India Picks USSD for Mobile Banking

Decades-Old Mobile Technologies Still Matter


These are exciting times for mobile money. After years of talk, smartphones are beginning to take on the roles of credit card and banker. For most mobile subscribers in developed countries, it will be an added convenience. But in many developing nations, mobile infrastructures are becoming the best way to offer basic financial services. India, a country with more than half a billion unbanked individuals, has now chosen older mobile technologies to leapfrog the nation into handset-based banking in the hope of closing the country’s financial services gap.

Last week the Indian government together with 10 of the country’s largest mobile operators and 29 nationalised banks agreed to create a mobile banking platform based on Unstructured Supplementary Service Data (USSD). This is a GSM technology that has been around for two decades. The system will provide subscribers with access to basic banking services using short codes similar to short messages. Users can transfer funds, view their statements and get their balances immediately using very basic GSM handsets. The cost per transaction is 1.5 Rupees (about $0.025). The central system will be administered by the government-run National Payment Corporation of India.

Many rural areas in India lack have neither bank branches nor 3G service. Relying on a low common denominator such as USSD is the most practical way to reach a mass market. With a household mobile penetration rate of about 80 percent and with fixed-line Internet and smartphone penetration rates still in the teens, most of the country is not ready for more-advanced mobile services, but are ready for the basics. Despite the success of smartphones and tablets in India during the past two years, there is still a significant market for low-cost, power-efficient feature phones.

Another noteworthy development in India is the expanding use of a biometric-based identification number called Aadhaar, which all individuals in the country can get. Starting next month, all banks will accept the 12-digit Aadhaar number as a standard form of ID, simplifying the process of opening an account. Once opened, the accounts could be accessed via mobile short codes. India could become one of the world’s leading mobile money nations on a transaction basis.

Many developing nations are using their installed infrastructure to bring services to a more people. While industry excitement around technologies such as NFC and 4G grow, legacy connections still matter.