USSD and Nigeria: Ensuring we build a channel that serves the poor

For more than a year now, the tension between banks and mobile operators over the use of the Unstructured Supplementary Service Data (USSD) channel has been simmering, occasionally exploding into the public domain as the brinkmanship heats up, or the government intervenes. But what is driving this? Why is there such a level of conflict and, most importantly, what impact is it having on the use and expansion of a vital channel suitable for access to financial services for the bottom of the pyramid?

There is no doubt at all that USSD as a channel has enormous potential to make it easier for Nigerians to access financial services information and transact, you just have to look at the explosion in usage over the last six years – an estimated 40 million Nigerians use the service. It is cheaper than accessing data, even at current prices; doesn’t require a smartphone and has the potential to offer a range of services through slowly improving easy-to-understand interfaces.

With more than 60 percent of Nigerians still relying on feature phones, and increasing numbers moving into extreme poverty, USSD as a channel will likely remain a lifeline for the poorest Nigerians for many years to come. This is the focus of most development practitioners. These two elephants (banks and mobile operators) who have been fighting over the spoils of war should not be the focus. The focus should be on the customer at the end of the chain, whose life can be improved if the products and services on offer expand, become cheaper and easier to use. But because the elephants are the catalyst for these products and services, we are forced to consider what is happening and try to understand how close we are to a resolution, whether the most recent developments move us forward.

This disagreement originated from the Federal Government’s directive restricting telcos from charging customers for using USSD for financial transactions on their networks placing the financial obligations on the banks to settle the telcos. While no agreement had been reached for a suitable payment structure, banks continued to charge their customers and have not met any financial obligations to telcos. As of September 2020, telcos alleged that banks owe them N17bn and as of March 2021, this figure has risen to N42bn. On 12th March, the Association of Licensed Telecommunications Operators of Nigeria (ALTON) on behalf of all Mobile Network Operators (MNOs) revealed plans to suspend telcos’ USSD support to all Nigerian banks. Following engagements with the banks and telcos, the Ministry of Communication and the Nigerian Communications Commission (NCC) has placed USSD charges at a flat rate of N6.98 per transaction.

The debate about this is reflected in the nature of the media coverage following the recent joint (NCC/Central Bank of Nigeria) announcement of a resolution, directing providers to charge a flat fee of N6.98 per transaction. For half the media, this was a setback for financial inclusion, increasing the cost to the consumer. For the other half, this was a step forward, lowering the costs, and opening up access. So, what is the case, and why is it so easy for different groups to reach opposite conclusions?

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One key reason is the opacity associated with the existing fee structures for USSD. It’s possible to interpret the announcement as an increased cost only if you don’t understand the way that you are currently charged. These charges are applied by the bank, not the mobile operator, and vary extensively, normally between N10 and N50 depending on the service used (balance check, intra-bank transfer, etc) and the bank providing the service. However, what everyone has not understood from the announcement is that those charges are to be removed. The fee a customer will pay is now limited to N6.98 per transaction, which will be collected by the banks and remitted to the mobile operators. In essence, the new structure removes the bank’s licence to earn a margin on top of the cost of the service. That’s a good thing for the consumer, especially for pro-poor groups, because it means the cost of the transaction comes down, but it’s clear that there is some work to do in order to communicate that. We also need a better mechanism to ensure that the way customers are charged is transparent. The lack of clarity leaves far too much room for manipulation.

The second reason is a technical one, associated with how USSD works and the models that have been used to charge for it. This has been at the heart of the dispute between banks and mobile operators and relates to whether USSD should be charged per ‘session’ or per ‘transaction’. Up until now, the model has been ‘session’-based, with the mobile operator charging for every 20-second ‘session’ accessed by a customer. Essentially treating the charge like airtime and data, where the amount of time you are accessing is directly proportional to the cost. That created some animosity because customers could be using the channel for four or five sessions before a transaction was completed. If the bank is charging the customer a fixed fee per ‘transaction’, but the mobile operator is charging the bank per ‘session’, then the longer the customer takes to complete the transaction, the lower the bank’s margin (or the higher the cost to the bank). So, what does the new structure say about this? It says the N6.98 is a one-off cost, per transaction, not per session, which will have the effect of giving the bank’s predictability on costs and allowing them to give the customer the lower cost. Overall, that’s a good thing for the bottom of the pyramid if it is implemented properly.

So, in principle, we have a series of decisions that move us forward in that they reduce the price, and increase the level of transparency around the process. That’s a net positive, but it’s not anywhere near the end of the journey. First of all, these decisions need to be implemented, and that requires a further round of engagements between banks and mobile operators, with the potential for things to derail before they get started. Then, there is the long-term end goal, which from an access point of view has to be for the USSD channel to be zero-rated, completely removing cost as a barrier.

As the nation remains committed to expanding financial access for the bottom of the pyramid, the majority of whom make up our poor population, all major players – telcos, banks, regulators – need to consolidate the gains that have been made so far. According to the National Financial Inclusion Strategy, the financial inclusion rate in the country grew by 63.2 percent in 2019, meaning that the growth rate was just 4.8 percent compared to the 58.4 percent achieved in 2018. Also, Enhancing Financial Innovation and Access (EFInA) said in 2020, the country’s financial inclusion progress did not match population growth.

The terms of the new USSD payment agreement need to be pushed past the finishing line, and the mobile operators and banks need a monitoring and reconciliation platform that can help enhance trust levels. The CBN, supported by civil society, needs to take up the responsibility of monitoring and enforcement. The CBN has done a great work ensuring bank charges are reduced over the last year or two. They need to be the enforcement mechanism to ensure new charges are not introduced, and the agreed model is implemented.

The longer-term question is more challenging because the ecosystem is fragmented and that in itself introduces unnecessary barriers and opportunities for discord. Financial inclusion remains a key driver of economic growth and if the NCC, CBN, banks and telcos are truly committed to achieving progress on this subject, their primary goals and decisions around USSD and other similar services must be focused on creating easy access for the bottom of the pyramid and not creating additional barriers and frustrations even while turning a profit for themselves and their shareholders.

Bello, an independent journalist, writes from Lagos.