USSD: Nigerians At The Mercy Of Telcos And Banks

Since the introduction of the Unstructured Supplementary Service Data (USSD) in Nigeria’s financial services sector, there have been unnecessary storms stirred by the telecoms service providers and banks resulting from revenue sharing formula between the banks and telecom operators. JUSTUS ADEJUMOH writes…..

When the push for adoption of digital payments was mulled some years ago, most Nigerians were optimistic of the potential benefits that would be derived from the initiative, especially as the country started to square up to tackle and upgrade the conventional financial modus operandi.

In an attempt to assuage the plight of the people and buoy the financial inclusion initiative, Unstructured Supplementary Service Data (USSD) which is a protocol used by GSM mobile telephones to communicate with the service provider’s computers was introduced by relevant stakeholders both in financial and telecommunications industries.

There is no doubt that the USSD has become a veritable channel to aid the Cashless Policy being driven by the Federal Government. However, since the use of USSD became a modus operandi for most financial transactions in the country, unnecessary storms have been stirred by the telecoms service providers and banks.

The development created an impasse between telcos and banks with the customers at the receiving end.

In the course of the fray, there were blames and counter-blames by the two industry service providers.

At the nascent stage of USSD development for the financial services sector, the billing mode adopted by telcos was to charge the telecommunications service consumer directly, which is referred to as end-user billing.

It is noteworthy that rather than open new banking locations and deployment of more Automated Teller Machines (ATM), banks have increasingly been using the USSD platform to provide a bouquet of services not initially contemplated by its members.

Some of the services include account balance enquiries, accounts opening, funds transfer, buying phone airtime and other services.

Between January and March 2019, data from the Nigerian Inter-bank Settlement System (NIBSS) indicated that USSD-based transactions conducted through mobile money by some 2.3 million customers averaged 41.1 million valued at N810 billion worth of transactions.

In June 2020, the value of USSD transfer payments in Nigeria amounted to over N390 billion (roughly one billion U.S. dollars). Between January and June 2020, the value of USSD transfers increased, going from roughly N30 billion to N390.5 billion.

According to industry analysts, the report indicates the high volume of USSD-based transactions which are enabled monthly by the telecoms operators’ infrastructure.

In the face of trepidation customers were facing, Nigerian Communications Commission (NCC) directed that USSD charges as announced by telecoms operators be suspended.

Beyond the steps taken by the telecoms and banks regulators, some analysts have called on telecommunications, banks and Fintech stakeholders to partner to make transactions on Unstructured Supplementary Service Data (USSD) short codes free.

They believe that this will further deepen financial inclusion drives in the country.

In their view, the collaboration of stakeholders in making USSD free would enable Nigeria achieve 90 per cent financial inclusion by 2020, higher than the apex bank’s 80 per cent target in 2012.

According to Mr. Patrick Akinwuntan, the Chief Executive Officer, EcoBank Nigeria, at the Nigeria Fintech Week in Lagos, “USSD short codes must be made free for every Nigerian as means to deepen financial inclusion.”

He said there was the need for continuous advocacy on adaptation of platforms and gender balance to attract more participation from the under-served.

“With strong collaboration, it is possible to offer to any Nigerian, zero cost for using financial services to lift Nigerians out of poverty. This will help to bring all Nigerians into the financial system to add value. With zero charges on USSD, 90 per cent inclusion by 2020 is possible,” he said.

The charges on USSD by banks which the telcos attempted to create a unique benefit from, portend a threat to existing and potential users of the service.

One of the advantages of USSD is that a customer may not need to carry about his or her card unlike users of Point of Sale (PoS).

Whereas POS devices may be unreliable and may discourage card use, instant payment products also have their challenges. Poor connectivity means data-enabled smartphones are not always an option for making digital payments (several regions still only have 2G coverage).

This leaves users with feature phones having to utilise USSD codes, which require long strings of numbers and symbols that take time to input (to only have the session time out) and have a high likelihood of mistakes, thereby discouraging use.

Also, the instant payment product is currently only available to clients that are already utilising formal financial services (banked or mobile).

Furthermore, the largest group we should extend digital payments to – merchants – is rather slow in digitising; many digital payment solutions are not affordable.

Other complaints have included that it slows down purchases – due to POS-device issues or the time needed to insert the correct payment information. It also doesn’t help them in managing their cash flow. Of course, using digital payments would also make their transactions visible and therefore, taxable – a major deterrent for those surviving day to day.

The gaps in our infrastructure continually come to the fore, for example, whenever we encounter problems with POS machines in stores or restaurants, or whenever the dreaded “dispense error” occurs at the ATM.

There has, however, been a response from industry players. NIBSS, for example, introduced the innovative instant payment product that allows adults with bank accounts to transfer value instantly by using their smartphone or feature phone via either app or USSD.

NIBSS transactional data shows that the number of unique users of the instant payment channel has grown significantly. The Central Bank has also ensured that banks create adequate complaint-resolution desks that can attend to consumer complaints about service failures.

In addition, the Central Bank has also continued to engage the industry, understand the challenges and evolve its approach for transitioning to a cashless society. One of these new approaches allows new entrants, like subsidiaries of telcos, to extend payment services throughout the country by obtaining a payment service bank licence.

However, the banks have been hostile to the development which has naturally become inevitable because of the dynamic digital movement globally.

On the step taken so far in the transition to a cashless society – unlocking robust distribution networks and developing better payment products, one of the issues that need to be addressed is the inadequacy of digital payments infrastructure and the charges that the banks and telcos continue to charge their customers.

This is alongside the numerous charges banks impose on their customers. Of course, many Nigerians have seen these charges as unfair. They have also frowned at fees which they tagged as ‘hidden charges’.

While it is true that the NIBSS instant payment product has made inroads in improving payment services, it still relies on third-party networks, including mobile-network connectivity, that are unreliable in many areas of the country.

Few months ago, there was a battle of supremacy between Financial Service Providers and the telcos which threatened to disconnect Financial Service Providers from USSD services until they pay N42 billion debt.

According to the Association of Licensed Telecommunications Operators of Nigeria (ALTON), “The background to this problem was that in order to accelerate the adoption of financial services on USSD, the Financial Service Providers (FSPs) partnered with our members to zero-rate the USSD access to end-users, while they bore the cost for the provision of service.

“Based on this arrangement, the banks took on the responsibility of billing customers and paid our members for use of the USSD infrastructure from the service fees deducted from the customer’s bank account.”

To resolve the lingering dispute and ensure uninterrupted services to customers on this channel, the Minister for Communications and Digital Economy on March 15, 2021 chaired a meeting of key stakeholders to discuss an amicable resolution in the interest of the general public.

The outcome of the meeting spurred the Central Bank of Nigeria (CBN) and Nigerian Communications Commission (NCC) to halt charges from banks on customers who use Unstructured Supplementary Service Data (USSD) service.

The regulators resolved that, effective March 16, 2021, USSD services for financial transactions conducted at DMBs and all CBN- licenced institutions will be charged a flat fee of N6.98 per transaction.

This replaces the current per session billing structure, ensuring a much cheaper average cost for customers to enhance financial inclusion. This approach is transparent and will ensure the amount remains the same regardless of the number of session per transaction;

To promote transparency in its administration, the new USSD services will be collected on behalf of MNOs directly from customers’ bank accounts. Banks shall not impose additional charges on customers for use of the USSD channel.

If the right steps are taken without avarice of service providers in the telecoms, banking and financial technology, Nigeria could lead the way for developing nations to compete in digital economies. Nigeria cannot take the same route to a digital economy that other nations have.

Rather, the country must look at why people choose to use cash – convenience, ease of access, security; then, create and encourage the use of digital mechanisms that mimic cash. It is critical that the right ecosystem actors are brought together to do this.