The escrow alternative – yet another disruptive wave hitting traditional banking

E-escrow.co.za founder Llewellyn Morkel tells Biznews’ Alec Hogg about some interesting applications for the escrow concept, ranging from manufacturing and freelance tech jobs through to a hairdresser buying wigs from China. Apart from offering an affordable new service to the broad market, escrow is another disruptive alternative to traditional banking products like Letters of Credit.

This special podcast is brought to you by E-escrow.co.za whose founder Llewellyn Morkel, is with us in the studio. Last week, we spoke about my builder, Llewellyn. I must tell you that I didn’t have to use E-escrow after all because he agreed – after I proposed to him what we were going to do, i.e. put the money in E-escrow and then have smaller drawdowns. He said ‘no, he’d take smaller drawdowns, so you’ve won without even being at the game.

That’s very interesting. As a business, we will facilitate that transaction for smaller contractors who don’t necessarily have Internet or are not online. You as the buyer would come to us, we would facilitate/contact the other party (the seller or the service provider) and we will help them in getting their contract sorted. We will print it. We will fax it. We will even take it to their doorstep to look at it, sign it, and bring it back.

It sounds expensive.

We try to do it to cover the market in Africa. We are fully aware that Africa is not yet online as much as we would want it to be, so we will go through whatever is needed, to secure the customer.

Build a base and get there ahead of the game. Maybe you could tell us a bit about manufacturing, E-escrow for manufacturing (we spoke a bit about building) and why manufacturing would lend itself to this type of transaction.

It’s easiest to understand escrow from a buyer’s point of view than from a seller’s point of view, it’s mostly, more difficult because they are used to getting money upfront. Buyers aren’t always happy to pay money upfront. The issue that a manufacturer would have is once they’ve received the upfront deposit that we can work in, how do they know that there will be money at the end of the manufacturing process to pay for that product?

Just take us through an example. An exporter gets an order from China, which is unusual but let’s just say that does happen – how would they use E-escrow to your advantage?

Right, so the order, from the Chinese, would pay the money into an E-escrow account. We would guarantee the funds to the person in South Africa, and that person in South Africa would then be able to ship out the goods. Seeing as though we have the money on trust, we know that the money is there. The manufacturer on this side knows the money is there and depending on the terms they could either, get a portion of that money upfront (to help with the manufacturing costs) or they can get the entire amount, once they’ve shipped. The moment it’s on the ship and it’s been checked and the quality is good, we are able to release the funds.

And the costs, relative to the way you would do it, in say the old world?

E-escrow might, in certain cases be slightly more expensive because we take the risk. We take the risk of the guarantee. In most cases, it’s cheaper because a bank guarantee or a letter of credit is much more expensive than an E-escrow transaction, especially in the way that we do it. Alec, you asked me once ‘how do we intend to disrupt the markets’ and it’s on that point. We’ve taken out all the complexity. We’ve taken out the risk of E-escrow. We can facilitate and offer an E-escrow transaction, online, where you go on, create all the terms and conditions online and it really takes five minutes. Whereas a standard E-escrow transaction could take, through a bank or another financial institution – it could take weeks.

Just explain that admin process.

Okay, so we have at least two parties in a transaction. These two parties would meet online, on our website. They would create the transaction. They would agree on it.

They have to register on your site first though, or how does that work?

How we’ve done it, is you are able to start the transaction. The parties really just enter each other’s email addresses and one of them defines the terms of the transaction, and presses submit. Only once the two parties login and start using the process and money starts flowing, do you need to register, so everything else is upfront.

It seems pretty easy, how long does it take to do that?

Well, you could really setup. If you have all your terms agreed ahead of time, you can do it in five or six minutes.

That is one of the hurdles, I’m sure, that you’re going to struggle to overcome. Is there any easy way to do it because it’s not the question of ‘once the horse is at the water that it drinks’. It’s the question of getting the horse to the water in the first place.

Yes, I understand that completely. From these little talks we’ve had contact from a gentleman in a hairdresser and they are ordering wigs from China, and that’s, I think, the horse getting to the water. Starting to, just look at and getting to a point where it can drink.

Are you going to get one of those?

I’m definitely going to get a wig.

For those of you who cannot see the picture, he is bald, so I guess…, but that’s by choice, no doubt…, interesting.

And shaven, yes.

An interesting philosophy that they would now come onto E-escrow, as a hairdresser, not the most sophisticated, I guess, of businesses, and they can use it.

They can start ordering internationally as well, and that’s what the beauty of E-escrow is. It suddenly opens up the world. You don’t have to, just trade in South Africa. You can now, securely trade, internationally.

We spoke last time about E-escrow meaning ‘trust’. What other forms can you use E-escrow in, other examples perhaps, apart from your hairdresser, that you can tell us about?

Have a look at IT Projects, where you have a small guy (a small programmer) that wants to develop a project for somebody. Instead of them paying him upfront, they can schedule a project in E-escrow, so that it has multiple milestones, and the programmer can be paid on the milestones that he has reached, which protects both parties. The programmer knows the money is in trust. The money is secure. He will be paid if he delivers his code, and the other way – the company that pays for it, knows that they’re going to get their code.

You mentioned ‘international’ – do you trade in, or can you offer different currencies?

At this stage, we offer South African Rand, in South Africa only. Any transactions overseas, like the one in China, we will facilitate that through partners to complete it.

So where does this or how does it compare with PayPal?

PayPal is truly international but the key difference is money is paid directly to a person, so the money does not go and sit in a trust account, and is not measured against a set of deliverables. PayPal – you pay the person and you trust that that person is going to deliver the service. Where E-escrow – it goes it goes into the trust account. We measure the deliverables. If that person does not deliver then that money does not go.

So your hairdresser, for instance, if they were just simply using PayPal, might send the money over to China and never see the wigs.

And that’s the problem. We do a lot of investigation on companies like that, especially internationally, to see that the company exists and that they are credible.

What other examples can you share with us? We’ve spoken manufacturing. We’ve spoken about your hairdresser and we’ve spoken about technology – some others, who’ve used your platform.

One of the interesting applications for E-escrow, at the moment, is in the rentals area. There’s a new website, which is launching one of these days. It’s called GoGet.co.za, and GoGet is implementing E-escrow in rentals. It happens often that you rent a place at the seaside, and when you get there somebody else is living in it, or the place doesn’t exist. In this case, we take the money into trust. As soon as the renter has verified the property, we then release the funds, but there’s also a second portion to that, which is the deposit that needs to be paid back. We also keep the deposit in trust, until the landlord has cleared it and then we release.

Huge opportunities all around. Are you on the right trajectory, as far as your disruption intentions are concerned?

We are. I’ve had a couple of, based on our interviews, there’s been a couple of requests, and one of those are from the Tech4Africa, where we will be speaking, and we’ll be doing a presentation, and there’s just a lot of interest. E-escrow is growing in leaps and bounds.

Everybody loves something new, particularly when it can change your life. Llewellyn Morkel is the founder of E-escrow and this special podcast was brought to you by E-escrow.co.za.

Visited 435 times, 1 visit(s) today