The era of USSD
In 2008, Bill Buxton wrote an article where he described a concept known as “The Long Nose of Innovation.” The definition of that term and the premise of that article as he described it is – “The bulk of innovation behind the latest “wow” moment is low-amplitude and takes place over a long period—but well before the “new” idea has become generally known, fully refined, much less reached the tipping point where it becomes widely adopted”.
What Bill described is what has happened to the adoption of USSD for transactions in Nigeria. It seemed like a sudden boom, but a lot of low amplitude changes had to occur before the tipping point where a financial institution saw mobile phone based transactions dwarf those from all other channels for the first time.
Where it started
USSD is an acronym for “Unstructured Supplementary Service Data.” It is a communications protocol used by GSM cellular telephones to communicate with the mobile network operator’s back-end platform. Unlike the SMS (Short Message Service) protocol, it is “session” based instead of “message” based; this means that it opens a short data transfer session where a transaction happens, or a message transmitted between the backend and the subscriber’s phone.
Each time a customer loads prepaid airtime into a phone, they do it via a USSD session with the telco’s backend prepaid billing platforms. They can also access a directory of services via a USSD menu or perform queries like balance checks via a USSD short code.
When GSM Mobile phones were introduced to Nigeria early last decade, the same revolution had already started happening in other African countries, and two of the leading African companies in the telecommunications space acquired Nigerian licenses. Because they were African companies, these telcos initially brought models from other parts of the continent to be replicated in Nigeria but were, however, quick to learn and adapt to new local realities.
The first reality that they were forced to adapt to was that Nigeria was predominantly a prepaid market. They were quick to move from an efficiently managing postpaid model to the chaos of a prepaid model which came with supply chain issues and high product distribution costs.
Prepaid, however, became a blessing for the telcos as the market grew beyond their wildest projections. One key technology was required to load airtime into these abundant prepaid phones, and it was the USSD.
The present and the future
The interesting thing is that USSD was initially not the preferred protocol for mobile payments by the dominant telcos in Africa because there was an alternative way of accessing a menu of payment services via the SIM Tool Kit (STK) applications. These were mini-programs built into each subscriber’s SIM card. The STK applications were less telco resource hungry, and they also had local address book access which significantly improved the user experience of the subscriber when it came to repeating financial transactions. STK applications helped mobile payments to scale rapidly in Africa.
USSD technology later improved tremendously because of the ease of implementation and became the dominant choice of transactions across the continent. It became the easiest route for non-telco providers to deploy services to the poorer customer segment without smartphones. The only problem was that it was expensive as it was in the telco domain.
USSD sessions were expensive as the telcos charged for every transaction including balance inquiry. It was not until the intervention of the Nigerian regulators and collaboration between banks and telco on direct airtime sales to the customer that those costs were now passed on. The firm handshake between the telcos and the banks made the crossover from airtime sales to other financial transactions rapid. The ubiquity of these transactions was also made possible with the interoperability provided by a robust interbank payment platform that was already in place.
USSD is especially convenient in a place like Nigeria because there are far fewer dependencies for the consumer. You don’t need to have a smartphone or a data plan as in the case of Internet-based transactions. It was an already familiar interface to people used to loading prepaid airtime and doing balance checks. There was no steep learning curve, and the convenience it brought to doing transactions made adoption grow at a tremendous rate. USSD became a common denominator for all mobile-based commerce.
All of the changes that happened in the Nigerian telecommunications and financial services landscape now seem “low amplitude” because of the outsize volume of USSD based transactions as a result of rapid adoption. I did a personal survey recently to find out the technology that had transformed people’s lives the most in Nigeria in 2018 and USSD was the unanimous winner. Bill Buxton’s theory was proven right.
As we still struggle with last mile internet access, it is evident that USSD will remain the dominant transaction mechanism for digital commerce in Nigeria for a very long time.
ZenithBank just recently announced collaboration with the local switching company Coralpay to allow USSD transactions on Point of Sale Devices. Once again, this is a process I saw first demonstrated at the Mobile World Congress in Barcelona six years ago.
We are now in the era of USSD. It has transformed mobile transactions and hopefully changes retail commerce in Nigeria forever.