Mobile payments service FreeCharge has launched an escrow service for merchants, wherein the money is held within the escrow service until the product is delivered to the user. If the product is not shipped to the user, the money is refunded into the buyers wallet.
Note that the facility is available on the FreeCharge wallet, which the company offers to merchants. Shopo, which is a C2C platform like Ebay (globally, not really in India), is the first merchant to integrate the FreeCharge wallet and offer an escrow protection to buyers and sellers. It is, of course, the obvious choice, since both Shopo and FreeCharge are owned by Snapdeal.
Note that this service is not new to wallets: Citrus Pay*, which recently launched a service called Sellfie, also has an escrow service for buyers.
As we had mentioned earlier, wallets route payments to different merchants through escrow accounts maintained in commercial banks anyway. These escrow accounts are treated as current accounts by the banks and used mostly for clearing payments. Now FreeCharge, despite not having a wallet license, is able to hold an escrow account because its wallet is powered by Yes bank: it is, essentially, a bank wallet with FreeCharge branding. As per the RBI’s guidelines for wallets,
8.3 (iv) The amount so maintained in the escrow account shall be used only for making payments to the participating merchant establishments and other permitted payments. Following debits and credits will only be permitted from the escrow account:
- Payments received towards sale / reload of PPIs, including at agent locations
- Refunds received for failed / disputed / returned / cancelled transactions.
- Payments to various merchants/service providers towards reimbursement of claims received from them
- Payment to sponsor bank for processing funds transfer instructions received from PPI holders as permitted by RBI from time to time.
- Payment towards applicable Government taxes (received along with PPI sale/reload amount from the buyers)
- Refunds towards cancellation of transactions in a PPI in case of PPIs loaded / reloaded erroneously or through fraudulent means (on establishment of erroneous transfer /fraud). The funds have to be credited back to the same source from where these were received. These funds are not to be forfeited till the disposal of the case.
- Any other payment due to the PPI issuer in the normal course of operating the PPI business (for instance, service charges, forfeited amount, commissions)
- Any other debit as directed by the regulator / courts / law enforcement agencies.
Escrow services are fairly common globally: often services marketplaces which connect clients to vendors providing services such as design hold money in an escrow, and release the payment only upon completion of work.
Disclosure: CitrusPay is a MediaNama advertiser