Evolution of mobile money

Evolution of mobile money
By Calleb OSEI

Mobile Money initially began in Kenya in 2007 as a tool to stimulate financial inclusion when Safaricom launched its M-PESA solution to extend financial access to the underbanked in East Africa.

It was later developed into a mobile money platform when it was realized that the solution was being used for general money transfers rather than what it was intended for- which was microloans. Users of the platform found it easy, safe and convenient to send and receive money through their mobile phones. Over the years, Mobile Money has now spread all over the African continent with half of the world’s registered mobile money users said to be in Africa.

Ghana caught unto the mobile money train early on in 2009. However due to some perceived limitations of the 2008 Branchless banking guidelines the phenomenon was not able to gain as much tractions as it had in East Africa until 2015. The branchless Banking guidelines stipulated those financial institutions (FI) could partner with agents (Telcos, Fuel Distribution companies, merchants, Post Offices etc) using technologies like mobile phones, POS terminals among others to offer mobile money services to promote financial inclusion.

However, the customer account relationship needed to reside with a Financial Institution and each transaction was required to “hit” the actual customer account with the processing of transactions done through the Ghana Interbank Payment and Settlement System (GhIPSS) in real time.

While these guidelines sought to promote financial inclusion by essentially offering agency banking services to the unbanked population, it still required financial institutions to anchor the product and the complexities of how this ought to be done did not go in tandem with the ease and flexibility the product was meant to provide.

In 2015 however, the Bank of Ghana issued new Guidelines for E-Money Issuers (EMI) in Ghana to replace the 2008 Branchless Banking guidelines. This was done to promote the availability and acceptance of electronic money as an accepted payment medium. These guidelines dramatically changed the landscape for mobile money business in Ghana because it gave the mobile operators the needed freedom to own and invest in mobile money services. The Mobile Network Operators thus used novelty and market directed strategies to really push and market the mobile money agenda leading to a dramatic rise in adoption and usage of the solution.

Ghana is reported to be the fastest growing mobile money market in Africa according to a 2019 world bank report. As at 2021, 39% of the population over the age of 15 have registered mobile money accounts compared to just about 13% of the population in 2014.

Ghanaians over the years have largely adopted and gravitated towards the sending and/or receipt of money via their mobile money wallets due to its ease and flexibility; all that is needed is a mobile phone with a registered mobile money account/wallet. This process which was hitherto quite cumbersome with regards to transferring money between different network operators has further been simplified with the introduction of Mobile Money Interoperability which now allows for seamless transfer of money from one mobile money account to another, across all networks.

The Payment Systems and Services Act, 2019 (Act 987)

The Bank of Ghana under the Payment Systems and Services Act 2019 (Act 987) requires an entity seeking to engage in electronic money business to apply for authorization to run such business. It requires the Electronic Money Issuer (EMI) to have a minimum paid up capital of 20 million Ghana Cedis.

In running the mobile money business under section 23(h) of the act, the EMI is required to have a dedicated customer float account (also referred to as a trust account) with a universal bank in Ghana. This trust account is set up to mirror the value of E-cash balances on mobile money wallets of customers. The wallets are linked to Bank Identification Number (BINs) of partner banks in MTN’s case. The model been run by AirtelTigo and Vodafone does not make use of the BIN system.

The EMI’s are also mandated under section 29 subsection 2 to issue electronic money at par value to the funds received and pay regulatory interest of not less than 90% or as determined by Bank of Ghana, of interest accrued net of fees & charges to electronic money holders. This interest is to be paid quarterly. Currently, interest is accrued at the rate of 4%.

All funds in the customer float account are to be kept in liquid assets; that is, cash balances with a bank withdrawable on demand or in any other liquid asset as determined by the Bank of Ghana.

There are currently 5 EMIs in Ghana: Mobile Money Limited by MTN (95% market share), Vodafone Cash by Vodafone, AirtelTigo Money by AirtelTigo, G-Money by GCB Bank and ZeeMoney by ZeePay

The rule of thumb for mobile money is as follows – The total E-cash in the system should be equal to the aggregate sum of all cash held in EMIs trust accounts at all partner Banks.

Accounting Treatment of Mobile Money Transactions – Overview

It is understandable that banks and other financial institutions might have different internal accounting processes to recognize mobile money transaction flow. However, these processes must meet basic accounting requirements to support fair reporting and comparative analysis.

What is therefore detailed in this piece and subsequent ones are general accounting treatment guidelines based on how mobile money operates. Key risk areas and suggestions will also be provided to serve as a catalyst for regulators and examiners (including the accountancy body) to have a second look at mobile money operations and how they are reported with the ultimate aim of developing guidelines for banks and other financial institutions for standardized treatment.

There are primarily two models being run currently; the MTN Model and Vodafone/AirtelTigo Model. Again this piece will concentrate on the MTN model with some brief explanations to the Vodafone/AirtelTigo model at the end of the write-up.

Basic Accounting Treatment

As is practice; every mobile money customer must have a dedicated wallet for their electronic cash that is unique to them. The Electronic Money Issuers (EMIs) create the wallet using the customer’s telephone number as the unique identifier. This wallet serves as a virtual account for the deposit and withdrawal of funds.

Banks themselves also have their own wallets (Online Vendor Account-OVA) with which they purchase E-cash either for their own channels or for resale to customers.

The MTN Model

Bank Identification Number Architecture

MTN Ghana’s EMI wing, known as Mobile Money Limited (MML) operates its mobile money service quite differently from the other Telcos. In this architecture, each bank is identified by a unique number called the Bank Identification Number (BIN). Each BIN has a tree of various wallets mapped to it. The e-cash contained in each wallet (Retail subscriber, agent or merchant) has its actual cash equivalent saved in MML’s trust account at its partner bank whose BIN their wallets are mapped to as illustrated below:

Therefore, the aggregate sum of funds held in a float account by all partner banks is equal to the total amount of e-cash contained in the wallets (OVAs, Agent, subscriber and merchant wallets) tagged to that Bank’s BIN.

Bank Related Purchases

  1. Where a bank purchases E-cash with a wallet linked to the BIN/Trust Account of the same bank

I. The E-cash represents virtual (electronic) assets of Bank which is normally shown as part of other assets whilst the Bank of Ghana represents the internal operational account of Bank A of the Central Bank. This then means a movement of one class of asset (Cash and cash equivalent) to other class of asset (electronic cash as part of other assets)

II. This entry relates to settlement done by the Bank of Ghana for mobile money transactions where the central bank debits the operational account of Bank A and credits Bank A in favor of the Trust account of the Electronic Money Issuer (Telco). Effectively there is zero impact (actual posting) as the operational account and the trust account for Banks currently are one and the same.

III. This entry represents the internal posting of Bank A to reflect the effect of settlement done at the Central Bank in its books which again is effectively nil as there would have been no actual posting at the Central Bank

The above therefore means that for Bank purchases whose OVA or wallet is linked to its trust account, the actual postings in its books will be;

 DR E-Cash Account (Other Assets)                            xxxx

            CR MTN Trust Account (part of Deposits.)               xxxx

IV. On the Telco’s platform, E-cash is moved from the Telco’s position to the Banks position. It serves as a medium for reconciliation of E-cash in the bank’s books.

  1. Purchase of E-cash by a bank with a wallet linked to a BIN/Trust Account in another bank (This is rare and likely not to happen)

This scenario only happens when the bank purchasing the E-cash is not a partner bank to the Electronic Money Issuer (EMI). In such an instance there is movement of cash from the purchasing bank (Bank A) to the other bank (Bank B) with which the wallet (Online Vendor Account-OVA) of Bank A is linked. The central bank (Bank of Ghana) through the Ghana Interbank Payment and Settlement Systems (GhIPSS) acts as an intermediary between the two banks to settle the transaction.

In essence, the liquidity of Bank A is impacted as there is actual cash outflow to Bank B who gains as the holder of the Trust Account which is linked to the wallet of Bank A.

It should be noted that under the MTN model, banks can sell back purchased E-cash to the EMI in which case a complete reversal of postings as illustrated above will happen.

The scenarios above exhibit how banks should basically treat the purchase and sale of E-cash from EMI in their books. Whether or not there is actual movement of funds between accounts or banks in some instances depends on which trust account the wallet being used for the transaction is mapped to. The usual is for the purchasing bank to have its wallet mapped to the trust account within its domain to avoid negative impact on liquidity due to the movement of funds.

In the next edition, we will delve into how the varied scenarios under which customers transact on their mobile money wallets are treated by banks in their books. These transactions are more dynamic in nature and as such must be handled clearly and precisely in terms of transaction flows to ensure that neither the bank nor the EMI are shortchanged whatsoever and also to certify that at all times total E-cash in circulation are backed by the total value of the industry Trust Accounts (held with the various banks) at any point in time.

>>>the writer is a member of the Association of Certified Chartered Accountant (ACCA), Institute of Chartered Accountant Ghana (ICAG) and has an Executive Master’s in Business Administration (Accounting option) and BSc in Administration (Accounting Option) from the Business School of the University of Ghana, Legon

Calleb has attended the London Banking School of Risk Management, was the guest of the British Government at the 2015 City Week, an International Financial Services forum and participated in the 2016 Future of Finance Conference organized by FMO in Netherlands among others.

Calleb was a panel member of the Arab African Trade Forum held in Dubai in December 2017, providing key insights into how the Middle East can tap into the trade business of the Sub-Saharan African Countries. His expertise cut across Risk Management, Treasury Management, Financial Reporting and Tax Planning. He has over 15 years’ experience and currently is the Regional CFO (West Africa) and Country CFO of Guaranty Trust Bank Ghana Limited. He can be reached on [email protected]

Leave a Reply