In the first edition of the Mobile Money Accounting series published on 22 Nov 2021 issue 3468, we sought to establish the genesis and evolution of mobile money, its journey to market dominance in Ghana, how the system works as well as basic accounting principles for banks in terms of purchases and sales by banks.
Of particular note is the rule of thumb for mobile money, which is: “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”.
This forms the core of all accounting entries done by partner banks in their books, as at all times:
e-cash in circulation = total cash domiciled in trust accounts
In this edition, we will look at the various scenarios under which partner banks of the EMI’s will purchase and/or sell e-cash to customers and their corresponding accounting entries.
The number of registered mobile money accounts as at August 2021, as per the Bank of Ghana’s Summary of Economic and Financial Data, was 43.9 million accounts – with about 19.1 million of those being active accounts. With a current population of 31 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 1.42 mobile money wallets per individual in Ghana. This is a very interesting narrative which shows the proliferation and how deeply mobile money has penetrated the very core of citizen’s daily activities and transactions.
Customer Related Transactions
For an individual who is registered as a customer of an Electronic Money Issuer (EMI) to use their 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 wallet) using the Telco’s direct agents or walk into a banking hall.
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 into wallet.
And truly, that is the beauty of the simplified process to the consumer; no need to concern themselves with the technicalities which encompass the process of converting cash to e-cash or vice versa. Behind the scenes, however, are an expected series of entries which are approved by the bank to ensure that at any point in time e-cash in circulation equals deposit in trust accounts.
Banks are able to sell e-cash from their wallets’ (OVA) balance to customers as and when they need to. However, in instances when that option is not available the bank may act as an intermediary between the customer and Electronic Money Issuer by purchasing the e-cash for resale.
How the purchase for resale is treated depends also on whether the customer’s wallet is mapped to the BIN/trust account of the EMI of the transaction bank or to another bank. We will also look at instances where 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 Transactions
The MTN Model
Where a customer walks into a bank to purchase E-cash and his/her wallet is mapped to the BIN of the same bank, there are two scenarios that may play out; either the purchase will be made from his/her bank account or using cash over the counter.
- Purchase from Bank’s OVA through Customer Account
The process above shows the very simple treatment of an e-cash purchase transaction where 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 OVA using cash
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 OVA. 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
Where the bank does not have e-cash on its own pool 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 the bank which are 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 where 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 (actual posting) as the operational account and the trust account for banks currently are 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 whose OVA or wallet is linked to its BIN, the actual postings in its books will be:
DR Customer Account xxxx
CR MTN 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 credits the customer 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 Customer’s wallet. This shows that there is actually no cash movement 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/trust account of the EMI in 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 (bank with the customer’s wallet) 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 whom the customer’s wallet is mapped –in this case (Bank B).
There can be countless scenarios for mobile money transactions under the MTN model, 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.
The Vodafone/AirtelTigo Model
This model is operated by both Vodafone and AirtelTigo. This architecture does not have or require BINs. Partner banks are given Agent wallets which have no transaction or funding limits into which they may purchase e-cash for the purpose of settlement of products on their electronic channels. The telco is required to open a trust account for the purpose of keeping all cash equivalent to the e-cash generated or requested by the partner bank.
Where a customer walks into a branch to purchase Vodafone cash or AirtelTigo Money, the transaction flow is as follows:
- Agent gives cash to partner bank
- Partner bank receives cash and credits Vodafone’s/AirtelTigo’s trust account.
- An MT940 file is generated and sent to Vodafone/AirtelTigo containing details of the transaction (i.e. agent wallet / merchant / subscriber wallet number).
- Vodafone/AirtelTigo 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 worth noting that the total amount of e-cash in the system is always equal to the aggregate sum of float balances held by all the partner banks.
Accounting for mobile money transactions has for some time posed some challenges to both accountants, auditors and examiners. I believe this piece will bring some clarity to the accounting side of things.
In the next edition, we will look at some key risks with regard to Mobile Money Accounting and suggestions which stakeholders can use as catalysts in providing further guidelines which will improve the reporting framework of mobile money transactions.
