USSD Menus are a Public Utility
Innovators who need access should have it
One of the great financial innovations of the last 20 years is mobile money (MM). Formulated by Mpesa in Kenya in 2007, MM is unique in the financial world as a set of payment rails for consumer purchases independent from existing Card / ACH / Wire / Paypal options prevalent across much of the world.
Since its inception, MM (with the exception of Kenya) operates widely on Unstructured Supplementary Service Data (USSD) menus, a messaging sub-system of GSM networks operated by Mobile Network Operators (MNO) that allows for rapid communication of menu commands for both feature and smartphones. USSD messaging allows feature-phone users to transact basic financial services without the need for mobile data or smartphone apps/functionality. The vast majority of active mobile users in East Africa use feature phones. There are two key factors that continue to make USSD a preferred option for mobile phone-based transactions:
USSD menu commands don’t require active data bundles. As data is prepaid and sold by MB increment, most users turn their data off until they need to watch a video or make a whatsapp call. USSD messaging remains available as long as a basic GSM voice connection is available.
Smartphone adoption, while increasing, is still limited. Even for those with smartphones, many users prefer USSD shortcodes to apps as the USSD interface is standard and widely known to the mass market. Apps are still new for many consumers in Africa.
At the same time, there are many drawbacks to the USSD menu. There is no question the future of digital commerce is smartphone and app-based as we see across the world. Limitations of USSD include:
Lack of ability to display images
Overly simplified and laborious interface
Sessions can time-out or end without completing requests
Lack of capacity to process sophisticated transactions,
USSD is like the dial-up modem of financial connectivity, it is a fantastic on-board ramp to digital financial services for low-data penetration users that will eventually give way to broadband connectivity, or the app-based smartphone. However, for the time being, USSD continues to be the preferred option as a wide range of payment services have proliferated from it including savings, insurance, bill payment, credit and many other products.
For the vast majority of MM users, USSD is internet connectivity in the absence of having a fully functioning web browser experience. It is a way to access basic information and transact on feature phones without the upfront cost of a smartphone or the ongoing cost of topping up data bundles.
The Rules of Net Neutrality Should Apply
In this regard, I would argue the concept of “Net Neutrality” is entirely applicable to USSD services. Net Neutrality is the principle that Internet Service Providers must treat all Internet communications equally, and not discriminate or charge differently based on user, content, website, platform, application, type of equipment, source address, destination address, or method of communication.
Unlike web protocols, USSD menus are not accessible on a common, global standard. There is no domain name registrar for USSD, rather each MNO must fill this function for each mobile network. Unlike the world wide web, where ISPs must actively block certain traffic to restrict access, USSD is the opposite. All access is blocked unless the MNO makes that access available.
USSD Menus and the Walled-Garden Problem
Given the importance of USSD menus in the digital payments ecosystem, and in particular for providing access to financial inclusion, it is critical for USSD to be available for third party service providers.
However, the USSD menu presents a unique control point for MNOs and their downstream mobile wallets who provide Mobile Financial Services (MFS) to consumers. Unlike offering a web page through browser protocols, it is not possible for any third party entity to present a USSD menu to a consumer except that an MNO permits access to the menu system. This includes banks, fintechs, NGOs and others.
If that third party provider presents a value proposition perceived by the MNO as outside their own private commercial interests, the MNO can easily find itself in a conflict of interest situation.
The question of who has the right to access the USSD menu on mobile phones and what commercial arrangements and service level guarantees are appropriate between MNO and third party MFS providers is an extremely important one. It will have drastic implications for innovation for MFS as well as the expansion of financial inclusion.
I argue that the overwhelming prevalence of USSD menus in facilitating daily life for hundreds of millions of consumers across Africa make them fundamental to the basic financial infrastructure of MM dominant countries. Similar to how businesses must have access to basic services such as water or electricity from municipal authorities in order to operate, USSD access is a similar category. Legitimate, licensed businesses offering services that require access to USSD menus must be ensured that right as any other public utility.
Private Commercial Interests vs. Advancing Innovation
If the decision to permit or deny access to third party service providers is left up to MNOs, they are essentially empowered to make licensing decisions based on their private commercial considerations. They can decide to block access, inflate service charges or otherwise hamper anyone who they deem a potential competitive threat to any of their own businesses. Competition is good for consumers, not established large corporates.
Of course there is a cost to presenting USSD menus, similar to how there is a cost to delivering data and voice services over a network. However, this cost should be determined objectively using methods that consider the incremental cost of transmitting USSD data, the amount of which is typically a fraction of what is required to send an SMS. While the cost of supplying USSD access to third parties should be fairly compensated, the level of compensation, just like the decision to provide access, should not be left to private commercial interests.
Furthermore, USSD menu-based transactions will all eventually move to data via smartphone apps. None of these transactions can be controlled by MNOs. Giving MNOs the right to decide who does and does not have access to USSD menus is only delaying the inevitable. Might as well expedite innovation and create open platforms from now. Technology should not restrict innovation, it should facilitate it.
Open Platforms Advance the Formal Economy
Despite the tremendous advance of MM in Africa over the last decade, the vast majority of consumer payments still happen with cash. While telco-led MM operators created tremendous value for consumers across the continent, no one organization can do everything for everyone. Open platforms are required so businesses can be built on top of them and problems can be solved that require more creativity than any one organization is capable.
The opportunity to expedite the formalization of African economies is now. The potential for digital technologies to create efficiencies, transparency, value and improve livelihoods is perhaps incalculable. However, to unlock this potential the core building blocks of the digital economy must be open and accessible to entrepreneurs. Right now one of those building blocks is the USSD menu.
In order to advance financial inclusion, innovation and digital commerce we must guarantee access to USSD menus and ensure licensed fintechs, banks and other third party service providers can reach consumers via MNO networks. The open platform approach to financial services has resulted in tremendous innovation across the world. It is time to unleash that creativity in a bigger way in Africa.
Brilliant article with very clear concerns that if paid attention to will be one massive technological leap. Gate keeping technology is regressive.
Despite the efforts done by MNOs to encourage users to adopt the Apps for a better sophisticated experience, such as zero-fee for balance checks, still users are not following this.
Even people with smartphones, they prefer USSD options and if you ask, they dont have reasons.
What the banks are doing by charging the USSD sessions will at least force users to adopt mobile apps.