Blockchain technology presents a workable alternative to conventional banking systems in Africa due to its decentralised structure and transparent ledger capabilities.
Blockchain technology presents a workable alternative to conventional banking systems in Africa due to its decentralised structure and transparent ledger capabilities. As a trailblazing illustration, Zone’s regulated blockchain network shows how blockchain can successfully eliminate payment disputes by supplying a more effective, transparent, and direct transaction settlement process.
As the use of blockchain technology in the financial services sector increases, it will not only assist in resolving payment disputes but also help modernise and efficiently the sector in Africa, fostering greater trust between banks and their clients, financial inclusion, and economic growth.
The economy, commodities, and connectivity of Africa have enormous potential thanks to blockchain technology. According to a survey of 69 ongoing or completed pilot projects, 57% of them have their headquarters in Africa, with Kenya, South Africa, and Nigeria having the highest concentrations.
Zone launched the first regulated blockchain network for payment processing on the continent, enabling local fiat payments with plans to support international payments and make it possible for digital currencies to be accepted on conventional payment channels.
Unlike other protocols or systems, Zone’s blockchain network enables instantaneous, direct settlement of transactions while also keeping better track of them.
By keeping track of all transactions and records transparently, blockchain technology, which acts as a decentralised “ledger,” upends this current state of affairs.
The blockchain network of Zone offers restricted access to counter-parties in a transaction and transparent access to transaction information, both of which are subject to strict permission requirements. Bypassing unnecessary points of failure connected with legacy payment systems, this removes the expense of maintaining a network of intermediaries.
Financial institutions are introducing and expanding their offerings to take advantage of the global boom in digital banking products. Experts project that digital banking users will reach over 3.6 billion globally by 2024.
As a primary digital banking feature, online payments in Nigeria are quite big. According to a study by ACI Worldwide, Nigeria recorded 3.7 billion real-time transactions in 2021.
Banks have advanced in implementing digital solutions, but there is a gap between the efficiency of new, innovative systems and the legacy systems used by traditional banks.
Due to the risk and complexity of the legacy banking systems, which have been in use for more than 30 years, many banks have adopted a risk-averse strategy. This makes it more difficult for these markets to adopt newer, quicker technologies.
Due to their lack of flexibility and maintainability, legacy systems can cause problems for both banks and customers. Depending on how long legacy systems go without an update, the cost of maintaining them will rise. As a result, maintaining the systems becomes more expensive, further inhibiting investment in new, more advanced systems.
Additionally, because these systems are hard to modify, it is harder for them to adapt to changes in the market and technological advancements. The customer experience can be severely hampered by this rigidity because customers are increasingly expecting to be able to open an account right away without having to wait days or weeks for final approval. Given that many still rely on the paper records and data stored on their outdated systems, banks still find it difficult to provide this.
Payment disputes, which happen when a cardholder notices an erroneous transaction on their account and contacts the bank that issued their card to request a refund, are the primary issue facing legacy banking today.
Conflicts can occur for a variety of reasons, including debiting but not receiving value when the cardholder is unable to recall the nature of the charge on their bank statement. To shield cardholders from losses brought on by fraudulent activity and payment errors, card networks introduced dispute resolution procedures.
Only financial stability was cited by 19.7% of respondents in a thorough survey conducted across all of Africa regarding the reasons behind maintaining banking relationships.
The top 2 reasons for maintaining a banking relationship differ by 1.7%, which highlights the importance that customers place on these options. When a dispute arises, the trust between a bank and its customer is put to the test because the traditional systems in place can only handle failures that happen at the bank and payment processor points.
The information flow from a bank to the terminal during a transaction, however, can be affected by unstable network conditions, leading to a discrepancy where the bank assumes one thing and the terminal assumes another. It may take days or weeks to compare, settle, and harmonise this information, which has an effect on both parties.
Disputes can be a source of frustration and inconvenience for customers, leading to scepticism and limiting financial services adoption. Fraud can also lead to financial loss for terminal owners, which affects the cost of transactions. Disputes are expensive for banks, merchants and individuals, making the need for a solution more urgent.
In order to reduce costs associated with handling cash and keep tabs on money laundering activities, the Central Bank of Nigeria has implemented a cashless policy.
The volume of digital payment transactions has increased as a result, which is good for banks and card issuers but also puts pressure on the dispute processes. Banks may miss the chance to improve relationships with customers and boost service uptake if they view disputes as problems to be minimised.
Notably, blockchain technology has transformed the financial services sector by enabling the use of smart contracts and digital tokens to speed up currency conversion and real-time settlement. Retail banking, capital markets, and asset management are just a few of the traditional finance industry’s segments that it is expected to improve.
The issue of failed payment transactions and related payment disputes, on the other hand, is one of the most urgent problems that blockchain technology can help solve.