USSD Banking

USSD banking is a way of using financial services on a basic mobile phone. The customer dials a short code that begins with an asterisk and ends with a hash sign, and a numbered text menu appears on the screen. By typing numbers in reply, the customer can check a balance, send money, pay a bill or buy airtime. USSD stands for Unstructured Supplementary Service Data, a feature of GSM mobile networks that was originally designed for network functions such as checking prepaid credit.

The channel works on almost every handset, including the cheapest feature phones, and it does not use mobile data. This has made it the main access method for mobile money and for bank accounts across much of Africa and South Asia, where many customers lack smartphones or reliable internet. It is a core tool of financial inclusion.

When a customer dials a code, the phone opens a live session with the mobile network operator. The operator's USSD gateway recognizes the code and connects the session to the application of the bank or mobile money provider that owns it. The application sends a menu, the customer replies with a choice, and the exchange continues step by step until the transaction is confirmed with a personal identification number.

Unlike text messages, USSD messages are not stored on the phone or delivered later. The session exists only while it is open, and it closes automatically after a short period of inactivity or a fixed maximum duration set by the network. If it drops midway, the customer has to start again. Messages are limited to a little over 180 characters, so menus are terse.

The customer is identified by the phone number the session comes from, which the provider has linked to an account during registration. No app is installed and nothing is stored on the handset, so the service works on a borrowed or replaced phone as long as the same SIM card is used.

• Account enquiries. Balance checks and short statements.
• Transfers. Sending money to another wallet, a bank account or a phone number.
• Payments. Paying merchants and bills by entering a merchant or biller code.
• Top-ups. Buying airtime and data, usually the most frequent transaction. See airtime top-up.
• Cash services. Authorizing cash-in and cash-out at a mobile money agent, or generating a code for a cardless withdrawal at a cash machine.
• Account opening and credit. Opening a basic account with minimal details under tiered KYC rules, and applying for small loans or savings products.

Mobile money services in East and West Africa are operated largely through USSD menus and the related SIM toolkit, a menu stored on the SIM card. Kenya's M-Pesa is the best-known example. In Nigeria, commercial banks each have their own short code, and USSD became one of the most used banking channels in the country, overseen by the Central Bank of Nigeria and the telecoms regulator. In India, the National Payments Corporation offers a common code that gives feature phone users access to the Unified Payments Interface across banks.

Smartphone apps are gradually taking over as handsets get cheaper, but USSD remains important as a fallback when data coverage is poor and for customers who cannot afford data.

USSD was not designed for financial transactions. Sessions are protected only by the encryption of the mobile network's radio link, which is weak on older network generations, and the data is readable inside the operator's systems. The provider's application therefore has to supply the controls: a PIN for every transaction, limits on value, lockout after wrong attempts and monitoring for unusual behavior.

The main practical threat is SIM swap fraud. Because the phone number is the customer's identity, a fraudster who persuades the operator to move the number to a new SIM can dial the code and, if they also know or can reset the PIN, take control of the account. Regulators in several countries have responded by requiring banks to check whether a SIM has been changed recently and to block or limit transactions for a period afterwards. Social engineering, in which customers are tricked into revealing their PIN or dialing a code that authorizes a transfer, is also common. Low transaction ceilings on the channel, set as a transfer limit, contain the losses.

The USSD gateway belongs to the mobile operator, and banks and fintech companies must obtain a short code and pay for sessions. Who bears that cost, the customer, the bank or neither, has been contested. In some markets operators that run their own mobile money services have been accused of giving rivals worse terms or slower access, and regulators have intervened to require fair access and to set session pricing. Disputes over unpaid session fees between banks and operators have at times threatened to interrupt services.

The text-only interface is hard to use for people with low literacy, long menus are easy to get lost in, and sessions time out under poor signal. The channel cannot support richer features such as scanning a QR code. Providers address some of these limits with voice prompts, local languages and shortcut codes that complete a common transaction in one step.