How fees reduction can redefine USSD competition landscape

Unstructured Supplementary Service Data (USSD) technology is becoming a dominant force in the financial services industry in Nigeria. The potential to reach Nigerians without bank accounts and capacity to empower millions without access to internet is largely behind its popularity. Hence, the competitive landscape for USSD technology adoption is ever widening and lately, one of the banks took that competition to another level.

USSD is just like connection-oriented SMS communication. In other words, USSD is to SMS what IM (Instant Messaging) is to email. It is a protocol used by GSM cellphones to communicate with their service providers’ computers.

USSD can be used for wireless application protocol (WAP) browsing, prepaid callback service, mobile money services, location-based content services, menu-based information services, or even as part of configuring the phone on the network.

Some of the major drivers of its rise in Nigeria include internet penetration. Users do not need internet connection to carry out transactions; hence it is ideal for persons in regions where broadband are either non-existent or very poor. It is also driven by adaptability. It is easy to understand. In fact anyone who can dial a phone number is capable of doing USSD transaction. Finally, literacy level is of little consequence.

The technology came into limelight in 2014 when the Guarantee trust Bank (GTBank) introduced the *737# code. Today, about eighteen commercial banks have unique USSD numbers. The banks include Access Bank (*901#); Diamond Bank (*426#); Ecobank (*326#); Fidelity Bank (*770#); First Bank (*894#); FCMB (*329#); Heritage Bank (*322#); Keystone Bank (*533#); Skye Bank (*833#); Stanbic IBTC (*909#); Sterling Bank (*822#); Union Bank (*826#); UBA (*919#); Unity Bank (*7799#); Wema Bank (*945#); Zenith Bank (*966#); and Jaiz Bank (*389#).

“USSD is going to dominate in Africa long term,” Mark Essien, founder of Hotels.ng said in a Tweet. “In Nigeria, USSD access to bank account is huge and growing. It is like mobile money in East Africa, but owned by lots of banks. A lot of transfers happen this way.”

Alongside growth and popularity, USSD have also faced criticisms of high transaction fees. Prior to August 2017, Banks could charge as high N100 on each transaction.

“USSD banking is really huge, but still needs innovation around bulk transfer and charges. The banks charge for transaction, interbank transfer, stamp, SMS and of recent the telco increased charges. There is uncertainty around actual cost,” Chibuike Goodnews, founder of DoChase noted in a tweet.

The Central Bank of Nigeria (CBN) had released a Guide to Bank Charges Circular in August, 2017, which officially pegged the fees banks could charge on USSD transactions at N50.

Essentially, the CBN circular was suggesting that banks could choose to reduce their transaction fees but they are not permitted to increase it beyond N50. There are banks however that charge N52, with the extra N2 meant for VAT.

Nevertheless, GTBank has decided to take a chance with the CBN and on Wednesday it notified its over 3 million customers who use the famous *737# that it is reducing its transaction fees to N40.

According to some Fintech experts, GTBank’s latest move could be in response to customers’ complaints that the bank was charging higher than the official CBN rate at N80 per transaction.

It is also a strategy meant tilting the competition in the space to their advantage. Reducing fees charge on USSD transactions makes it more affordable and attractive for customers to adopt. First Bank of Nigeria Limited made a similar move when it allowed customers to do USSD transaction without having to necessarily recharge their phones with credit.

Price reduction nonetheless can be undermined if telecommunication operators like MTN, GLO, 9Mobile, and Airtel decide to increase call charges. Thus, banks need to deepen their collaboration with telcos in order to sustain growth in USSD transactions.