Telecom Service Providers in Nigeria Reach a $132 Million Settlement over USSD Charges with Banks
In a significant development, Nigerian banks have commenced repaying a debt of ₦200 billion owed to telecom companies for utilizing Unstructured Supplementary Services Data (USSD) banking. This debt, which has been an issue for six years, has caused friction between banks and telcos, leading to a slow payment process.
The debt originates from the fact that banks do not generate revenue from USSD and are incentivized to deprioritize it due to smaller payment values compared to mobile banking. This, coupled with security concerns and fraud in the industry, has made USSD less of a priority for Nigerian banks, potentially slowing the pace of payments toward the debt.
The Central Bank Governor, Olayemi Cardoso, played a significant role in urging the banks to commence payments. Regulators have mandated that banks collect and remit USSD fees to telcos, but the process has been slow. Telcos argue that USSD is a vital channel for banking and that banks should collect and remit applicable fees.
The ₦200 billion debt, consisting of the principal sum and interest, may rise if the payment continues to drag. This is a concern shared by Gbenga Adebayo, president of the Association of Licensed Telecommunication Operators of Nigeria (ALTON). He noted that the payment process has been slow.
Despite the ongoing debt, banks like GTCO launched marketing campaigns for their USSD shortcodes as early as 2016. However, some bank experts believe the debt will not get resolved and suggest that telcos should let it go, a position held by many bank executives. In 2023, Agbaje argued that to promote financial inclusion, the cost of data should be reduced, which would eradicate USSD.
USSD, initially developed by telecom companies for airtime and subscription services, is the fifth most used payment channel in Nigeria, but has the lowest spend-per-transfer at ₦10,000. In 2021, Nigerians transferred ₦5.1 trillion via USSD, which declined to ₦4.4 trillion by 2022.
Central Bank and the Communications Commission have intervened in the situation. While there are no specific Nigerian banks identified in the current search results as being on the verge of liquidation due to inability to repay high debts to telecommunications companies, the ongoing debt is a concern for the stability of the financial sector.
As the repayment process continues, both banks and telcos will need to find a long-term solution to ensure the sustainability of USSD as a payment channel in Nigeria. The industry average for other channels such as mobile apps and online transfers is ₦70,000, according to National Bureau of Statistics data, highlighting the need for a fair and equitable fee-sharing model.
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