The shutdown of outdated GSM based payment system USSD has been a hot topic among Iran’s payment industry players for months. It seems that USSD is seeing its last days, though many PSPs (Payment Service Providers) are still earning millions daily and do not necessarily want to lose the massive revenue they are generating annually through this.
Due to its low security protocols which is on the GSM network, USSD has been a long talked topic at the CBI (Central Bank of Iran). Iran currently has 13 PSPs which have a monopoly now because no other company is allowed to have a PSP license as of the moment. These PSPs are responsible for card transactions in Iran which are all attached to a national payment switch called Shaparak which connects banks to the PSPs. USSD has been used mostly for mobile top-ups, bills and utility payments which translates into tens of thousands of daily transactions in Iran.
Over a year ago, CBI raised concerns about the security issues this technology had and tried to push the companies using this technology to alternative solutions such as payment over data (or in other words using the internet for data transactions). Payments on USSD had also decreased in the past months, and for a long time “mobile payment” in Iran was translated into USSD payments as it has been the closest thing to the real definition of mobile payment in Iran.
In multiple announcements, the Central Bank stated that the PSP, or the payment solution providers that are working with the PSP, must either switch to an alternative solution or use the newly developed Peyvand network which is the first tokenization network developed in Iran which is supervised by the Central Bank under the operational arm of Shaparak. It is believed that using the Peyvand network will increase the security level of USSD and would relatively solve the concerns. For the PSPs to use Peyvand tokenization network, they were requested to guide their users to register their phone number under their bank account number at their closest bank branch, in order to maintain security and identify the users. Peyvand network also tokenizes those users’ debit card number to their phone number and they become registered in the Peyvand network.
This act would’ve ultimately diverted these users to use new alternative solutions such as mobile payment apps that are starting to operate on the data network because of the hard process. However with many complaints coming from the PSPs, the supervisor Shaparak agreed to postpone this with some minor conditions. Typically a PSP would get transaction fee from the Central Bank (will be explained in a different article) and the issuer bank which acts as the revenue generating source for PSPs. In Iran, the users pays no transaction fee and almost all payments are free of charge. With the new guidelines announced by Shaprak, if the user’s number is not on the Peyvand network database, the PSP receives no transaction fee from the mentioned organizations. This is designed in a way to push the PSPs to ultimately shut down USSD based transactions. This will also create new opportunities for mobile payment startups to provide these services. If these startups also integrate with PSPs, both PSPs and mobile payment startups can win the game by using internet and data solutions rather than USSD solutions and still receive the transactions commissions charged from the banks and CBI. Asan Pardakht one of the major payment companies which is also a PSP is one the companies that is going to lose big due to the fact that millions of its users are using its USSD solutions to pay for top-ups and utilities.
We predict the usage of USSD will reach its all time minimum state in 2017 and adoption of mobile solutions based on data will boom.