The History and Importance of USSD in Africa's Digital Landscape

The history and meaning of the term itself are somewhat of a foreign concept to most of us. Although USSD has found a home in Africa, it is not an African invention—far from it.

The History and Importance of USSD in Africa's Digital Landscape

If you asked a random person in the city of Lagos, Accra, Addis Ababa or Nairobi what the acronym USSD represented, chances are you will not get much of a correct answer from them.

Despite being widespread in its use, Unstructured Supplementary Service Data (USSD) is not a recognisable term for most Africans. We know and mostly use its different iterations e.g. telco recharge codes, bank codes, mobile money codes, etc. But the history and meaning of the term itself are somewhat of a foreign concept to most of us. Although USSD has found a home in Africa, it is not an African invention—far from it.

The creation of USSD

To understand the origins of USSD, we have to go back to 1983 Europe, just as the mobile technology age was about to take off. The year is 1983 and the European Union (EU) is debating what digital cellular voice communication standard to adopt across board for its member nations.

After much debate and 4 years of research, the Union settles on a standard called the GSM “Global System for Mobile Communications” in 1987. A year after, in 1988, the European Commission, the trade body that handles the business of the EU, created the European Telecommunications Standards Institute (ETSI). The ETSI’s job was to harmonize and standardize information and communications technology across the EU.

It was the ETSI that would go on to create the basis of USSD technology in March 1997. A couple of engineers from the Institute published a document titled GSM 02.90. The document covered a protocol for technical communications between mobile network operators’ computers and their users’ mobile devices.

Over the next few mobile phones began to take off, and engineers realised that there would be a need for a protocol to facilitate easy communication between a user’s device and the network operator’s computers. This need resulted in the creation of the USSD protocol, developed from the recommendations of GSM 02.90.

Initially, the USSD protocol was only used for querying the mobile network operator’s computers for things like buying airtime, checking balance, etc.

USSD’s entrance into Africa

Africa’s colonial ties with Europe meant that when mobile technology would finally penetrate the continent in the early 2000s, the GSM was the standard adopted by most countries. This was despite the presence of competing technologies like the CDMA, which was used by the USA and Russia. Other regions where mobile technology had penetrated earlier relied on post-paid plans to keep users connected, which meant users didn’t have to query the operators’ networks too often.

However, the lack of buying power in Africa meant that telcos had to innovate with sachetized prepaid plans to keep people connected. This also meant that African users had to query their operators’ networks more often than their counterparts in other regions. Telcos resorted to USSD so that people could recharge their phones and perform other functions.

That move heralded the popularity of USSD codes in Africa with codes like *556# for MTN Nigeria, *456# for Safaricom, and *100# for Vodacom becoming synonymous with mobile phone use.

USSD goes mainstream

In 2007, Safaricom launched M-PESA—a mobile phone-based money transfer, financing and micro-financing service. Through a clever workaround, Safaricom allowed people to transfer money into their M-PESA wallets and withdraw it from a network of agents including airtime resellers and retail outlets acting as banking agents. This allowed people in underserved areas to access basic financial services at a rate they had not been able to before.

The internet had very minuscule penetration in Africa at the time, so Safaricom had to figure out a way to help users perform transactions. In Kenya, the company went with Sim Tool Kits (STKs), which are telco-owned apps that are auto-installed on every sim card. These apps are light and can easily be installed on feature phones. STKs proved to be a major hit with the Kenyan market with M-PESA users creating 2 million accounts in the first year.

The resounding success of M-PESA in Kenya led to its launch in a neighbouring country, Tanzania in 2008 by Vodacom—an affiliate company of Safaricom.  In Tanzania, Vodacom went with USSD instead of STKs. That also proved to be a resounding success and the herald of USSD’s success as the main tool for accessing digital financial services in Africa.

M-PESA’s success was copied, tried, and tested in different parts of Africa with differing levels of success. However, the utility of USSD to financial transactions only grew stronger even in places where mobile money did not succeed e.g. Nigeria, South Africa, etc.

In Nigeria, for instance, iterations of M-PESA’s mobile money were tried out, however, regulations and market peculiarities meant they never took off. Banks, however, succeeded in powering mobile banking through USSD codes with Fidelity Bank and GTBank pioneering the way. While USSD did not begin as an original African invention, it has become synonymous with the continent. People across Africa rely on technology to pay bills, perform banking transactions, recharge their phones, access insurance, and perform countless other kinds of transactions.

Now that you’re caught up with the history of USSD as it relates to Africa, it’s important to take a look at why it works well in Africa. According to GSMA, as of 2020, over 90% of the transactions in Africa are powered using USSD.

Here are a few reasons why USSD has been winning this battle:

  • Cost: The primary reason USSD got a foothold in Africa was that low purchasing power forced telcos to switch to prepaid plans in most countries. That reason is still present in modern-day Africa. Many users still have to perform microtransactions (under $10) with their banks and mobile money operators. Internet costs are still pretty high on the continent, leaving USSD as the next best alternative.
  • The popularity of feature phones: Although smartphones have made an incursion into the African market, feature phones still dominate. According to the International Data Corporation, feature phones made up nearly 54% of phone shipments into Africa as of Q2 2021. The trend doesn’t look likely to stop soon as most young Africans are likely to have a feature phone as their first phone.
  • Low internet penetration: Despite internet penetration growing year on year in Africa, much of the continent is still disconnected. According to the International Finance Corporation, only 22% of the continent has access to the internet. This means that even for Africans who have taken to digital banking, their access can be severely hampered if they find themselves in places without strong coverage. USSD does not interact with the internet so it is much more reliable for transactions.
  • Force of Habit: For a good part of the last 20 years, mobile phone users across Africa have had to rely on USSD codes for transactions with telcos, mobile money agents, and banks. This has led to a cultivated preference for USSD as a transaction tool.

Final Thoughts

Although many speculators have heralded the death of USSD due to growing internet access, that has not shown to be the case. An overwhelming majority of the transactions on the continent are still powered through this “archaic” technology.

USSD is generally considered a reliable technology in Africa and is widely used for various services, including mobile banking, airtime top-up, and other value-added services. USSD is popular because it does not require internet connectivity, works on both basic and smartphones, and is accessible to a wide range of users. A new wave of engineers are now creating services layered on the USSD technology, and Stax is one of them. These services allow users to do more with USSD than ever before.

However, like any technology, it may have occasional issues that affect its reliability for a lot of users. For example, USSD is dependent on network connectivity, and users may experience delays or failed transactions if there are network issues with telcos and Banks. Additionally, some users may experience difficulties in navigating USSD menus, which can lead to errors and unsuccessful transactions.

Overall, USSD is a popular and reliable technology in Africa, but its effectiveness is dependent on network connectivity, user experience, and the quality of the application service.