Lagos, Nigeria – Comfort Oluwaseyi has a time-tested shortcut for sending money to everyone.
For the 40-year-old fruit trader at Ikeja, in the heart of Nigeria’s commercial capital Lagos, all it takes is dialling *737# on her Itel 2160, a non-smartphone which costs 7,000 Nigerian naira ($15).
Within seconds, the operation is concluded and recipients, usually her suppliers, are sorted. The fee? Only 6.98 naira per transaction, deducted directly from her bank account.
“I cannot afford a smartphone but the phone I use still serves me well,” Oluwaseyi told Al Jazeera. “This phone helps me operate this business which in turn supports my family.”
In Nigeria, feature phones, because of their relative affordability and longer battery life, are a popular choice in low-income households – 133 million people according to a 2022 report from the National Bureau of Statistics (NBS) – especially among older or illiterate citizens.
Furthermore, three things stand out: half of all phones shipped into Nigeria are still feature phones; only half of the country is connected to the internet according to the World Bank and, as per Lagos-based Enhancing Financial Innovation and Access (EFInA), only half of the adult population use formal banks.
For this reason, *737 is one of the most popular short codes on the Unstructured Supplementary Service Data (USSD) platform for millions in Nigeria.
USSD short codes – first introduced by the European Telecommunication Standards Institute (ETSI) in 1994, and in Nigeria for banking purposes in 2015 – help users with or without smartphones or internet connections perform multiple features.
Every day, millions of Nigerians use different short codes to pay for a range of services, from purchasing airtime to tracking sales from customers who prefer cash transfers and paying suppliers for new stock.
The ease of access also helps people like Oluwaseyi focus on business and avoid bank queues during business hours.
Even smartphone users rely on USSD services when their bank apps malfunction or banking services are poor – a routine complaint. A third of all consumer complaints filed in 2020 were against poor banking services, the most recent data from Nigeria’s Federal Competition and Consumer Protection Commission (FCCPC) shows.
During a cash shortage in February that halted operations of many small businesses, USSD allowed Oluwaseyi to keep hers running, she said.
Dispute over bank fees
But a dispute between telecommunication companies and banks about the appropriate pricing model for USSD-powered financial transactions could cut off access to financial services for as many as 17 million people like Oluwaseyi.
Gbenga Adebayo, chairman of the Association of Licensed Telecoms Operators of Nigeria (ALTON) traced the dispute to 2019 when bank CEOs pleaded with the state-run Financial Inclusion Steering Committee (FISC) to make USSD services free of charge to accelerate financial inclusion.
Until October 2019, banks billed users directly for the service using their airtime. To ensure that even users who had no airtime could use it, banks introduced corporate billing; they calculated the number of 20-second USSD sessions (each pegged at 3.5 naira) customers used, deducted it from their bank accounts and remitted to telcos at the end of each month.
Because telcos were also billing for failed sessions and refusing to extend the 20-second session cap, banks baulked at this arrangement and asked telcos to charge their customers directly.
At a point in the dispute, MTN, Nigeria’s largest telecom company announced plans to directly bill users 4 naira for every 20-second USSD transaction.
Central bank governor Godwin Emefiele criticised the move, saying direct user billing would hurt financial inclusion. The Nigerian Communications Commission (NCC) then suspended the new charges.
Thus began a tussle between banks and telcos over who shoulders the cost of USSD sessions for end users. The former insist that they provide the latter, who want payment for supplying infrastructure powering the USSD technology, with customers.
Today, the banks owe a cumulative 100 billion naira ($214m) to the telcos who are threatening to cut off access to the technology.
On May 12, ALTON said it had received approval from the NCC, Nigeria’s telecommunications regulator, to disconnect the banks.
And experts fear that this could have a significant impact on many Nigerians.
“If you turn off USSD the most vulnerable Nigerians will suffer because they don’t have smartphones or if they have smartphones they are using ancient and cheap smartphones that can’t work with the latest operating system,” Adedeji Olowe, CEO of Lagos-based fintech startup Lendsqr, and a trustee of Open Banking Nigeria, a nonprofit championing financial inclusion.
Even Adebayo, the telcos’ representative, believes that too.
“The average Nigerian relies on USSD, and a lot of those who use it for financial transactions will be affected. It will affect the entire financial institution … and the entire digital ecosystem,” he told Al Jazeera.
Chasing financial inclusion
Some bankers have described the USSD as a clumsy technology that cannot serve as Nigeria’s answer to its financial inclusion problems, arguing that the best path to financial inclusion is making data subscriptions more affordable.
A senior executive at a leading Nigerian bank told Al Jazeera anonymously that USSD is an overrated banking channel as bank hall walk-ins still carry the bulk of the financial transactions traffic, with intelligent banking systems such as WhatsApp banking slowly becoming more popular.
On the surface, the data seems to agree.
Data from the CBN reveals that USSD accounts for only 2.3 percent by volume and 0.29 percent of the value of all electronic transactions in Nigeria in 2022. Conversely, smartphone and internet-enabled channels make up 60 percent of such transactions. Additionally, the value of USSD transactions dropped by 13.2 percent or 685.45 billion naira ($1.47bn) in the same calendar year.
But experts like Olowe argue that even if internet subscription cost is zero, the cost of smartphones and expertise to operate them present barriers for the demographic of Nigerians who need financial inclusion the most.
“Except the economy improves a lot of people won’t be able to access smartphones and these are the exact people we are trying to expand financial services to,” he said.
In a country where only 3.7 million Nigerians spend more than $10 daily as of 2021 and most of that goes to food and transport, only a few people can afford to purchase smartphones.
“Nigeria’s economy is in a fragile place currently … another big, disruptive hit to consumer spending is the last thing that the country needs,” John Ashbourne, emerging market economist at Fitch Solutions, a London-based financial intelligence company, told Al Jazeera.
But disconnection of the service is also a difficult task because of bureaucracy surrounding approvals and resistance from the telcos, industry insiders say.
“The major source of their income, which is airtime vending, comes from these channels, if they [telcos] shut it down, they are the ones that would lose,” the bank executive said.
Two of Nigeria’s leading telcos, MTN Nigeria and Airtel made 1.25 trillion naira ($2.68bn) from airtime and data in the first 6 months of 2022, according to data from the NCC.
And that development could force innovation on the part of the telcos, Emmanuel Ido, a technology lawyer at Lagos-based law firm Aluko and Oyebode, told Al Jazeera.
“One possible outcome [of the dispute] is that telcos and banks will attempt to redefine their relationship and operate independently, with telcos providing banking functions independent of traditional banks,” he said.
For end users like Oluwaseyi, the disconnect would be detrimental to her business if the telcos went ahead with their threats to disconnect USSD services.
“All I had during this [cash shortage] period was my small phone,” she told Al Jazeera. “With it … I was able to make money transfers to my suppliers.”