On June 5 2024, Zone launched what it described as Africa’s first decentralised PoS payment gateway. This gateway is built on Zone’s blockchain payment network and promises speed, frictionless payment, and reduced chargeback and fraud.
However, with the launch of the blockchain-powered PoS payment gateway came many questions such as what a PoS payment gateway is and how different a decentralised one is from a regular one.
Obi Emetarom, Zone’s CEO, and a fintech employee provide some answers.
What do PoS payment gateways do?
According to Emetarom, a PoS payment gateway is the mechanism that connects a cardholder’s bank (issuer) to the PoS provider (the bank that owns the PoS) generating the transaction.
On June 5 2024, Zone launched what it described as Africa’s first decentralised PoS payment gateway. This gateway is built on Zone’s blockchain payment network and promises speed, frictionless payment, and reduced chargeback and fraud.
However, with the launch of the blockchain-powered PoS payment gateway came many questions such as what a PoS payment gateway is and how different a decentralised one is from a regular one.
Obi Emetarom, Zone’s CEO, and a fintech employee provide some answers.
What do PoS payment gateways do?
According to Emetarom, a PoS payment gateway is the mechanism that connects a cardholder’s bank (issuer) to the PoS provider (the bank that owns the PoS) generating the transaction.
Advertisement
The PoS payment gateway is like a matchmaker. If you have a Guaranty Trust Bank card for example, and you need to make a payment on a FirstBank PoS, the payment gateway debits your bank and sends money to the merchant’s FirstBank account.
Interestingly, someone who works with a prominent Nigerian fintech said PoS payment gateway is also another name for a payment switch, which acts as an intermediary, routing and processing payments between customers of different institutions.
How is Zone’s decentralised PoS payment gateway different from others?
“A decentralised PoS payment gateway is available to the different PoS providers. So it’s not one PoS gateway for each provider (bank or fintech that owns the PoS terminal).
What Emetarom means is that Zone makes each PoS payment provider a switch. Each bank or financial institution on the Zone blockchain network will have its own node which will route the transaction to the card issuer.
Being in the blockchain network means a PoS provider has direct connection to other institutions within that network.
It is important to note that Zone acquired a switching licence from the Central Bank of Nigeria in 2022.
Here’s why Nigeria’s biggest fintechs are getting a switching and processing licence
How is Zone’s decentralised payment gateway better?
Zone’s ability to route transactions directly to the issuer bank means transactions will be fast. However, some PoS providers already complete transactions in a matter of seconds with a 98% success rate.
Emetarom says this is possible because some institutions already route transactions directly to each other, but there’s some context to how they’ve been able to do this.
“Routing transactions directly to a bank without them being overseen by a licensed payment switch is frowned upon by the regulator because it doesn’t give the regulator visibility.”
But according to the fintech employee, some financial institutions also have a switching licence, making it possible for them to route transactions directly in accordance with regulatory rules.
But Zone has another advantage — same-day settlement, which is better than the next-day or 24-hour settlement adopted by most payment switches.
Settlement refers to the amount of time it takes for the sales a PoS merchant has made to reflect in their account. Emetarom says that while some institutions can settle the merchants with their own money, it limits the number of merchants they can serve because they might not have enough to serve them all.
How is Zone able to do same-day settlement?
Per Emetarom, Zone can do same-day settlement because reconciliation is automatic on the blockchain.
“We are able to do settlements four times in a day.”
Will Zone provide PoS terminals?
No, Zone will not provide PoS terminals, they will only route transactions directly for existing PoS providers like OPay, PalmPay, FirstBank, and other financial institutions that offer PoS terminals.
How will Zone’s PoS payment gateway reduce chargeback and chargeback fraud?
To understand how Zone’s PoS payment gateway reduces chargeback and chargeback fraud, Emetarom described how chargeback occurs and the process of resolving them.
PoS chargeback occurs when you are debited for an unsuccessful PoS transaction.
Essentially, your bank says the transaction went through, but the PoS terminal says it didn’t. This means that one transaction has two different states on both ends, whereas they should be the same.
Rectifying this could take several weeks because the process is manual and will only begin when you report to your bank.
The process involves the PoS merchant providing evidence to its PoS provider that the transaction was unsuccessful. The provider then sends the refund through the switch, and the switch sends the refund to your bank.
However, 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 is possible because the issuer and acquirer banks are on the same blockchain.
Emetarom paints a scenario. You use bank A’s card on bank B’s PoS, but the PoS says the transaction was not successful. However, bank A debits you because it assumes the transaction was successful.
Because both banks are on Zone’s blockchain, and a transaction receipt is available immediately after the transaction, both banks know exactly what happened to the transaction and can rectify the issue in minutes.
Note: Transactions would usually have two different states when there’s something wrong with the PoS terminal. It could be a network error or PoS malfunction.
Emetarom also explained that the banks can also provide access to their customers to know the state of their transactions, similar to public blockchains.
Unlike transfer speed and success rate, chargeback and chargeback fraud are major issues for banks and fintechs.
Interswitch, arguably Nigeria’s largest payment switch, suffered a ₦30 billion loss chargeback fraud in 2023.
What are the downsides to Zone’s decentralised PoS payment gateway?
The major downside to Zone’s decentralised PoS payment gateway and its blockchain payment solution is that many financial institutions have to be on the network for them to enjoy its benefits.
Emetarom says nine banks are live (including four of the five tier-one banks) on its network; four are implementing, but there are still many financial institutions to go.
But after going from two to nine banks in a few months, Emetarom is confident about populating the network with enough financial institutions.
Source
techpoint.africa
