The Unstructured Supplementary Service Data (USSD) is one of the few payment innovations that have transformed the lifestyle of millions of Nigerians living in urban and rural centres. Its wide adoption rate gives the country a major opportunity to achieve its cashless ambitions.
To be sure, USSD refers to a communications protocol used by GSM cellular telephones to communicate with the mobile network operator’s computers. In simple terms, when you dial a number that starts with * and ends with #, you are using a USSD. It is similar to Short Messaging Service (SMS), but unlike SMS, USSD transactions occur during the session only. With SMS, messages can be sent to a mobile phone and stored for several days if the phone is not activated or within range.
In financial services, a USSD code allows Nigerian bank customers to have access to basic financial services by simply dialling a certain code. The customer does not require internet to make the transaction and they can enjoy several banking services that otherwise may have seen them walking into a bank branch.
Although Guarantee Trust Bank (GTBank), Nigeria’s third most valuable bank popularised the channel with its *737# code, the pioneers of the USSD technology is eTranzact International Plc.
Before USSD
In an interview with BusinessDay, Niyi Toluwalope, managing director and CEO of eTranzact traced the creation of the USSD to the first SMS banking product the company made shortly after it was established in 2003.
Then Nigerians were heavily cash-dependent – although electronic payments have gained significant adoption, so many people especially in the rural communities still prefer cash. It was also the period mobile phone was beginning to threaten the dominance of land phones. The influx of telecommunication companies and mobile phones created new opportunities. As adoption of mobile phones grew, it was projected that about 20 million people within the next five years would own at least one mobile device.
There was a growing expectation that mobile telephones were going to grow quick and if Nigeria wanted to move transactions to digital, mobile was the best way to achieve it.
“So we started a mobile SMS based transaction,” Toluwalope who joined the company then as a chief financial officer (CFO) recalled.
Not many people bought into the innovation because of the overwhelming preference for cash transactions.
“A lot of it has to do with trust. If you are making a payment to the average person out there, he wants to take that money or give you that money while he is looking at in the eye so there will be no stories,” Toluwalope said.
However, the company was convinced it was on the right path. Prior to the USSD in 2012, the electronic payment channels that existed was the ATM, debit and credit cards, and Point of Sale (PoS).
Era of USSD
Toluwalope told BusinessDay that the idea for the USSD began like a conversation in 2012.
“Steve Jobs, when he created iPod he was just passing by and saw the Discman people were using. He thought, “Why can’t you create a solution that on two to three clicks you can hear the music?” That was the birth of the iPod. That was what we thought about here, why can’t we make payment just ‘*’ this, press ‘Enter’, with fewer clicks,” he said.
That conversation gave birth to USSD which has provided direct access to bring millions of Nigerians that did not have smartphones to be able to a channel they could build transactions on.
The USSD has evolved over time to the point that nearly every Nigerian bank as a USSD stream and the fastest growing channel today.
“I have clients that started in December 2018, doing 35,000 transactions a day on that channel; today they are doing 78,000 transactions a day. It has more than doubled because everybody is doing it,” Toluwalope said.
With time the Central Bank of Nigeria (CBN) moved to regular transactions on the channel, reducing it to N20,000 once and N100,000 a day. Prior to then, people who wanted to transfer N100,000 were able to send it once. With the CBN new guidelines, people who want to do a N100,000 transaction would have to do it five times.
In 2018, people using interbank instant payments on USSD platforms grew by 35 per cent to N261.7 million. The previous year, instant transfer totalling N92.4 million were carried out using USSD codes of various banks.
Beyond USSD
New realities that financial exclusion cannot be swept away by only USSD is beginning to dawn on both banks and startups in the fintech space. There is still the acute technology infrastructure deficiency that needs to be fixed. Poor infrastructure is mostly responsible for weak access to other channels that helps reduce the pressure of capacity on USSD. The agent network also suffer from poor access networks to communities they are supposed to serve; hence there are not enough agents on ground. Insecurity and problems around interoperability also means that agents are not found in certain regions of the country.
“We need to have agents every length and breathe of the community to keep activities flowing regularly,” Toluwalope said.
