E-money and wallet liability recognition and derecognition of unused balances

Customer wallet top-ups create a financial liability under IFRS 9 (an obligation to deliver cash or settle on the customer's instruction), not revenue on receipt. Because the balance is a financial liability, unused amounts cannot be released to income on a statistical estimate of breakage, as the IFRS 15 model for contract liabilities would allow; the liability is derecognized only when the obligation is extinguished, that is discharged, cancelled or expired. Revenue on loading or estimate-based releases overstate revenue and profit and understate liabilities.

Is the wallet balance redeemable for cash or for spending with third-party merchants (a financial liability under IFRS 9), or only for the entity's own goods or services (possibly an IFRS 15 contract liability)? Under the customer terms and applicable law, when does the obligation legally end (contractual expiry, cancellation, or never while the customer can still claim)? Is the entity legally entitled to retain expired or unclaimed amounts, or does unclaimed-funds regulation require remittance to an authority, so that the obligation continues as a liability to that authority?

1) On receiving a top-up, recognize a financial liability to the customer, never revenue. 2) Derecognize the liability (and recognize any related fee revenue under the applicable standard, e.g. IFRS 15 for transaction fees) only as the customer actually spends or withdraws the balance. 3) Do not release unused balances to income on an estimate of breakage or on the redemption pattern; the IFRS 15 proportional breakage model applies to contract liabilities, not to financial liabilities. 4) Derecognize an unused balance only when the obligation is extinguished, for example when it expires under the customer terms and the law allows the entity to keep it, or when the customer's claim is legally cancelled; recognize the amount in profit or loss (e.g. other income), not as wallet service revenue. 5) Where regulation requires dormant or unclaimed balances to be remitted to an authority, reclassify them to a liability to that authority; they remain a liability until paid. 6) At each reporting date, review expiry dates, dormancy rules and legal entitlement, and keep evidence that each derecognized balance was legally extinguished.

Measure the liability at the amount owed to customers (the remaining spendable or withdrawable balance), with no reduction for balances management expects will never be claimed. When an obligation is extinguished, recognize in profit or loss the difference between the carrying amount of the liability derecognized and any consideration paid. Measure amounts that must be remitted to an authority as a separate liability at the amount payable; no income arises on them.

Disclose: customer wallet liabilities presented separately from operating payables; the policy for derecognizing unused balances (legal extinguishment, expiry terms) and the amounts derecognized to profit or loss during the period, if any; regulatory unclaimed-balance/escheatment obligations and the related liability; and dormant balances included in the liability, by age where material.

• Recognizing wallet top-ups as revenue on loading
• releasing unused balances to income on a statistical breakage estimate or in proportion to the redemption pattern, which applies the IFRS 15 breakage model to a financial liability
• derecognizing dormant balances that customers can still legally claim
• recognizing income on balances that regulation requires to be remitted to an authority
• presenting derecognized amounts as wallet revenue rather than other income
• failing to separate store-credit balances redeemable only for the entity'
• s own services (which may fall under IFRS 15) from e-money balances.