L – R: Ngover Ihyembe-Nwankwo (Executive Director, NIBSS), Obi Emetarom (Co-founder & CEO, Zone), Premier Oiwoh (MD & CEO, NIBSS), Wale Onawunmi (Co-founder & CEO, Zone)

Zone Payment Network Limited, one of Nigeria’s growing payment infrastructure providers is pleased to announce a strategic partnership with Nigeria Inter-Bank Settlement System (NIBSS) Plc, the National Central Switch and Nigeria’s first Payment Terminal Service Aggregator (PTSA). This collaboration aims to enhance interoperability across the POS payment value chain by leveraging cutting-edge blockchain technology.

To address the challenges of transparency and provide more efficient payment processes in Nigeria Payment System, the Central Bank of Nigeria (CBN) has established the Payment Terminal Service Aggregator (PTSA) license category. This regulation mandates that all licensed financial service providers must connect and route their POS transactions through a PTSA. The goal is to improve the payment experience for individuals and merchants, streamline reconciliation processes and ultimately reduce financial losses and cost of operations for Banks and other financial institutions.

The partnership between NIBSS and Zone is set to enhance the POS payment rail by utilizing blockchain technology to facilitate transaction processing between banks and other financial service providers. It will significantly enhance the reliability and security of transactions, ensuring efficient and secure processing. With the introduction of decentralized card routing, Banks and fintechs will be able to perform card routing between POS terminals and cardholder banks while remaining fully compliant with both payment switching and PTSA regulations as defined by the Central Bank.

A critical feature of this partnership is the automated resolution of chargebacks, allowing refunds for declined transactions to be processed within minutes, eliminating the need for manual intervention and reducing the inconvenience of frequent bank visits for customers. Additionally, it will validate final transaction status in real-time, thereby enhancing liquidity and improving overall business operations. This timely access to funds is a game-changer for merchants.

As Nigeria transitions further to a more digital society, this will significantly improve the overall card-holder experience through enhanced service reliability, faster response time and reduced transaction processing cost, all of which are crucial in supporting the expected scale of transactions. Agent networks will also benefit from the opportunity to generate more revenue thereby incentivizing the expansion of financial services.

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Speaking on the outcome of the directives by the CBN, the Managing Director and CEO of NIBSS, Mr. Premier Oiwoh, stated, “These partnerships and collaborations with key industry players represent a significant milestone in our mission to drive innovation and enhance the efficiency of the payment system. The strategic alliances will revolutionize the ecosystem, offering improved operational efficiency, cost savings and enhanced financial inclusion, ultimately positioning Nigeria at the forefront of the global payment space”.

On his part, Obi Emetarom, CEO and Co-founder of Zone, added, “This partnership with NIBSS reflects our unwavering commitment to transform the payment landscape in Nigeria. By harnessing the power of blockchain technology, we are setting a new standard for reliable, frictionless, and universally interoperable payments in the industry.”

Nigeria Inter-Bank Settlement System (NIBSS) Plc is a critical national infrastructure mandated to ensure the seamless operation, integration and efficiency of the Nigerian payment system. As the national switch, NIBSS provides a shared service infrastructure that enables interoperability and interconnectivity among financial service institutions across the country.

Leveraging cutting-edge technologies, NIBSS facilitates electronic payments, settlements and identity verification processes, which are essential for the smooth functioning of financial services in Nigeria. By driving the adoption of electronic payments, reducing reliance on physical cash and promoting digital financial services, NIBSS enhances the speed, reliability and security of payment transactions.

NIBSS plays a pivotal role in ensuring that all stakeholders, including banks, fintech companies and other financial service providers, operate within a unified and efficient framework. This promotes innovation and enhances the country’s economic stability by making financial transactions more transparent, accessible, and inclusive.

Zone is a regulated blockchain network that enables payments and acceptance of digital currencies. Its Layer-1 Blockchain network digitises Fiat payments and enables the transition to digital currencies while connecting previously excluded financial institutions into an all-inclusive payment ecosystem. Zone, Africa’s first decentralised payment network, allows participating institutions to connect directly with each other and perform payment transactions without an intermediary while completely automating settlement, reconciliation, and dispute management. The Company is working with the brightest minds on the continent to lay the foundation for the decentralised future of financial services. Its mission is to connect every monetary store of value by harnessing the power of blockchain. 

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Zone and NIBSS Partner to Revolutionize Payment Terminal Service Aggregator (PTSA) Functions Using Blockchain Technology

With traditional finance (TradFi), service delivery relies on conventional financial institutions, which run operations and serve as financial intermediaries. By eliminating dependence on financial intermediaries and leveraging other key characteristics of Blockchain technology, decentralized finance (DeFi) has vast potential to reduce cost, improve utility and enable access across the full spectrum of financial services, including savings, lending, investing, payments, and insurance which will ultimately maximize financial inclusion on a global scale. Early signs of this potential have been seen in the last three years with DeFi’s astronomical growth, yet significant limitations remain, which have a major impact on adoption. The next wave of DeFi (DeFi 2.0) will address these limitations and achieve mainstream adoption in what will be one of the most radical industry transformations in modern history. This article looks at some of the characteristics of DeFi 2.0, which will be crucial to this imminent paradigm shift.

One of the most influential and successful waves of blockchain-based innovation has been decentralized finance. DeFi refers to a broad spectrum of decentralized applications that disintermediate traditional financial services leveraging automation, cryptography, and an immutable database distributed across multiple nodes on a public or private network. The decentralized nature of the Blockchain allows for the creation of self-executing, autonomous, and immutable software known as smart contracts that no single authority controls, not even the original developer(s). These smart contracts are the means through which DeFi products are delivered more effectively and efficiently than traditional finance equivalents.

One significant evolution enabling the rise in DeFi has been the global move away from fiat money to digital currencies. Fiat money usually exists in the form of physical cash, which introduces the need for intermediaries who keep custody of the physical notes that pile up as customers make deposits. However, with the Blockchain, monetary value is purely digital. It sits on a distributed ledger from where smart contracts can automatically borrow, lend, exchange, and invest such funds on behalf of beneficial owners transparently and without the involvement of traditional intermediaries. Popular DeFi services like MakerDAO, Uniswap, Compound, and Aave are just a few examples of how DeFi is leveraging the growing adoption of crypto assets to gain significant traction in record time.

In its current form, DeFi is powerful, and the opportunities are limitless, yet just like any new technology or paradigm, there still exist gaps that constrain its full potential. For example, DeFi lending requires collateral which today must be in the form of crypto assets and may or may not be available for borrowers to provide. Due to lack of regulation, DeFi services also suffer limited adoption globally, while in certain jurisdictions, this is worsened by the fact that public cryptocurrencies which serve as underlying liquidity are banned. When combined with perceived complexity and general usability issues, the above factors work together to restrict adoption to a small fraction of early adopters. DeFi 2.0 promises to address these issues and make the experience as friendly and familiar as the experience with traditional finance. If successful, this can help reduce the risk and complications that discourage usage while enabling the trust that will propel mass adoption.

Though DeFi’s greatest strength is how it offers a revolutionary alternative to traditional financial institutions, it is difficult (without regulation) to hold individuals or entities accountable for security failures, hacking incidents, and theft of digital assets within DeFi ecosystems. A critical argument here is not just that regulation is essential but also that regulating DeFi will be generally cheaper, easier, and more effective than regulating traditional finance. This is simply because, with traditional finance, regulation targets ongoing human behavior – which is largely discretionary and unpredictable. With DeFi, regulation will be heavily focused on the driver of DeFi operations, being smart contracts, which are transparent, predictable, and immutable.

From a regulator’s standpoint, DeFi services are non-custodial, so they do not require service providers to hold financial assets on behalf of customers. This significantly lowers the minimum capital required for organizations to have in order to deliver DeFi services, thereby allowing substantially more innovation to be introduced into the ecosystem. Because DeFi services are fully digital, and the Blockchain provides the platform for them to run, DeFi services do not require heavy physical infrastructure or elaborate IT infrastructure. Instead, requirements to deliver a DeFi service will include a decentralized application, supporting software development expertise, financial services domain knowledge, and customer service operations.

To enforce regulatory compliance in traditional finance environments, certain regulators attempt to control the process of launching new financial products into the market by introducing a product approval step that involves issuing a letter of no objection. This approach is not foolproof since service providers may skip the approval and proceed to launch new services or may present inaccurate/incomplete details about the product just to obtain approval. Regulating DeFi services will leverage smart contract transparency and immutability by introducing a smart contract audit process that clearly identifies the specific activities performed by each smart contract and ensures that these activities comply with regulation. The arrangement will guarantee that only audited and approved DeFi products can be rolled out and that, once deployed, the operations of such products cannot be altered.

Finally, the regulatory reporting regime for traditional financial services is challenged by the fact that financial institutions are practically only able to provide reports periodically and may (through the loophole of human involvement) doctor such reports to portray favorable but false positions. With DeFi, on the contrary, the Blockchain provides real-time reports and operational statuses directly to regulators without human intervention and from one single yet distributed and immutable source of truth.

We can think of Central Bank Digital Currencies (CBDCS) built on Blockchain as stablecoins issued by central Banks to serve as legal tender and ultimately replace the existing cash-based fiat money. Even though they are essentially a claim on a central bank, they function pretty similarly to other cryptocurrencies in that payments are certain and final, and the instrument is programmable and non-custodial with no need for intermediaries.

Even though DeFi and CBDCs may seem worlds apart, CBDCs can serve as potential alternative liquidity for DeFi services in a world where cryptocurrencies that DeFi relies on are not regulated and are mostly banned by authorities. This is especially so since even countries skeptical about major cryptocurrencies are issuing CBDCs in their place, with most regulators taking a view that issuance of CBDCs is an easier short-term win than the longer-term goal of figuring out how to regulate digital currencies in general.

While CBDCs offer a viable alternative as liquidity for DeFi services, a few drawbacks still exist. First, some platforms upon which CBDCs are issued may not support robust smart contract operations. Secondly, interoperability across CBDCs is limited such that each CBDC platform can only issue and store units of its own CBDC. This restricts the ability to convert from one CBDC to another while creating a significant challenge for DeFi services that need to function across multiple CBDCs. With the highlighted potential and limitations of CBDCs, the primary question has to be; how do we augment CBDCs to overcome these limitations and work seamlessly with DeFi?

In blockchain terms, wrapping is a way of transferring a digital asset from its native network to a third-party network. A wrapped token represents a cryptocurrency from another blockchain protocol that is backed by (and worth the same as) the original cryptocurrency. Unlike the original cryptocurrency, the wrapped token can be used on applicable non-native blockchains and later redeemed for the original cryptocurrency. Applying this concept to CBDCs means CBDCs from a native platform that may not have smart contract capabilities or a robust developer community can be transferred to a compliant and regulator-approved layer-1 Blockchain protocol that is more suitable for building and running DeFi products.

Once CBDCs are integrated into DeFi services, their adoption will increase significantly because of the superior economics and reduced friction associated with digital currencies and DeFi on the one hand compared with fiat money and TradFi on the other. This will create an environment where significant balances are held in CBDCs just as well as in fiat money. Such an environment will require that payment systems support the acceptance of CBDCs alongside fiat money while providing seamless real-time conversion from one instrument to the other during payment processing. Specifically, a buyer should be able to originate a payment from their balance of CBDC sitting on the Blockchain while the seller instantly receives value in fiat money delivered directly into their Bank account.

Decentralized apps have enabled crypto lending by automating processes and providing access to a broad user base. As such, crypto investors can now use DeFi lending as an instrument to invest their funds, just like a savings or fixed deposit Bank account. In return for staking their assets on such platforms, investors typically earn interest income that significantly surpasses what TradFi institutions pay. In the same vein, borrowers can access loans at more friendly interest rates than are offered in TradFi. The primary limitation with DeFi lending is that borrowers must pledge specific cryptocurrencies as collateral. This requirement excludes the vast numbers of potential borrowers who may not own crypto assets yet hold substantial amounts of other traditional assets like property, shares, and commodities.

Tokenization allows physical assets to be represented in digital form with secure and trusted ways to establish and transfer ownership. By incorporating tokenized assets into DeFi protocols, real-world assets can be seamlessly used as collateral in DeFi lending products. Such DeFi lending platforms will work hand in hand with decentralized token exchanges and their corresponding liquidity pools which will provide instant liquidity during automatic auctioning of tokenized assets belonging to loan defaulters.

By increasing the options for collateral, DeFi lending products will be able to expand the base of borrowers that qualify for loans and yet still exclude a significant base of potential viable borrowers who do not have sufficient collateral. To overcome this limitation, DeFi lending products will have to evolve ways of lending to borrowers without collateral. To achieve this, Defi Lending products must implement three important mechanisms to completely mitigate the risk of investors losing any portion of their capital.

Automated Credit Assessments– By incorporating automated credit assessment algorithms potentially offered by third parties, DeFi lending products can leverage data on borrower profiles, history, and cash flow to accurately predict eligibility. Results of such assessments can be utilized by relevant DeFi smart contracts to decide whether to approve or decline loan requests or determine what risk premium to charge a borrower for the loan.

Universal Direct Debit- Direct debit mandates usually enable services to collect post-dated and recurring payments from specific accounts of payers. A universal direct debit service allows organizations that have been authorized accordingly to charge any fiat account or digital currency balance owned by an individual. Universal direct debit services work with the expectation that every regulated store of value will be linked to the unique ID of each beneficial owner, which means that having an individual’s ID can provide access to all of their funds. This capability will allow DeFi lending protocols to collect loan repayments from whatever funds a borrower has, irrespective of their willingness to repay.

Credit Insurance– Credit insurance provides a means for traditional insurance providers or DeFi Insurance protocols to underwrite the risk of loan default in exchange for a small fee paid as an insurance premium and charged to the borrower or lender. This arrangement replaces the situation with TradFi, where the Bank that has custody of depositors’ funds underwrites each loan.

In non-collateralized DeFi lending, automated credit assessment and universal direct debit services reduce the risk being incurred by an insurance provider, thereby reducing the premium to be paid by the borrowers or lenders. Also, investors in DeFi lending protocols can rest assured that their funds are secure irrespective of which borrowers are approved by the protocol and whether the borrowers have provided sufficient collateral or not.

DeFi 1.0 has been a successful pilot run for DeFi, with adoption restricted to advanced crypto users. To achieve scale, unlock mainstream adoption and maximize financial inclusion, DeFi2.0 will build on the same core concepts of DeFi while infusing critical elements highlighted in this article, i.e., regulation, CBDCs, concepts from TradFi, and other innovative DeFi principles.

To accelerate this process, companies like Appzone are building out platforms like Zone, which are next-generation Layer-1 Blockchain protocols with native regulatory compliance, support for issuing CBDCs, interoperability with Fiat, and in-built integrations to legacy information systems. We at Appzone believe that this new breed of DeFi infrastructure will serve as the rails for an emerging golden age of finance.

DeFi 2.0: Fully Regulated and Compatible with CBDCs

As the tech industry evolves, the conversation surrounding gender equality has gained significant momentum. While much of the focus has been on empowering women, it’s equally important to recognize the role men play in fostering a more inclusive and equitable workplace.

At Zone, we believe that gender balance is a collective responsibility. We’re committed to creating an environment where all individuals, regardless of gender, can thrive and reach their full potential. By cultivating a mindset of mutual support and understanding, we’re able to break down harmful stereotypes.

Research has shown that true gender equality requires engaging men as allies and champions of change. As Susan R.K. Devoy eloquently stated, “Feminism isn’t about women versus men. It’s about all of us working together to create a society of mutual respect.”

By implementing these initiatives, we aim to create a more diverse, equitable, and innovative workplace. Research has shown that diverse teams are more creative, productive, and profitable. By fostering a culture of inclusion, we are not only doing the right thing but also driving business success.

As we celebrate International Men’s Day, let’s reflect on the importance of men as allies in the pursuit of gender equality. As the late Bell Hooks wisely stated, “The Feminist movement is a struggle to end sexist oppression, and that includes the liberation of men.”

At Zone, we’re dedicated to creating a more just, equitable, and fulfilling future for all.

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