An anonymous Contribution by a Guest Writer
Financial inclusion is a critical driver of economic development and growth. However, in Ethiopia, it lags notably with low percentage of the population having access to banking services.
Aiming to address this disparity and coping with the global trend, the Ethiopian government passed DIGITAL ETHIOPIA 2025 and the country’s first National Digital Payments Strategy. These comprehensive documents aim to use digital financial services, which include mobile money, mobile banking, internet banking, and card banking, as a vehicle to enhance financial inclusivity.
And when it comes to digital financial services in Ethiopia, as well as in many other developing nations, Unstructured Supplementary Service Data (USSD) plays a vital role.
USSD is a technology employed within the Global System for Mobile (GSM) communications. It enables the transmission of text messages between a mobile phone and an application program in the network. Importantly, it is accessible even on the most basic mobile phones and requires neither an internet connection nor smartphone capabilities.
This accessibility makes USSD an ideal medium for providing financial services to individuals who do not have access to advanced technology or stable internet – a demographic that often overlaps with the unbanked or underbanked population. In Ethiopia, a considerable portion of digital transactions, including those through mobile banking or mobile money platforms, relies on USSD.
This emphasizes the crucial role USSD plays in achieving the objectives outlined in DIGITAL ETHIOPIA 2025 and the National Digital Payments Strategy.
However, in Ethiopia, steep USSD fees pose a considerable obstacle to achieving financial inclusion. Service providers, including banks and mobile money services, face a charge of 0.21 Birr per USSD session imposed by the incumbent telecom operator, Ethio Telecom. Ethio Telecom restricts a single session to 30 seconds. The new entrant Safaricom Ethiopia has also adopted these prices and USSD sessions done on the 07 network will also cost 0.21 birr.
With the average USSD session lasting more than 30 seconds it can be said that every USSD session by a customer often costs more than 0.40 Birr, creating a significant financial burden.
This is a conservative estimate that fails to consider the duration of sessions where users are being onboarded for the first time, which typically takes much longer. Additionally, many users take their time to familiarize themselves with the services listed on USSDs, resulting in multiple USSD sessions for browsing purposes. Consequently, these costs escalate, making it more expensive for financial service providers to avail the service.
As a result, financial service providers in Ethiopia are incurring costs amounting to millions every month, leading to frustration with USSD banking, with popularity of this method is declining within Ethiopia’s banking sector.
This situation disproportionately affects low-income and rural populations, who are the most in need of such services.
In stark contrast, several other developing nations have instituted either free or nominal USSD fees to encourage financial inclusion.
In 2017, the Competition Authority of Kenya (CAK) compelled Safaricom, the dominant operator, to lower and publicly disclose its charges for third-party mobile banking services.
In India, the telecom regulator implemented a tariff reduction for USSD-based mobile banking and payment services in 2022, reducing the charges to zero. This decision aimed to safeguard the interests of feature phone users and promote digital financial inclusion.
Meanwhile, in Nigeria, collaborative efforts between the central bank and the nation’s communication authority have resulted in making USSD services more affordable for financial service providers. The billing system for USSDs was transformed from a session-based model to a flat fee per transaction, bringing about significant cost changes.
With a population exceeding 120 million and low mobile internet penetration rate, Ethiopia is primed for such a shift in policy. In a nation where the majority of people reside in rural areas, democratizing access to financial services is a pivotal step toward achieving the Sustainable Development Goals (SDGs) of reducing poverty, advancing gender equality, and fostering economic growth.
Currently, Ethio Telecom, a public giant, and Safaricom, a new foreign entrant, are the only telecom service provides. These players also have their own mobile money platforms. The significant USSD fees they impose on other financial service providers create a market imbalance, further inhibiting the spread of financial inclusion.
The Ethiopian Communications Authority, alongside the National Bank of Ethiopia and the Financial Inclusion Steering Committee, should strive to level the playing field by drastically reducing or completely eliminating USSD fees. Doing so would incentivize other financial service providers, including banks and fintech firms, to expand their offerings to the unbanked and underbanked populace, thereby driving financial inclusion.
In conclusion, the provision of free or reduced USSD services is an essential move toward improving financial inclusion in Ethiopia. Learning from the examples set by other nations, Ethiopia’s government should act urgently to remove these barriers, leveraging mobile financial services to promote national economic growth and development.
This is a guest article submitted by an anonymous writer. The writer has chosen to remain anonymous due to their close proximity to the sector.