As a former Systems Automation Engineer in a Lagos bank, I worked at the heart of the bank: maintaining the systems which kept the general ledger working. Interestingly, when I came to the United States, I noticed that we could do things differently from how we worked in Lagos. And if we follow along, we will fix most of the bank transfer failures and reversals which have become prevalent in the nation’s banking sector. Here is my suggestion which I have shared here many times:
In Nigeria, the bank debits you before the ATM dispenses money. If the seconds between debiting you and dispensing money, a technical glitch happens, you will go home with no cash even though you have been “paid” according to the bank’s general ledger. The same applies in electronic transfer, POS, etc. In Nigeria, it is Debit and then Pay.
In the US, they actually “lock” your money, put a temporary pending state, then pay before they debit you, making sure under no circumstances would you be debited with no dispensing of cash. For electronic fund transfer, there is a PENDING state (you see that in your online account) before any debit as the bank “warehouses” the fund, making sure the payer cannot re-use it.
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Notice that it has already sent value to the recipient. Once it establishes the recipient has the value, it moves from PENDING to DEBIT. Where it is unable to deliver value, it aborts that process and returns money to the payer. By doing this, it cannot debit you without serving your purpose; a great system design which works irrespective of network speed. This whole thing takes a short time. And because of it, there is no need for reversal as a confirmation handshake is established with the recipient before you are debited.
We can learn from this, upgrade our system design and get over the failures, irrespective of where the weak links are localized. This system design works for slow and fast networks because it is agnostic of speed, being fully structured to be state-based which means one state has to finish before the next begins, with all happening in seconds.
Comment on Feed
Comment 1: Your explanation immediately made me think of the seven-layer Open Systems Interconnection (OSI) model, which is a conceptual framework that standardizes the communication functions of computer networks….
1. Physical layer
2. Data link layer
3. Network layer
4. Transport layer
5. Session layer
6. Presentation layer
7. Application layer
And how each layer is responsible for ensuring one task is performed theoretically without fail. Where the Data link layer (layer2) his provides error-free transmission of data frames between two nodes on the same network segment, layer 3 (network) manages the addressing and routing of data packets between different networks, and layer 4 (transport) provides end-to-end communication between applications on different devices. The other layers providing equally important tasks on their own to ensure packets are delivered as they were sent. If an error is detected a request to resend a packet is produced.
It seems so simple – <debit account> only after confirmation of <credit account> is established.
My Response: Absolutely – resilient by design. When you check all the layers, it seems like an orchestra where everything works as expected.
Comment 2: These are technologies our country, particularly the banking sector shouldn’t be hesitant to adopt. At least, with such, there would be an enormous decline in the inflow of complaints revolving around these issues…either physically or electronically via social media or emails. Prof, could be that the banks don’t have the necessary capital to harness this sophisticated technology(ies)?
My Response: They already have the technology. They just need to change the system design flow. This is not about tech. This is about system design. Nigeria operates from the angle of trust deficit – a key reason to debit FIRST before doing anything. But we can handle that with a Pending state.
A Simple Reconfiguration for Nigerian Bank Transfer Failures in POS, ATMs, etc to Disappear
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Our system is trust-challenged, so even the banks don’t trust the very customers they have been keeping their monies. They asked for your physical address, utility bill, the colour of your roof, the colour of your gate, your fence colour; a paraphernalia of KYC processes, not forgetting asking for valid ID in addition to your biometrics; yet they don’t still trust you enough…
This sequence of ‘debit first and then pay’ was someone’s idea, the very person that conceptualized it obviously had trust issues, but it was adopted and scaled across board, and nobody ever cared to think things through. It’s a land of no consequence for misdemeanour, so the victim is always blamed, while the perpetrators are always praised for even trying, after all no system is perfect! It’s mediocrity on steroid, a shameless system where no one is ever responsible.
Every single anomaly has a ‘defense sheet’ already prepared for it, to tell you why it’s the best available, and why it cannot be done any other way. The funny creatures always have their foot soldiers strategically positioned, they are never wrong.
We have refused to be responsible for anything, so where you cannot pass blame, you simply declare that it’s God’s will.
What a people.
A careful look at the solution you offered seems to me that it does not fix transfer failures as you captioned. Refer to the line in your write-up ‘Where it is unable to deliver value’.
Is it possible that Banks dont have an issue with processing reversals but confirmation of failures? If that is the case, then what you suggested then would create a problem of delays in ‘unlocking’ the funds previously locked for transfers.
Now, lets focus on the customer whose problem really is ‘inability to use funds that were involved in a failed transaction’.
the dissatisfaction to the customer is the dissatisfaction of failed transactions AND unreturned funds. The solution you suggested doesnt fix both problems. Rather it simply eliminates a problem (non-reversal) and creates another problem (locked funds) for the customer.
The choice to lock is to solve a reversal issue not a failure issue EXACTLY the same way debiting first also solves the ‘locked funds’ issue not a failure issue. The real issue remains unsolved and it implies a problem to the customer all the same: 1. locked and unusable funds OR 2. unreversed funds.
The use of blockchain technology is an improvement to settlement (critical payments segment) between transfer parties and is known to address some inherent issues with failure confirmations. Some FinTechs have also taken bold risky approaches to mitigating the risks involved with minimizing the ‘effect’ of these failures and they need to be commended, supported and engaged by the Banks. whilst collaboration must continue in order to drive improvement in efficiency and success rates across the payments space.
If implemented, this could save banks and customers hours weekly!
Simple, yet profound.