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Escrow-as-a-Service: Moving Towards a Global System of Trust

KATE GOLDFINCH, Science Editor for The Fintech Times.

The topic of trust is one of the most crucial issues for the global economy. Alongside this, different markets and different countries have their own understandings of the ‘paradigm of trust’ – and this further complicates establishing trust-based relationships between buyers and sellers.

One solution, which could solve this problem, would be the use of an escrow service. There are already existing successful examples of how such a service has been able to alter the image of an entire country’s economy, and has managed to onboard over half a billion users into the financial system. Yet the future is not limited to an escrow service offered by a single provider alone – but for an open-source escrow-as-a-service solution, able to integrate seamlessly with marketplaces and logistics providers. A solution of this kind – called ‘Escrow Box’ – is already in operation, developed by the fintech provider UAPAY, and could be cloned and upscaled to meet the needs of any global market.

A quick look at the backstory

There’s no need for an in-depth investigation to be convinced of the viability of the escrow-service working model. The clearest example of a successful implementation of this kind of ‘trust-based solution’ was rolled out in the early 2000s by the leading Chinese service Alipay, which was developed by Alibaba. Yet we can trace the development one stage further back, to the online platform Taobao – a platform where small businesses could sell their goods with the confidence of being paid for them, while the purchasers knew they could expect to receive the quality of item they’d ordered. Up until that point, the absence of trust between buyer and seller was an integral feature of Chinese economics, which made for an inefficient economic set-up.

Since there was a basis of distrust, sellers were unwilling to despatch unpaid orders to buyers, while buyers didn’t want to prepay for their orders without the certainty of receiving what they expected. This problem was resolved once sellers were offered the option to provide information about the orders they’ve received by fax to the offices of Alibaba, who held onto the money until the buyer confirmed receipt of the goods, and that they met expectations. The sellers were informed that payment had been made, and would be credited to their account as soon as the buyer gave their confirmation. This escrow system contributed to the rapid development of Taobao, and ultimately led to the appearance of the Alipay payment system.

Over the course of a decade, this system grew from a somewhat primitive deposit-paying method, into a way of processing payments in real time. In future, there are plans to incorporate aspects of artificial intelligence and machine learning into the system.

Future prospects for escrow-as-a-service

Individual companies adopting this innovative solution has brought in numerous positive improvements for the entire economic ecosystem. However, the next development in the sharing service is set to be an open-source escrow-as-a-service solution, with seamless integration at a global level.

UAPAY Escrow Box is a new service from the Ukrainian payments provider UAPAY, launched in September 2018. The purpose of the product is to provide mutual trust between buyers and sellers during the online shopping experience. “The service integrates easily with any global marketplaces or shipping providers,” CEO of UAPAY, Dmitry Gololobov, explains.

The solution was initially developed in 2017, and implemented for use by such major Ukrainian marketplace firms as Olx.ua, Prom.ua, and Bigl.ua. Escrow Box helped to realise over one million transactions last year. So far this year, the volume of transactions completed using the escrow system has continued to expand dynamically. UAPAY has broadened its experience with marketplaces and shipping providers, thus creating a boxed solution that can easily be upscaled. “Of course, developing and tailoring this kind of solution for each individual client is possible – but it’s a long, costly and complex task. That’s why we’ve decided to offer a box version of the solution – UAPAY Escrow Box, which is ready for integration into any system, in any market,” CEO Gololobov went on to explain.

How it all works

Sellers – whether a private individual using classified advertising, or an internet store – advertise the descriptions of their goods, providing all the necessary information buyers would want to know, alongside a photo and the price. They then list information to ensure a secure transaction, including the weight of the shipment, the delivery service details and the payment details.

UAPAY Escrow Box can integrate with the API details of any shipping provider (including the shipping costs, according to the delivery address and category of delivery), and make this information available to buyers through classified sites or online stores. Once all the information about the delivery has been obtained, UAPAY Escrow Box calculates the overall shipping costs and automatically informs the recipient of them. If the buyer is satisfied with everything and presses the ‘purchase’ button, Escrow Box completes the two transactions: the shipping costs are paid to the shipper, and the costs of the item itself to the seller. The funds are then debited from the buyer’s card, and credited to the seller’s card if the delivery proves successful. Next, a waybill is completed and sent out to all the transaction participants – the seller, the buyer, and the shipping contractor. The waybill is the primary document for checking the status of the transaction. The seller can then go to the shipper, provide the number of the consignment note, and pass the consignment to the logistics company that ships the items.

The recipient can collect the item by simply quoting the waybill number, but the seller is credited with funds for the item only when the buyer confirms receipt and accepts the item’s condition. If the buyer is, for some reason, unwilling to accept the item as delivered, he or she can decline to accept it and receive a refund on the same day. UAPAY Escrow Box conforms to the PCI DSS security standard (Payment Card Industry Data Security Standard), which was established by payment systems including Visa, MasterCard, American Express, JCB and Discover. “In reality we have a smart contract approach in place, although without blockchain,” Gololobov clarifies.

How this system can be integrated into your business

The Escrow Box solution can be integrated into the operations of any kind of classifieds, internet store, marketplace or logistics operator, with an option to add your payment partner into the chain. Depending on the technical requirements of each of these outlets, the integration process can take up to two weeks. “We are currently working on improvements, which will reduce the integration period to just a few days”, Gololobov confirmed. Integration works like this: UAPAY creates an account for the client within its system. After this, an outlet integrates Escrow Box functionality via API. In the context of Instagram or Facebook sellers, they can create their own secured transactions with just a few clicks at the site https://escrowbox.uapay.ua. This functionality is currently available for the Instagram sellers located in Ukraine. The number of transactions is unlimited. In turn, Escrow Box enables shipping operators to perform not only the delivery functions, but to serve as a transaction platform too. “If we are discussing the integration of major platforms such as Amazon, the world provider receives a model protected against fraud, as well as access to the Ukrainian market. In addition, when it comes to the protection of rights and guarantees on Amazon, there are different rules for dispute resolution procedures, depending on whether the users involved are registered or unregistered. But in our case, it makes no difference whether the user is registered or not – each transaction supported by UAPAY Escrow Box is protected. We see potential for an effective collaboration in such circumstances with global marketplaces and logistics providers,” UAPAY explains.

The integration of the UAPAY solution on your website is free of charge. The ‘integration fee’ appears, but it is refundable – your site gets it back, once sales begin.

Once integration to the UAPAY Escrow Box service is made, a commission is levied on each transaction. This might be payable by either the buyer or the seller – the decision If consumers need to make use of classifieds, little-known internet stores, or sellers on Instagram or Facebook, there is often a lack of trust between the buyer and the seller. Buyers remain uncertain as to whether their order will be shipped, or if they could get their money back if the item is not what they expected. Sellers, on the other hand, have no guarantee that the buyer will pay for the order. The guarantee of an honest deal can be provided by UAPAY’s Escrow Box in these cases. on this is left to the discretion of the seller. In the cases of Olx.ua, Prom.ua and Bigl.ua (marketplaces where UAPAY escrow services are already in operation), UAPAY receives commission at the rate of 0.3% + $0.1. However, this very low rate is only possible in cases where there is very high turnover. Partners’ outlets, in turn, receive increases in the conversion of the purchases, as well as increased levels of trust with buyers. “By way of example, when we launched a solution on Olx.ua, the turnover exceeded our expectations six to eight fold,“ Gololobov commented. •

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