Why India should keep pushing the USSD financial services initiative

Written by James Parker || August 09 2016

In its August 2016 report on the use of Unstructured Supplementary Service Data (USSD) for mobile financial services, the Telecom Regulatory Authority of India (TRAI) conceded that their attempts to replicate the success of USSD mobile financial services in other nations, such as Kenya’s M-Pesa, and provide banking solutions for the underbanked, had failed.

USSD initially drew acclaim in India due to its use of 2G networks for the platform, which was beneficial due to the lack of 3G coverage outside of major cities, along with the scarcity of smartphones in India. Additionally, USSD uses session-based communication that, unlike other mobile banking solutions, does not save any data on the phone. Furthermore, this communication, unlike SMS, happens in real time and is faster than SMS.

Yet the TRAI notes that two years after introduction, “the progress of USSD-based mobile banking is below expectations.” There are two main reasons for this: the price, and the usability of USSD. The cost cap of a USSD session is Rs1.5 and TRAI states that this could be reduced to Rs0.5. Even though any cost to conduct simple tasks such as checking a balance will be questioned, a reduction in price would surely help increase participation in USSD banking. Nevertheless, the cost has stopped private banks promoting this service. Instead, the India seems to be taking a step towards payments banks, allowing greater financial inclusivity and, in turn, transferring their focus away from USSD mobile banking and to mobile applications and SMS banking which are significantly cheaper for consumers.

Additionally, the USSD system is very awkward and uncoordinated. The user has to know their seven-digit identifier along with the recipient’s bank code and account number. The TRAI report also states that authorities are considering increasing the number of steps a user can make in a transaction from five to eight. Surely this will only serve to make this process even more confusing, especially when compared to the accessibility of mobile banking apps.

It seems clear, that India wants to, and should, push towards mobile banking apps. But, as of yet, the number of smartphone users and 3G networks is lacking and the majority of the population are unable to access these apps. Instead, a better focus for India surely would be improving the accessibility and price of its current services, namely USSD. In many ways, this relates to the growing smartphone market in India that is expected to overtake the United States in 2017. As of 2016, there are only 225 million smartphone users in India, 18% of the total population. Therefore, it seems like India’s attempts to encourage a move away from USSD banking to mobile banking are premature.

One way to do this is simple: reduce the cost of USSD. It is clear that this could be achieved through better negotiations between banks and telecoms companies. Furthermore, the banking institutions need to fully embrace the USSD model and start advertising, and explaining, the system to its potential users. As smartphones and 3G networks start to proliferate India, mobile apps can be slowly expanded, but currently, it is fundamental to provide banking services to much of the population who cannot access these, and this can only be done through USSD services.