Escrow-as-a-service: This startup safely parks your money and facilitates transparent transactions
The need for a secure transacting ecosystem has never been more important. Monetary crimes and online frauds like phishing, account hacking, or transaction discrepancy have been on a constant rise and regularly claim victims amidst the growing digital payment environment.
Microsoft’s 2021 Global Tech Support Scam Research report revealed that seven in ten consumers in India fell prey to scams in 2020.
Amidst this, Escrow-as-a-Service (EaaS), which has remained passive in India, has started gaining traction as businesses look for safe and secure transactions, especially in the context of increasing foreign investments, mergers and transactions and real estate deals.
Delhi-based digital escrow platform — Castler — has been creating a strong space for itself in this market. Launched in January 2021 by ex-colleagues — Vineet Singh, Dinesh Kumar, and Ritesh Tiwari — the startup enables any individual or business to create a unique instant digital escrow facility, together with eKYC and eAgreement signing at a much lower turnaround time as compared to traditional escrows.
The seven-month-old B2B platform has been registering an average of 6,000 transactions every month with the cumulative transaction value pegged at Rs 80 crore. This significant rise comes as the risk of defaults and frauds amongst enterprises transactions swell.
From consumer to enterprise tech
The idea of forming Ncome Tech Solutions Private Limited (Castler’s parent company) came 18-20 months ago when Vineet had to wait for almost 10 days to receive payment on his car which he sold through an online platform. This major time delay, along with hosts of follow-ups on the transaction, was frustrating as he was promised payment against the sale of his car within 30 minutes.
Coincidentally, around the same time, one of his friends was scammed while trying to sell his used furniture online. Realising the need for a safe payment environment, Vineet started with his research on how transactions can be done with 100 percent safety.
“The incidents created an impression on my mind. There was a problem to be solved and a potential opportunity,” says Vineet, who spearheaded the business development of Naukri.com, 99acres, Mobikwik, and Jeevansathi, and co-founded buildzar.com.
He soon connected with Dinesh, his ex-colleague from naukri.com and a B2B demand specialist, and started speaking with banks to explore the idea of providing digital escrow solutions to consumers. They were later joined by Ritesh, a fintech product specialist, and Vineet’s ex-colleague from Mobikwik.
“It took us almost six months to convince a bank to partner with us. Finally, we got ICICI Bank on board. It took us another six months to figure out the business model, the terms and conditions, and how the platform will operate. We integrated into the ICICI API stack and launched our product,” says Vineet.
The platform provided quick opening of digital escrow accounts for transacting parties (P2P) and streamlined conventional processes through online KYCs.
It is either integrated into the business, say an ecommerce website, to provide escrow service or is available as an independent service for consumers, where the business has no ownership.
“We registered around 40-50 escrow accounts within a few weeks but the P2P transactions were halted due to COVID-19. In the same period, we started getting more and more inquiries from corporates,” says Vineet.
Within a few months of operations, the company decided to shift focus from a consumer-facing product to an enterprise-level solution and launched Castler.
“We spent three months in building EaaS for enterprises and went live with Castler in mid-January this year. We launched a white-label escrow solution for corporates who wish to offer this service to their clientele,” says the founder.
Business and revenue model
In five months, the platform has boarded over 30 corporate customers with an average daily balance of Rs 10 crore in its digital escrow accounts.
It manages around 100 transactions every day and has a gross transaction value of Rs 25 crore per month.
The startup’s majority clientele include financial institutions, real estate firms, logistics companies, and VC firms.
“We are going live with three more banks this month and have a waiting list of six others,” says the founder.
The startup charges a one-time fee for setting up the portal, API integration, and other services along with a negotiable recurring (monthly/quarterly) fee based on the value, volume, and duration of transactions.
The 11-member team raised Rs 3.6 crore in a pre-seed funding round in December 2020, which saw participation from Venture Catalyst, PointOne Capital, LetsVenture, and AngelList.
“The opportunity is very unique. Around one lakh companies in India use escrow accounts and we are targeting the same. The documentation is very tedious and expensive. It takes around eight to 16 weeks to open an escrow account in a traditional setup while the digitisation reduced this time to a day at an 80 percent lower cost,” the founder says.
As per a soft survey conducted by the startup, the top 10 private banks in India are “converting less than 50 percent of the escrow leads they get”.
“This means that there is enough latent demand and usage for escrow to meet that demand. Hence, we thought why not partner with banks and build something on top of the banking ecosystem where we leverage technology and resolve some of the pain points and offer a better product to enterprises,” says Vineet.
Cofounders Vineet Singh and Dinesh Kumar with team members
Market outlook and potential
The B2B transaction market in India has not been digitised and hence gives rise to a huge opportunity, says Vineet.
“It is a trillion-dollar market whereas the escrow market in India is of about $100 billion or $4.5 billion in terms of revenue. Even if we do 5 percent of this revenue over the next five years, we get to tap $250 million,” he says.
Players like Escrow India, Escrow Bharat, Escrow Pay, and WordPay have been in business for several years while new-age solutions and startups are entering the space. However, there are not many players on the enterprise side, which gives Castler a competitive advantage.
“Starting 2018, global startups like SheildPay and TradeSafe have started reimagining escrow from a digital 21st-century perspective. A lot of movement in terms of funding, acquisitions and new services is taking place across different geographies in the sector, and the Indian market is catching up,” says Vineet.
The regulations are also pushing towards digital escrow, he adds.
“Capital market transactions, P2P lenders by law use escrow accounts. The new-age business models like fractional real estate, revenue-based financing have embraced escrow accounts,” he says.
Additionally, startups and emerging businesses can leverage escrow payment methods to minimise risk for their specific-use transaction cases like procurement, supply chain, professional services, etc.
The startup aims to execute better and faster and build a revenue-focused business.
“At present, we are doing Rs 25-30 crore monthly transaction value and want to reach Rs 100 crore in the near future. We want to build an industry-agnostic platform,” the founder says, adding that the startup will explore seed funding by the end of this year.
The platform is taking a “top to bottom approach” and wants to partner with the top corporates in the country before venturing into SMEs and MSMEs.