USSD-based Cashless Payments

USSD-based cashless payments represent a technology-driven financial inclusion mechanism that enables digital transactions without the need for internet connectivity or smartphones. In the Indian context, this payment system has played a significant role in extending formal banking and digital payment services to underserved and rural populations. By leveraging basic mobile phones and telecom networks, USSD-based payments bridge the digital divide and support India’s transition towards a less-cash economy.
In banking and finance, USSD-based cashless payments complement internet-based platforms by offering a simple, accessible, and cost-effective alternative for conducting financial transactions.

Concept and Meaning of USSD-based Cashless Payments

USSD, or Unstructured Supplementary Service Data, is a communication protocol used by mobile networks to transmit information between a user’s handset and service providers in real time. USSD-based cashless payments allow customers to access banking services and make digital payments by dialling a short code on their mobile phones.
Unlike mobile applications or internet banking, USSD operates over GSM networks and does not require data connectivity. This makes it particularly suitable for users with basic feature phones and those living in areas with limited internet infrastructure.

Evolution in the Indian Banking System

USSD-based payment systems gained prominence in India as part of broader financial inclusion and digitalisation initiatives. Recognising the need to extend digital payments beyond urban and smartphone users, Indian banks and regulators promoted USSD as an inclusive payment channel.
The initiative received institutional support from the Reserve Bank of India, which encouraged banks to adopt alternative digital payment modes. The operational framework was further strengthened through platforms developed by the National Payments Corporation of India, integrating USSD with existing banking infrastructure.

Working Mechanism of USSD-based Payments

USSD-based cashless payments operate through a menu-driven interface. Users dial a designated USSD code, after which they receive on-screen prompts to select banking services such as balance enquiry, fund transfer, or merchant payment.
Authentication is typically completed using a mobile personal identification number, ensuring transaction security. Since communication occurs in real time and does not rely on stored messages, the system provides immediate confirmation of transactions.

Role in Financial Inclusion

Financial inclusion is a key objective of USSD-based cashless payments in India. A large segment of the population, particularly in rural and semi-urban areas, owns basic mobile phones but lacks access to smartphones or reliable internet connectivity.
By enabling digital payments through simple handsets, USSD-based systems allow individuals to participate in formal banking without technological barriers. This supports government-led inclusion programmes and encourages the adoption of cashless transactions among first-time digital users.

Importance in Banking and Finance

For banks, USSD-based payments expand customer outreach while reducing dependency on physical branches. They provide a low-cost channel for delivering essential banking services such as fund transfers, account enquiries, and bill payments.
From a financial perspective, these systems enhance transaction efficiency and reduce the costs associated with cash handling. They also contribute to improved transparency, as digital records of transactions are automatically maintained.

Significance for the Indian Economy

In the Indian economy, USSD-based cashless payments contribute to digital empowerment and economic participation. By facilitating secure and accessible transactions, they support small traders, daily wage earners, and micro-entrepreneurs who may otherwise rely heavily on cash.
At a macroeconomic level, increased digital transactions improve traceability of financial flows, support tax compliance, and strengthen the formal economy. USSD-based payments thus align with national objectives of reducing cash dependency and promoting digital financial infrastructure.

Advantages of USSD-based Cashless Payments

USSD-based cashless payments offer several advantages:

• They do not require smartphones or internet access
• They are accessible across all GSM mobile networks
• They support financial inclusion and rural outreach
• They are cost-effective for banks and users
• They provide real-time transaction confirmation

These features make USSD a practical solution in a diverse and populous economy like India.

Limitations and Challenges

Despite their benefits, USSD-based payment systems face certain challenges. Limited session time and menu-based navigation can affect user experience. Transaction failures may occur due to network issues, and the absence of advanced interfaces restricts functionality compared to app-based platforms.
Security concerns, such as safeguarding personal identification numbers, also require continuous awareness and user education. Additionally, as smartphone penetration increases, user preference may gradually shift towards more feature-rich digital payment applications.