved from Appzone, a banking infrastructure as a service company, to become a payment infrastructure company entirely powered by blockchain technology.

By obtaining a switching and processing license from the Central Bank of Nigeria, Zone has established Africa’s first regulated Layer-1 blockchain network for payments. With its blockchain-powered infrastructure, Zone can deliver dependable, seamless, and globally interoperable payments to major banks, fintechs, and OFIs.

The company has successfully connected over 20 of Africa’s biggest commercial banks, fintechs, and OFIs on its Layer-1 blockchain network for payments. Zone claims that its blockchain-powered payment infrastructure will solve some of the biggest issues facing financial services providers in Africa – issues of payment disputes and fraud amongst a long list of others. Early last year, (just a few months after launching) the company disclosed that it was processing $1 million daily for Tier 1 Nigerian banks, which use Zone’s blockchain network to process all their ATM transactions..

Aside from solving payment and reconciliation issues, blockchain technology also helps enhance scalability and reduce the cost of facilitating transactions. Through its payment-processing platform built on a blockchain, Zone seeks to enable local and regional payments across Africa in fiat and digital currencies at a low cost. With Zone, payments do not need to go through a central authority to be validated since the platform is built based on a decentralised peer-to-peer principle. Also, the absence of intermediaries makes Zone a cost-effective alternative since there is no central hub to manage.