USSD driving digital and financial inclusion in Africa

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  • USSD is used extensively across Africa to enable mobile banking and mobile payments
  • The African market generally uses USSD for various activities like transferring money, balancing cheques, doing top-ups, and buying data bundles
  • USSD is available to feature phones and smartphones, allowing it to reach a broader audience compared to mobile apps

In just a decade, Unstructured Supplementary Service Data (USSD) has expanded from a niche offering in a handful of markets to a mainstream financial service, moving millions of households in Africa from the cash economy into a more inclusive digital economy.

Unstructured Supplementary Service Data (USSD) technology has played an instrumental part in Africa’s digital transformation. It is a smart move for any business to capture newer and unexplored markets, but it needs more disruption.

According to World Economic Forum, Africa needs long-term growth that benefits all Africans. That requires nothing less than an economic transformation. Sustainable and inclusive financing is a vital ingredient of such a transformation.

Read: Tanzania shines for financial inclusion in Africa

According to an article by The World Bank published on June 29, 2022, the COVID-19 pandemic spurred financial inclusion driving a large increase in digital payments amid the global expansion of formal financial services.

World Economic Forum adds that greater financial inclusion will allow the continent to tap into the vast potential of its domestic resources to finance its huge infrastructure and energy deficits. As the Africa Progress Panel chair, Kofi Annan, has repeatedly said, “One of the greatest barriers to the transformation of the power sector is the low level of tax collection and the failure of governments to build credible tax systems. Domestic taxes can cover almost half the financing gap in sub-Saharan Africa.”

Some countries are harnessing pension funds for energy financing. For example, Ghana, Mozambique, and Nigeria have used their pension funds to engage in a more active financing strategy for their energy sectors.

Without widespread data coverage in Africa and the technological hardware to advance how users communicate and manage money, there is exponential potential for USSD technology to help drive economic development.

“The digital revolution has catalysed increases in the access and use of financial services across the world, transforming ways in which people make and receive payments, borrow, and save,” said World Bank Group President David Malpass.

“Creating an enabling policy environment, promoting the digitalisation of payments, and further broadening access to formal accounts and financial services among women and the poor are some of the policy priorities to mitigate the reversals in development from the ongoing overlapping crises,” he added.

According to an article by Tech Cabal dated April 19, 2022, nine out of 10 mobile transactions in sub-Saharan Africa flow through USSD.

The African market generally uses USSD for various activities like transferring money, balancing cheques, doing top-ups, and buying data bundles. The massive adoption of USSD is because it is available to both feature phones and smartphones, allowing it to reach a broader audience than mobile apps.

USSD was introduced in the 1990s after engineers discovered they could use it as a supplement to the existing GSM. It was more focused on person-to-person communication between a mobile network operator’s computers and its subscribers’ handsets, according to Tech Cabal.

Tech Cabal added that some 6 out of 10 phones are feature phones. That is 56.8% of phones in a landscape where 3G connectivity only overtook 2G in 2020 and has only 28% internet penetration and 46% mobile penetration. This means that only half the continent’s population uses mobile phones, and a much lesser number are connected to the internet.

The total value of hit 4.7 trillion nairas in 2020 (Photo/ Tech Cabal)

Although the sub-Saharan mobile economy is fast-growing, half the people on the continent do not have access to mobile phones: mobile services subscription is 46% and is expected to reach 50% in 2025; while smartphone adoption is 64% and expected to reach 75% by the same 2025 according to Tech cabal.

The World Bank adds that two-thirds of adults worldwide now make or receive a digital payment, with the share in developing economies growing from 35% in 2014 to 57% in 2021. In developing economies, 71% have an account at a bank, other financial institution, or with a mobile money provider, up from 63% in 2017 and 42% in 2011. Mobile money accounts drove a huge increase in financial inclusion in Sub-Saharan Africa.

Read: Banks in Africa hasten use of technology for financial inclusion

The lack of access to formal financial services is a major obstacle to the advent of transformative growth on the continent. (Photo/ World Economic Forum)

As far back as June 28, 2017, This Day Live said another point to note is that USSD is very important within emerging economies, where the cost to access data services is increasing. Despite the growth of smartphone penetration and 3G/4G coverage, the data access cost is a key factor in deciding how information is consumed.

Meanwhile, the continued reliability of USSD will enable mobile service providers and financial institutions more opportunities to satisfy new market segments, add more value to the customer, and meet underserved customer needs.

In a related article by Myriad Connect published January 29, 2018, the core benefit of USSD is that it doesn’t rely on a data connection to operate, thereby helping reach the billions of people in areas where network coverage is at its most basic or for sectors of the population for whom a data connection is too expensive to access.

So long as a phone can make a call and send a text, then the technology is good to go.

USSD is used extensively across Africa to enable mobile banking and mobile payments. While USSD’s ubiquitous reach makes it an ideal technology for payments and banking in developing markets, security is another key benefit. The technology creates a safe and instant way to verify customer details and allow access to their accounts. Unlike SMS and mobile apps, USSD notifications and menus are not stored on the device, making it safer for transmitting passwords or other sensitive information.

USSD can only handle 186 characters per message and is limited to a 180-second session on most mobile networks. Users navigate and select from a premade menu of options.

Despite these limitations, one can still access Twitter, other streaming, and social media posts; pay bills and send or receive money from individuals; make international money transfers, and pay for goods and services. It provides a feature phone user without a data plan the same opportunities as a smartphone user with a data package and access to mobile apps.

Unless that changes, demand for USSD will keep growing as an internet alternative or complementary channel for financial inclusion in developing countries. Transforming the financing environment is the way to unleash Africa’s full potential for the benefit of all Africans for generations to come.

Read: Digital banking key in boosting financial inclusion

Albert is a Chemical Technologist and Author. He is passionate about mining, stock market investing, Fintech and Edutech.

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