Mobile network operators (MNOs) such as Safaricom in Kenya; Vodacom, Tigo, and Airtel in Tanzania; and Econet in Zimbabwe are collectively underscoring the importance and potential of MNO-led business models to advance financial inclusion. In each of these markets, and in a number of others, where MNOs are able to effectively compete in the provision of mobile financial services (MFS), there are more registered mobile wallets than bank accounts. And in each of these markets mobile payment platforms are being leveraged to offer other financial services such as savings and credit at scale.
The immediate gains for financial inclusion are clear. At the same time, this relatively new role for MNOs can generate competition concerns for country regulators. This is because MNOs compete with banks and other MFS providers (third parties) in the provision of mobile payments, but MNOs also own key communications infrastructure required to provide mobile payments.
Unstructured supplementary service data (USSD), a communications service controlled by MNOs, is believed to be a critical piece of infrastructure used to provide MFS on nearly any phone, at low cost, and without requiring access to the user’s SIM card. USSD enables customers to send instructions to the MFS provider along with their personal identification number (PIN) for authentication, while enabling the MFS provider to send responses to clients and confirm transactions.
This Brief outlines why USSD is important for mobile payments and highlights the main types of complaints arising as a result of restricted USSD access for MFS providers. It then explores regulatory issues, including when regulatory intervention may be required, which regulator might be best placed to intervene, and what type of regulation is most appropriate.