In the ever-evolving landscape of mobile technology, one innovation has stood out as a catalyst for financial inclusion in Africa: Unstructured Supplementary Service Data (USSD).
This technology, while sounding technical, plays a crucial role in powering mobile money transactions, particularly in regions where smartphone adoption is not yet ubiquitous.
Mobile Money Landscape in Africa
Africa boasts several mobile money operators and wallets, with Safaricom’s M-Pesa and MTN Mobile Money taking center stage. M-Pesa, operated by Safaricom, is the most widely recognized, with over 37 million active customers across seven African countries.
On the other hand, MTN Group Mobile Money has broader coverage, serving over 30 million active subscribers in 14 African nations.
Remarkably, Africa accounts for an astonishing 45.6% of global mobile money activity, with an estimated transaction value exceeding $26.8 billion in 2018.
Despite the rapid growth of smartphone adoption in Sub-Saharan Africa, the adoption rate in 2018 was 39%, projected to rise to 66% by 2025.
Surprisingly, over 90% of mobile money transactions in the region are still driven by USSD, indicating that a significant majority of users rely on feature phones.
Mobile Internet Adoption Challenges in Sub-Saharan Africa
While mobile phone penetration is high in Sub-Saharan Africa, mobile internet adoption stands at only 24%. Additionally, the region accounts for 40% of the global population not covered by a mobile broadband network.
This situation makes USSD payment technology particularly attractive, as it operates independently of internet connectivity.
Demystifying USSD: A Key Enabler of Mobile Money
USSD, or Unstructured Supplementary Service Data, is a protocol used by the Global System for Mobile Communications (GSM) network to communicate with a service provider’s platform.
In simpler terms, USSD enables users to carry out transactions using short codes without the need for internet connectivity, catering to all phones supporting the GSM standard. This includes both smartphones and feature phones prevalent in Africa.
USSD operates in real-time, using shortcodes that start with an asterisk (*) and end with a hash (#). Unlike SMS, USSD is session-based and does not store data on the mobile phone or the application.
It is widely utilized by mobile operators for internal applications such as balance checks, top-ups, and promotions, extending its use to mobile money services. Major mobile operators like Safaricom, MTN, Airtel, and Orange leverage USSD for various services.
Why USSD Matters: Driving Financial Inclusion
USSD plays a crucial role in expanding financial inclusion, especially among low-income groups without smartphones or internet access.
For populations excluded from the formal financial system, such as women, rural communities, and displaced persons, mobile money accounts powered by USSD provide access to transformative services, including healthcare, education, financial services, employment, and social protection.
In Nigeria, banks have embraced USSD alongside mobile banking apps, recognizing its importance for consumers using feature phones.
The infrastructural gap, affordability, and consumer readiness contribute to the higher number of users relying on USSD technology.
The USSD Ecosystem: Key Participants
The USSD ecosystem involves five key participants:

Financial Institutions: Banks and other financial institutions offering products and services through USSD to their customers.
Mobile Money Operators: Entities licensed to provide mobile payment services to both banked and unbanked customers.
Mobile Network Operators: Utilize USSD to interact with and provide services to their customers.
Value Added Service Providers/Aggregators: Licensed organizations engaged in providing value-added mobile/fixed services.
Customers: Individuals initiating financial transactions through USSD strings provided by their financial institutions or value-added service providers.

Understanding this USSD ecosystem is crucial for appreciating the collaborative efforts that drive the success of mobile money services in Africa.
In the upcoming series, we will delve into how mobile money wallets and direct carrier billing work in Africa, providing a comprehensive understanding of these transformative financial technologies.
Stay tuned for insights into the mechanics of modern financial transactions shaping the future of the African continent.