Dispute Between Telcos and Banks in Nigeria Threatens Financial Services Accessibility

In Nigeria, a critical dispute between telecommunication companies and banks over the pricing of Unstructured Supplementary Service Data (USSD) transactions could significantly impact financial inclusion, particularly affecting those who rely on feature phones for banking services.

Comfort Oluwaseyi, a 40-year-old fruit trader in Lagos, is among the millions of Nigerians who depend on USSD codes for financial transactions. The affordability and convenience of feature phones make them a popular choice in Nigeria, especially among lower-income and older demographics. With 133 million people still using feature phones, according to the National Bureau of Statistics, USSD services are essential for banking and financial transactions for many.

USSD short codes, introduced for banking in Nigeria in 2015, allow users without smartphones or internet access to perform various banking tasks. These codes are crucial for small business owners like Oluwaseyi, who use them to pay suppliers and manage transactions efficiently.

The current dispute originated in 2019 when bank CEOs requested the state-run Financial Inclusion Steering Committee to make USSD services free to accelerate financial inclusion. The banks initially billed users directly using their airtime but later shifted to corporate billing, where they remit to telcos the cost of USSD sessions deducted from users’ bank accounts.

However, disagreements arose over billing failed sessions and extending the duration of USSD sessions, leading banks to ask telcos to charge users directly. This led to a standoff, with telecom companies threatening to cut off access to USSD services, potentially impacting millions of users.

Nigeria’s Central Bank Governor and the Nigerian Communications Commission have been involved in the dispute, with concerns about direct user billing impacting financial inclusion. The telcos are currently owed a cumulative 100 billion naira by the banks, intensifying the conflict.

Experts warn that cutting off USSD services would disproportionately affect vulnerable Nigerians who rely on basic mobile phones and don’t have access to smartphones. The telcos, despite the dispute, recognize the importance of USSD services in the country’s financial ecosystem.

While some bankers view USSD as an outdated technology, others argue that reducing internet subscription costs alone won’t solve financial inclusion challenges. The high cost of smartphones and the skills needed to operate them remain barriers for those needing financial services the most.

Data from the Central Bank of Nigeria reveals that although USSD transactions constitute a small percentage of total electronic transactions, they remain crucial for many Nigerians.

The dispute has prompted discussions about the potential for telcos to independently provide banking functions, diverging from traditional banks. For end users like Oluwaseyi, any disconnection of USSD services could have severe consequences for their businesses and daily transactions.

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