Challenges and Decline of USSD Usage in Nigeria's Informal Market

Source: Google images

USSD is the most popular go-to model for capturing the informal market in Nigeria. This is because most users in the informal sector do not have access to smartphones that enable them to use bank apps. Over time, USSD feature has been used as a moat by fintechs to expand financial inclusion. We have seen reports from banks on the decline of USSD by its users. This day reported that, “Three big banks, Access Holdings plc, United Bank for Africa Plc (UBA), and Guaranty Trust Holding Plc, have announced N7.19 trillion Unstructured Supplementary Service Data (USSD) transactions in 2022.” Before we go further, here’s a simple definition of USSD: USSD is an acronym for Unstructured Supplementary Service Data. It allows mobile phones to communicate with a service provider's computers to access various services and information. USSD codes can be used for various purposes, such as checking account balances, topping up mobile credit, accessing customer support, and more.

Let’s dive into the factors that might have led to this decline.

1. Decline of investment in the Nigerian Telecom sector: The Nigerian Communications Commission (NCC) released a telecom industry report for 2022, revealing the decline of investment in the industry and the decrease in CAPEX spending. According to the report, in 2022, the telecom industry received $399.9 million in investment, down by 47% from the $753 million in 2021. Due to reduced investment, telecom operators decreased their CAPEX spending by 30% in 2022. CAPEX is crucial for network expansion and maintenance. While not directly causing USSD decline, the reduced investment and CAPEX may indirectly affect telecom service quality leading to the unreliability of the service.

2. Shift from free to flat USSD: In 2019, telecom companies expressed their inability to continue offering free USSD services and proposed a charge of N4.50k for every 20 seconds of usage, with this fee to be deducted from what customers pay to banks. However, banks opposed this idea, arguing that it would result in a 450% increase in costs. On March 16, 2021, USSD services for financial transactions were standardized at a flat rate of N6.08 per transaction. In a country where only 2 percent of the population is reported to have more than ₦‎500,000, it's clear why users opted for mobile wallets and neo banks like Opay, Moniepoint, Kuda, etc. that offer free transfers.

3. Need for speed in financial transaction: One notable distinction between mobile wallets compared to USSD services is the speed of transactions. Users of mobile wallets can enjoy the convenience of receiving money transfers instantly and confirming the transaction in real-time. Mobile wallets provide users with visual confirmation of their transactions. They can see transaction details on their screens, including payee names, amounts, and dates. This visual feedback reduces the risk of errors and enhances trust in the transaction process. On the other hand, USSD transactions often encounter a minor delay in processing and confirmation. This delay can be ascribed to several factors, including network congestion or processing times within the USSD system. The fact that mobile wallets and neobanks can provide almost instant services is a major factor driving their widespread adoption and popularity.

4. Adoption of agency banking: With the rise in adoption of agency banking and the physical presence they offer, people may prefer the physical presence of a local agent over using USSD due to their trust in agents. Agency banking also offers a wider range of services than USSD alone. Customers can not only perform basic transactions but also open accounts, apply for loans, and access more complex financial products through agents.