PoS or USSD: Which is a cheaper way to include 40m unbanked Nigerians?

The Central Bank of Nigeria’s goal of increasing the number of adult Nigerians using financial services to 80 percent from 21.6 percent in 2010 – may not have gone as expected, but adoption to Point of Sales (PoS) and USSD have grown significantly in the past decade.

Apart from targeting at least 80 percent inclusion rate in 2020, the CBN also plans to raise the number to 95 percent by 2024. By September, figures from EFInA put the rate of inclusion at 63.2 percent, meaning as much as 36.8 percent adults still lack access. As the new decade unfolds, the actors pushing for all Nigerians to be financially included would have to decide between PoS banking also known as agent banking and USSD which offers the cheapest means to success in the face of new realities.

PoS terminals and USSD are seen as the primary vehicles capable of reaching millions of Nigerians who are financially excluded.

Agent banking is the provision of financial services by a third party (agents) on behalf of a licensed deposit-taking financial institution and or mobile money operator. Unstructured Supplementary System Data (USSD)  on the other hand is a Global System for Mobile(GSM) communication technology that is used to send text between a mobile phone and an application program in the network.

Agents in Nigeria use PoS terminals to offer banking services to their customers who usually live in areas where banks do not have a physical presence. Agents help people with withdrawals, account opening, cash deposits and withdrawals, funds transfer, as well as bills payment.

EFInA’s data show that 3.3 percent of Nigeria’s adult population now carries out banking activities using agents, up from 2.6 percent in 2016. The Shared Agent Network Facility (SANEF) initiated by the CBN and Nigerian banks has so far recorded 70,000 partner agents across the country.

500,000 footmen

The importance of PoS Banking to financial inclusion is basically the ability it gives individuals in remote places to fill up the spaces in financial services left by banks’ physical branches, lack of ATM terminals and poor road networks made worse by broken infrastructure support. The CBN said it plans to grow its agent network to 500,000 by 2024. At present, First Bank through its Firstmonie service boasts of the largest agent network with over 40,000 agents whereas Paga which has 24,250 agents is arguably the fintech firm with the largest banking agents.

However, despite some seeming growth in the recruitment of new agents by financial organisations, Nigeria still lags behind at 16.6 active financial access points per 100,000 people.

“Agency banking has never taken off in Nigeria because the banks don’t understand letting go,” said Victor Asemota, Continent lead at Interaction Design. “They don’t realize that risk management can be federated instead of centralized. The regulators also don’t fully understand what a full agent led banking paradigm is all about.”

PoS banking is also limited by the number of active terminals in circulation. While the CBN is busy making efforts to grow the number of agents to 500,000, less than 300,000 PoS terminals have been deployed as of November 2019 while the number of active machines is less than 200,000.

Agents mean fees

The dependence on agents come at a significant cost to financial service institutions. While the CBN in its guidelines issued for agent banking (Regulatory Framework Framework for licensing Super Agents in Nigeria 2015) regulated charges for various agent services, the experience at agent locations is that customers are frequently charged higher, sometimes more than the regulated price.

An EFInA study also found that 45.1 percent of the agents surveyed set the prices they charge customers. This may be due to the various costs involved in running agent businesses, which may not cover the agent’s overhead costs as well as unscrupulous behaviours by agents to earn more money. In addition, regulatory arbitrage exists in agent pricing as agents charge fees higher than the pricing stipulated for mobile money and agency banking to both classes of customers.

USSD sessions also come at a cost. Towards the end of 2019, regulators, telcos, and banks were at loggerheads over charges on USSD. The Nigerian Communications Commission (NCC), following the development, ordered telcos to suspend charges on USSD. The CBN later in December cut the fees banks charge on transfers, ATM maintenance, and current account but left the USSD fees untouched.

Internet barrier

While the PoS banking relies on individuals using the internet for functionality, the USSD allows the customer to interact directly with a financial service provider’s computers and without relying on the internet be able to open an account, make bank transfers, data recharge, bill payments, balance inquiry, and link BVN.

But poor telecommunication infrastructure also makes USSD services seem unreliable. Often times users experience service fluctuations which can hinder productivity.

Literacy problem

USSD has also been criticised as being too technical in terms of content for less educated people. To initiate a USSD service, users have to respond to different queries. Those least educated, least savvy populations which make up the largest share of the 40 million unbanked population may not find it very helpful to embrace a platform that is entirely only words, numbers and symbols that must be read.

“That speaks to the importance of simplicity in scripting USSD menus,” said Chris Czerwonka, a fintech expert. “I would love to see research on the number of literate users of feature phones, who could interact with more detailed USSD menu text. They might use feature phones because of cost, lack of power, low and no 3G, etc.”