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I’m writing this minutes after setting up my Wave account. That’s the shortest way of saying that I’m spending the next week in Dakar, and as far as first impressions go, the Wave app is about the simplest and easiest I’ve used in a while. Remember last year when I talked about opening a second bank account and the pepper that all the neobanks in Nigeria showed me before I settled for Carbon? None of that with Wave. As far as apps go, it’s pretty much touch and go.
Enough about an app that isn’t paying me any money. There’s a lot to talk about, given that I haven’t written this newsletter in almost five weeks, so I’ll save the explanations for my unplanned hiatus for later and jump right into it. Big shout to Native Teams for continuing to sponsor the newsletter. If you’re a freelancer who’s always twisting yourself into knots trying to collect your pay, Native Teams helps with that, so make sure you give them a spin and let me know what you think.
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The Banks and Telcos are back it again
The most interesting thing from this week is that Nigerian banks and telecoms companies are resuming a familiar roforofo fight over USSD. Since 2019, the big question has been who should pay when customers use USSD to make banking transactions. For a while, USSD was a pretty popular way to make banking transactions, with banks trying to outdo themselves in the battle to get users to transact using shortcodes. GTCO had that catchy *737 jingle that’s still stuck in my head today, and then Access and all of the other banks quickly followed suit. While no other jingle banged like GTCO’s, USSD codes with all their faults caught on quickly.
For all the unpredictability of USSD codes–they routinely fail–and for the safety concerns that also come with it, the fact that customers didn’t pay for it made it really mindless to use. But telcos pointed out that each USSD session costs something like ₦4.98 and that they were racking up billions in unpaid sessions. So for the next two years, the arguments over who should pay the fee became the bone of contention. In 2021, after the intervention of CBN and the telecoms regulator, everyone agreed that customers should pay ₦6.98 for each USSD transaction. Here’s what I wrote at the time:
“In the end, the issue has been resolved at the expense of the customer and everyone who uses USSD will now pay a ₦6.98 fee per transaction. The key difference in the new charge is that customers will not be billed per session, which is a cheaper outcome than what MTN introduced in 2019.”
After the introduction of fees, USSD transaction values stagnated or declined slightly among Nigeria’s biggest banks. GTCO shared this week that its USSD transaction values for 2022 declined by 22%. Predictably, the banks blame the decline on the introduction of the fees. I’ll take three quotes attributed to GTCO’s Segun Agbaje this week to wrap up some of my thoughts on the whole USSD fee debate.
Quote 1: “USSD is a clumsy technology. It’s not state-of-the-art. The best way to have financial inclusion is to crash the cost of data so that data becomes more affordable. Then we can use what is a superior technology. “
I wholly agree with this sentiment, and I remember a conversation with Abubakar Idris a few years ago when he predicted that USSD will not be a feature of Nigeria’s banking space in the near future. His arguments are similar to Agbaje’s: clumsy technology, questionable security, and its unreliability.
Quote 2: “If you want financial inclusion, then you need to bring down the cost of data. And when you bring down the cost of data, you start to eradicate USSD. But if you insist on using USSD, the banks have told the telcos to charge the end users. The banks don’t get any of the charges. The banks are saying we don’t want to be involved. If you want to charge N20 for the service, go ahead. But collect it yourself. Don’t come to us.”
It’s difficult to not feel like one of the reasons USSD stopped growing is that the banks don’t have a ton of incentive to push it anymore. The fees on the transactions go to the banks and like Agbaje also pointed out in the same media session, GTCO makes a lot more money from its mobile banking business–which has been unbelievably painful to use over the past year by the way. Back to the matter at hand. My takeaway is that if there’s anything you learn about Nigerian banking, it’s often that when something isn’t really working, it’s because they don’t have any incentives to make it work. When retail customers start to bring in the bulk of the bank’s revenues, for instance, their mobile banking and digital banking offerings will improve. Until then, na siddon look we dey.
What this also tells us is that the banks will not care if they get yanked off USSD shortcodes. We continue to watch. One last thing before I wrap this up.
Much ado about Naira devaluation
This week, Bloomberg reported that one of the first orders of business for a Tinubu Presidency is abolishing the current multiple exchange rate window. They expect a 15% devaluation in the first week of the new administration, but it’s still unclear if whoever Tinubu taps as CBN governor will go the whole hog with a free float. It’s difficult to see that happening.
But one thing is clear. For the last couple of years, only a handful of people have had access to the greenback at the official rate of N426 anyway, and I don’t think anyone even remotely thinks of the exchange rate in anything but the parallel market rates. That’s to say that I think a devaluation if it happens, is not a thing to really fear at the moment. We’ve expended billions creating an artificial peg for the Naira under Emefiele so I don’t see how this hurts.
That said, who becomes CBN governor after Emefiele? Will we see the CBN’s financial reports during said person’s time as governor? And finally, will Tinubu’s body language (any notion of CBN independence has died in the last five years or so) suggest some sensible FX policies for the next four years? We watch!
If you’re wondering where the “what I’m reading” portion is, I’ll share it on Sunday. See you on Sunday and it feels great to be back!
Welcome back, Muyiwa.
This is is a deep dive and an enjoyable read, good to see you’re back to writing 🔥