USSD code has opened the door for many Nigerians to utilise financial services, improving the adoption of e-payment systems and financial inclusion generally. But the progress made so far is currently threatened by an age-long dispute between telecommunication firms and banks. In this piece, TEMITAYO JAIYEOLA examines how this disagreement may impact the country’s financial inclusion goal
Around 2016, Guaranty Trust Bank launched *737#, enabling customers to transfer money from their account to another, without a smartphone and a mobile app. Although, FirstBank’s *894# was already in the market, *737# became very popular among Nigerians and revolutionalised the country’s banking system.
Every other bank soon jumped on the Unstructured Supplementary Service Data (USSD) train. However, this is now being threatened by an ongoing dispute between banks and telecommunication firms over payment for USSD services.
The growth of telecom services ushered in Nigeria’s digital revolution, and as more people got phones, businesses began to leverage phones as service outlets.
Since they provide the connectivity for these phones, telecom firms control the largest consumer base of any service in the country, making other service/product providers dependent on them to reach and expand their customer base.
Many businesses built mobile apps to bring their services to mobile devices but soon discovered that they were leaving a lot of customers out. The gap in smartphone ownership in the country limited the reach of these mobile apps making businesses switch to offering services via USSD.
With its universal usability, many Nigerians adopted USSD services. Soon, bank customers began to save themselves from long bank queues by typing short codes on their phones to carry out some of their financial transactions.
Beyond removing some of the stress of brick-and-mortar banking, USSD also created a pathway for banks to sell themselves to many financially underserved Nigerians.
During the 20th anniversary of the telecommunications revolution in Nigeria, the Group Managing Director of Zenith Bank Plc, Mr Ebenezer Onyeagwu, disclosed that USSD changed the financial inclusion landscape.
“The introduction of USSD changed everything. Without telecoms infrastructure, there is no USSD code,” he remarked.
With USSD, individuals living in areas without banks could afford to open accounts and carry out transactions on their phones, bringing more individuals into the financial services net.
By 2019, telecom operators disclosed that 90 per cent of traffic on USSD was driven by financial transactions carried out by bank customers in the country. By 2020, 762.19 million transactions were carried out using USSD, according to the Nigeria Inter-Bank Settlement System Plc.
GSMA, the global association for telcos, also noted that basic and feature phone technologies had revolutionised how people in emerging markets interact.
It said, “Notably, nine in 10 mobile money transactions in Sub-Saharan Africa still flow through USSD. Specifically, USSD has proved to be a useful tool in dealing with the fallout of the COVID-19 pandemic.”
USSD has become one of the most important tech infrastructures in the country, helping many businesses navigate Nigeria’s low-tech environment. For instance, after launching the eNaira, Nigeria’s digital currency, on mobile apps, the Central Bank of Nigeria had to launch a USSD option for better coverage.
The CBN Governor, Godwin Emefiele, said, “Nigerians, both banked and unbanked, will be able to open an eNaira wallet and conduct transactions by simply dialling *997# from their phones.
“This will further deepen the integration of the eNaira with the existing national payment infrastructure.
“The CBN will increase the level of financial inclusion in the country because just like the Naira, the eNaira is expected to be accessible to all Nigerians. And would provide more possibilities to bring in the unbanked into the digital economy.”
Despite its importance, this crucial infrastructure is at risk of breaking down or becoming unavailable due to a N100bn debt that banks are allegedly owing telecom operators for providing USSD infrastructure.
Since 2019, banks and telcos have been at loggerheads over who should pay for USSD services, and how the payment should be made. This has led to many threats of disconnection from telcos to the banks.
The government has since stepped in but has not been able to broker a way through despite years of haggling and imposing a N6.98 fee. By the end of 2022, telcos announced that they had had enough and were waiting for regulatory approval to disconnect banks from using USSD.
The Chairman of the Association of Licensed Telecoms Operators of Nigeria, Gbenga Adebayo, stressed, “Time will soon come when we will be constrained to withdraw the service and many bank customers that depend on the USSD service will suffer for it and it will affect the economy.”
At the time, the total alleged debt was N80bn. As of April 2023, the Head of Operations of ALTON, Gbolahan Awonuga, told The PUNCH that the debt had risen to N100bn.
Although telcos have yet to withdraw USSD services, they have begun to wash their hands off the infrastructure that supports the service. A source in the telecoms industry confided in The PUNCH that telcos had stopped expanding the USSD infrastructure which was causing some glitches in the system.
“The adverse effect of this is that telcos are not willing to invest in the infrastructure anymore because the banks are not paying. If they are paying, we would be willing to invest in it. And that is why there are problems with USSD banking now because telcos that should make it really robust are not doing so.”
Mobile transactions increased by 505.29 per cent in the first quarter of 2023, as individuals used it 671.93 million times. Since USSD is a crucial part of mobile transactions, many Nigerians would be impacted if telcos do not invest in the infrastructure.
As one payment infrastructure expert explained, “If Telcos do not continue to invest, it is very bad. See what happened with the naira crunch. How the e-banking platforms of all the banks struggled to meet up with the surge in electronic payment traffic.”
The expert who spoke under the condition of anonymity noted that a lack of investments in USSD will affect financial inclusion. The expert added, “USSD is very crucial. Not everyone has a smartphone. A lot of people depend on this infrastructure. It allows people to use shortcodes with feature phones. It is very important for most of the population.”
According to the Chairman of Voriancorelli and Co-founder of Cellulant, Bolaji Akinboro, USSD is a universal channel that has paved the way for financial services. He told The PUNCH that if the channel stopped working, many Nigerians will be financially excluded.
“USSD is very crucial. It is a universal channel, in the sense that regardless of the phone you use, you can access financial services.
“It is not like an app that you need smartphones for, or a data plan to access. It is not like SMS which is limited in its user experience. It is a universal channel, and if we want to ensure that everyone can access financial services all the time. It is not only universal but also foundational,” he explained.
Expressing his worry about the channel breaking down, he said, “If USSD is no longer working, it will indicate that everyone has lost a universal channel. People will now have to use only apps, which will lead to some sort of financial exclusion.”
Akinboro further stated that the USSD channel needed a proper robust infrastructure to serve everyone. He told The PUNCH, “USSD requires an infrastructure to support it. The mobile network invested in that infrastructure and they maintain it.
“It requires a whole set of support services to be kept alive and the mobile network operators are responsible for this, so the cost is on the mobile network.”
According to him, if telcos do not invest in the channel, it will eventually collapse.
“The mobile networks are behaving in a rational way, why should they keep on investing in a channel that is benefiting millions of people and banks do not want to pay for it?
“If they don’t maintain it, things will start crumbling. People can’t expect the operators to invest in infrastructure and not make a profit from it. If this situation is not resolved, there will be a problem.”
However, some experts were of the opinion that telcos cannot do away with USSD. The Chief Operating Officer of the Association of Telecommunications Companies of Nigeria, Ajibola Olude, affirmed to The PUNCH that telcos must continue to invest in USSD infrastructure, considering its importance to their services.
“There is no way telcos won’t invest in the infrastructure. It is an auxiliary service because it is an addendum when you are expanding your network.
“It comes naturally once you have a network. I don’t think telcos can do that. It is something that happens when you are building a network. There is nothing they can do,” he told The PUNCH.
The Founder of Lendsqr and a trustee of Open Banking Nigeria, Adedeji Olowe, believed the issue was more nuanced than had been painted to the public. According to him, telcos did not create a business case around USSD usage and might lose out now if they cut USSD services.
He noted, “Telcos own the infrastructure and the customers. The problem is that the business case has not been implemented well. Smartphone penetration is increasing, and without USSD people will probably be fine.
“It is not the bank customers that are accessing these services; it is the telco customers that are accessing it. Telcos should charge the customers directly, and this argument will end. The arrangement that allows banks to collect the money is not working. Also, telcos have more leverage than banks because they can take it directly from the airtime.”
The CBN hoped to increase access to financial services to 74 per cent of the country’s adult population by 2024. It also hopes to limit cash transactions by 2025. None of this would be possible without USSD services despite the recent strides being made with smartphone penetration.
As many experts have affirmed that telecoms were crucial to improving financial inclusion in the country and the most important telecoms infrastructure to reaching the unbanked and underbanked is USSD.
