Nigerian banks are currently indebted to the tune of ₦200 billion to telecom companies for utilizing Unstructured Supplementary Service Data (USSD) for banking services. This substantial debt has been a contentious issue, causing disputes between the financial and telecommunications sectors for the past six years. The situation has escalated to the point where the Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC) have had to step in to mediate.
In an effort to resolve the impasse, a meeting held in late 2023 resulted in the formulation of a repayment strategy. According to three individuals with intimate knowledge of the situation, banks have initiated the process of settling their outstanding debts. The Governor of the Central Bank, Olayemi Cardoso, has been instrumental in exerting pressure on the banks to commence payments.
Despite these developments, Gbenga Adebayo, the president of the Association of Licensed Telecommunication Operators of Nigeria (ALTON), has expressed concerns over the sluggish pace of repayment. In a conversation with TechCabal, Adebayo pointed out that the debt, which includes both the principal amount and accrued interest, shows no signs of decreasing and may even increase if the banks continue to delay payments.
Adebayo urged the banking sector to step up its efforts, implying that the current rate of repayment is unsatisfactory. One insider accused the banks of deliberately dragging their feet on payments as a form of retaliation against the telecom companies.
The root of the conflict lies in the initial lack of a clear agreement on the division of USSD fees between banks and telecom operators. A bank CEO, who preferred to remain anonymous, revealed that the banks only became aware of the telecoms’ interest in the fees when threats to discontinue the USSD service emerged.
During an investor call in 2021, the late CEO of Access Holdings, Herbert Wigwe, outright denied any obligation of the banks to pay the telecom companies for USSD services. Furthermore, other banking executives have raised questions about the transparency of the billing process and the accuracy of the ₦200 billion debt figure.
In 2023, Segun Agbaje of GTCO contended that the responsibility for collecting the ₦6.98 fee per USSD transaction should lie with the telecom companies, as they are the recipients of the entire fee. Despite regulatory directives requiring banks to collect and remit these fees to the telecom operators, there appears to be resistance from the banks, as evidenced by the slow pace of payments.
USSD technology, originally developed by telecom companies for services like airtime purchase and subscription renewals, quickly proved to be a viable platform for banking transactions. This realization led to a surge in USSD banking, with banks such as GTCO launching extensive marketing campaigns for their USSD services, like the *737# shortcode, in 2016. Other major banks followed suit. By 2021, Nigerians had conducted ₦5.1 trillion worth of transactions via USSD, although this figure dropped to ₦4.4 trillion by 2022.
In Nigeria, USSD banking stands as the fifth most popular payment method, yet it records the lowest average transaction value. According to data from the National Bureau of Statistics, the average USSD transfer is around ₦10,000, which is significantly less than the ₦70,000 average for other channels like mobile apps and online transfers.
Telecommunications companies maintain that USSD is a crucial service for the banking sector and insist that banks should be responsible for collecting and forwarding the relevant fees. However, banks have little financial incentive to prioritize USSD services. Since they do not profit from USSD transactions and the transaction values are relatively modest compared to other forms of mobile banking, banks are more inclined to focus on more lucrative payment channels.
Segun Agbaje, in 2023, argued that the key to achieving financial inclusion is to reduce data costs. He suggested that by making data more affordable, the reliance on USSD, which does not require internet access, would diminish.
As the banking industry grapples with increasing security concerns and efforts to combat fraud, USSD banking has become less of a priority for Nigerian banks. This shift in focus could potentially lead to a further deceleration in the repayment of the outstanding USSD debt.
An expert from the banking sector, preferring anonymity, expressed a sentiment shared by many in the industry: the USSD debt issue may remain unresolved, and telecom companies should consider writing it off. This perspective reflects a broader consensus among bank executives, who appear to be resigned to the ongoing stalemate over the USSD debt repayment.
