SMS and USSD payments refer to payments made by text messages. SMS (short message service) and USSD (Unstructured Supplementary Service Data) are two methods used by telecom companies to allow users to send and receive text messages. Of the two, SMS is by far the most commonly used. With SMS, messages are sent to SMS centers, which store the message. The SMS center then tries to transmit the message to the recipient. If the recipient is not reachable, more attempts are made until the recipient receives the message. In contrast, USSD makes a direct connection between text message senders and recipients, making it more responsive. Demand has developed for payment processing using both of these text message systems.
How payments are made using SMS and USSD
Most SMS and USSD payment processing is carried out by sending a text message using one of these systems to a provider of services. Upon receipt, the amount of the purchase is charged to an online payment system or the amount is added to the buyer’s phone bill. The goods or services are then released and the money is transferred to the merchant account after payment. The delivery of the products themselves is often conducted by MMS (Multimedia Messaging Service). MMS is a set of guidelines that permit files to be sent to users with SMS. If the buyer purchased a physical item, proof of purchase can also be sent by SMS or MMS. Most purchases made using SMS or USSD take place in Asia or Europe.
Advantages and disadvantages of SMS and USSD payment
The primary advantage of SMS and USSD payment processing is that it utilizes a text message system that users are already familiar with. Digital products such as ringtones, music, and images can also be easily purchased in a short amount of time with these systems.
Disadvantages of these payment systems include reliability and security issues. Text messages occasionally get lost, for example. Also, since text messages are received as plain text files, there may also be potential security issues, especially if merchants accept credit cards. The costs of running a system to handle payment processing by text messaging may also be rather high.
Those considering utilizing SMS and USSD to process purchases would be best off selling goods which will lead to a high profit margin using these systems to offset the costs. They should also consider processing credit card numbers and other payment information in a different, more secure manner than text messages. This method of processing can be used in conjunction with SMS using PINs or keys to make SMS and USSD payment processing more secure.