In the first edition of the Mobile Money Accounting series published on Wednesday, November 24, 2021 and titled ‘The Evolution of Mobile Money’, we sought to establish the genesis and progression of mobile money; its journey to market dominance in Ghana, and how the system works in terms of regulations. General guidelines with respect to industry operations, practices as well as basic principles for banks in terms of purchases and sales were also covered.
Of particular note is the rule of thumb for mobile money business which makes, “The total E-cash in circulation equal to the aggregate of all cash held in Electronic Money Issuer (EMIs) trust accounts at partner banks”.
This forms the core of all accounting entries done by partner banks in their books as at all times, the
Total E-cash in circulation = total cash domiciled in trust accounts
In the earlier publication, we examined the processes involved in bank’s purchasing E-cash from Telcos, either for their own channels or for resale to customers, and how banks should basically treat the purchase and sale 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 process 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 this edition, we will look at the various scenarios under which partner banks of the Electronic Money Issuers (EMI) purchase and/or sell E-cash to customers and their corresponding accounting entries.
It is however worth noting that the number of registered mobile money accounts as at December 2022, per the Bank of Ghana’s Summary of Economic and Financial Data, was 55.3 million with 20.4 million being active. With a current population of about 33 million, this clearly indicates there are more registered mobile money accounts than there are individuals in the country. To put this in context; there are approximately 1.7 mobile money wallets per individual in Ghana.
In May 2022, Ghana’s government introduced the Electronic Transactions Levy (E-levy) which was then a 1.5 percent tax on all electronic payment transactions – with a GH¢100 threshold for mobile money transactions and GH¢20,000 for bank transfers beyond which the levy would apply. After much push back from stakeholders, the rate has since been reduced to 1 percent.
Mobile money transaction count and values have seen a steady rise, with transaction count hitting 488 million and value reaching GH¢122bn in December 2022.
This is a very interesting narrative that shows the deep penetration of mobile money into the very core of citizens’ daily activities and transactions. This mode of payment has now become mainstream and the preferred method of payment for many. Mobile Money has now become a Lifestyle choice.
Electronic Cash Transaction Flow (E-Cash Flow)
For individuals who have registered as customers of an Electronic Money Issuer (EMI) to use the mobile money service, there are varied options available for the purchase or sale of E-Cash. They can either buy (load their wallets) or sell (withdraw funds from wallets) using the Telcos’ direct agents or partner banks of these EMIs.
This piece will primarily focus on the processes involved in customers transacting with banks. To the customer who walks into a bank to either purchase or sell the E-cash on their mobile money wallet, their basic understanding of the process is as follows:
- a) Transfer of e-cash on wallet to the bank in exchange for actual cash; or
- b) Payment of cash or a debit to bank account in return for E-cash onto wallet
The perceived simplicity of this process to the customer adds to the service’s appeal; no need to concern themselves with the technicalities that encompass the process of converting cash to E-cash or vice versa. Behind the scenes, however, is an expected series of entries which are passed by the bank to ensure that, at any point in time, e-cash in circulation equals deposit in the trust accounts.
Banks themselves also have their own wallets with which they purchase E-cash, either for their own channels or for resale to customers. However, in instances when the bank does not have E-cash stock directly from EMI, it may act as an intermediary between the customer and Electronic Money Issuer by purchasing the E-cash for resale.
How the transactions are treated depends on whether the customer’s wallet is mapped to the transacting bank’s BIN, or if there exists a trust account of the EMI within the transacting bank. We will also look at instances when the customer has an account with the bank they are transacting with; which can be debited for the purchase of the E-cash.
Basic Accounting Treatment of E-Cash Transaction
Model I – Using the BIN System
When a customer walks into a bank to purchase E-cash from the Bank’s Wallet, there are certain conditions that determine how the transaction is accounted for
- The customer’s E-wallet is mapped to the BIN of the same bank
- The customer’s E-wallet is mapped to the BIN of a different bank
When the customer’s wallet is mapped to the BIN of the same bank, there are two scenarios that may play out here; either the purchase will be made from his/her bank account or using cash over the counter.
- Purchase from Bank’s Wallet through Customer’s Account
The process above shows the very simple treatment of an E-cash purchase transaction wherein the customer has an account with the bank and his wallet is also linked to the same bank’s BIN. There is no actual movement of cash here, and liquidity is not impacted.
- Purchase of E-cash from Bank’s Wallet using cash over the counter
In the instance above wherein a customer walks into a bank to purchase E-cash with cash and his wallet is linked to the BIN of the bank where he/she is transacting, the teller will take the cash and credit the bank’s till. The bank will then go on to credit their E-cash account and debit the bank’s wallet. The customer will then be credited with the E-cash purchased, and that ends the transaction.
It should be noted that the liquidity position of the bank is improved though there is no impact on the Trust Account, since the E-cash being sold is already mapped to the BIN of the transacting bank.
When the bank does not have e-cash in its own wallet to sell to the customer, it can act as an intermediary and purchase from the EMI for resale to the customer. Such instances will have impact on the Trust Account as a new purchase of E-cash has happened. This is illustrated below.
- Purchase of E-Cash for Resale to Customer whose wallet is mapped to Bank’s BIN
NB: The entries with same colours cancel each other out.
- The E-cash represents virtual (electronic) assets of a bank which is normally shown as part of other assets while the Bank of Ghana represents the internal operational account of the central bank in Bank A. This then means a movement of one class of asset (cash and cash equivalent) to another class of asset (electronic cash as part of other assets). There is also a movement on the E-cash account to reflect the sale to the customer.
- This entry relates to settlement done by the Bank of Ghana for mobile money transactions whereby the central bank debits the operational account of bank A and credits bank A in favour of the Trust account of the Electronic Money Issuer (Telco). Effectively, there is zero impact (no actual posting) as the operational account and trust account for banks are currently one and the same.
- 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 a bank purchasing E-cash for resale to a customer whose wallet is linked to the bank’s BIN, the actual postings in its books will be:
DR Customer Account xxxx
CR EMI Trust Account xxxx
- 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.
- Bank A then debits its wallet and credit’s the customer’s wallet with the funds purchased.
From the above process flow, it can be seen that the effective entries are a Debit to Customer account and a Credit to the Trust Account of the Telecommunication Company, and a movement of E-cash to a Customer’s wallet. This shows that there is actually no cash movement out (no impact on liquidity) when there is purchase of E-cash by the bank for resale to a customer whose wallet is linked to the BIN of the same bank.
- Purchase of E-Cash for Resale to Customer whose wallet is mapped to the BIN of another bank
If the customer’s mobile money wallet is mapped to the BIN of another bank (bank B) separate from the bank (bank A) at which the transaction is being undertaken, the following entries will ensue to complete the transaction:
Here, bank A will go through the usual process of purchasing e-cash as shown in Stage-3 above. However, due to the customer’s wallet not being mapped to bank A’s BIN, the Bank of Ghana through GhIPSS will debit bank A’s operational account and credit bank B in favour of the trust account of the EMI at bank B.
Thus, there is actual movement of cash from bank A to the bank to which the customer’s wallet is mapped to – in this case bank B.
There can be countless scenarios for mobile money transactions under the Model I, but the basic principles as have been enumerated above – and in the earlier publication – should serve as guiding principles in posting these transactions to allow for fair reporting and comparison.
Model II
This model is operated by the Electronic Money Issuers which do not require their partner banks to have BINs. Partner banks are given Agent wallets (Merchant and Utility Account) which have no transaction or funding limits, onto which they may purchase E-cash for the purpose of settlement of products on their electronic channels. The EMI is required to open a trust account for the purpose of keeping all cash equivalent to the e-cash generated or requested for by the partner bank.
When a customer walks into a branch to purchase E-cash under this model, the transaction flow is as follows:
- Customer gives cash to partner bank
- Partner bank receives cash and credits EMI’s trust account.
- An MT940 file is generated and sent to the EMI containing details of the transaction (i.e. agent wallet / merchant / subscriber wallet number).
- The EMI generates e-cash and credits the destination wallet.
The float received by the transacting partner bank is held until a time the Telco needs to make settlement for Mobile Money Interoperability to other networks (MMI Settlement), data bundle and airtime purchases (EFT Settlement). The Telco normally chooses which partner bank to debit to satisfy its settlement obligation.
It is again important to reiterate that the total amount of e-cash in the system is always equal to the aggregate of float balances held by all the partner banks.
Accounting for mobile money transactions has for some time posed challenges to accountants, auditors and examiners. I believe this piece will bring some clarity to the accounting side of things.
The next edition examines some of the key risks associated with Mobile Money Accounting, and makes suggestions that relevant stakeholders can use as catalyst in providing further guidelines which will improve the reporting framework of mobile money transactions. This follow-up article has been submitted to the relevant regulatory bodies for their comments and will be published in due time.
>>>the writer is Chief Finance Officer at GTBank
