Two major drivers of Nigerian economy have been at loggerheads for almost two years over what to pay and how to charge for Unstructured Supplementary Service Data (USSD) digital banking services. As a result, the banks have accumulated a debt of N42 billion in the past eight months. Yet, the two sectors involved – telecommunications and financial services – are highly dependent on each other.
The Deposit Money Banks owe their rapid growth, relevance and continued patronage in the face of disruption to support of telecoms operators. The services of telecommunications operators are indispensable as it cuts across all sectors holding them down in the face of adverse economy and driving growth and profitability.
The vital role telecoms services play in the economy became glaring when Nigerians were asked to stay at home, work from home, avoid interstate and international travel, maintain social distancing. Despite all these restrictions, the need to carry out financial transactions remained valid and was made possible with technology and driven by mobile network connectivity.
Nigerians still had unfettered access to mobile apps, Point of Sales payments, USSD, Automated Teller Machines (ATM) and the banks raked in a lot of money while refusing to pay partners that provided infrastructure that made USSD banking possible.
The chief executive officer of First Bank, Adesola Adeduntan, attested to this last year when he said cardholders carried out 105 million transactions worth N1.18 trillion during the five-week lockdown last year
He stated that the bank now had 9.5 million subscribers on its *894# USSD platform and quick banking service platforms.
Adeduntan also added, “We have also recorded over 275,000 new sign-ups to alternative channels covering our Firstmobile, unstructured supplementary service data (USSD) and First-Online platforms.”
The banks on the other hand have been funding the infrastructure rollout and expansion of telecoms service via loans for years.
How Important Is USSD Banking?
The USSD channel which involves the use of short codes was exclusive to telcos initially as it was used for balance inquiry and recharges (e.g. *141#; *556#) but is now being used across multiple sectors for the delivery of financial, insurance, agricultural and government services.
The USSD channel is delivered using the Standalone Dedicated Control Channel (SDCCH) which is also used for call set-up, SMS set-up, and delivery.
Recognizing the role this technology can play in accelerating financial inclusion and reaching the unbanked population in rural and remote areas, access to the service was offered to the banks for free by the Nigerian Communications Commission.
The banks also reached a mutual agreement with mobile network operators to use the USSD channel. While the telcos offer it for free to bank customers, the banks charge a fee or commission for each session of USSD services used by their customers.
The banks therefore pay telecoms operators for use of the USSD infrastructure from the service fees deducted from the customer’s bank account.
After mobile banking applications and Internet banking, USSD is the third most prominent digital banking platform, according to a 2020 survey by Agusto and Co.
Digital banking, USSD inclusive, is a money-making channel for banks as it raked in N135.15 billion revenue for 10 deposit money banks in the first nine months of 2019.
Considering that USSD banking uses analogue technology, Nigerians who have a feature phone without Internet connection conduct financial transactions. As such, it extends banking services to a wider audience, especially low-income earners. This has helped the prominence of USSD banking.
New Payment Model Controversy
The NCC and the MNOs reviewed the price of USSD service but the banks refused to pay the agreed rate but requested that telecom operators charge customers directly, via end-user billing, for use of the USSD channel.
This method was vehemently restricted by Nigerians when telecom operators announced plans to start charging customers, amounting to double charges because banks bluntly refused to stop deducting their fees and commission.
In view of the dispute, the NCC and other stakeholders amended the applicable charges for USSD services and the method of billing, which took effect on August 1, 2020.
The new pricing stipulates that each USSD session is 20 seconds and costs N1.63 per session on the MNO network.
Yet, the banks refused to pay. From August till date, a debt of N42 billion has accumulated.
Impact Of The Debt
Of course, for operators that offered unrestricted access to the network connectivity and are being owed, it makes it difficult for them to operate.
They spend on maintaining a reliable connection for USSD services but are not compensated by partners who bring as much as 90 per cent of the total traffic to the channel. This does not portray the financial services sector in a good light.
Imagine, mobile operators being owed N42 billion by banks and they still need to borrow loans at a high interest rate from their debtors just to be able to stay in business. Of course, this is slavery in its purest form.
Being paid what you are owed is extremely important considering the precarious state of the economy; it is key to having a positive cash flow. Debt erodes investor’s confidence in the economy. The solution to all these is simple. Debtor banks, pay what you owe!
