The escrow account is a buzzword in Bangladesh since June 24, 2021, after the declaration of retaining the fund accepted by eCommerce platforms until product/service delivery. Newspapers, channels, gossips, and social media are flooding with ESCROW crowds. So, we are here to clarify all about Escrow account in Bangladesh for E-commerce with the mechanisms, secrets, beneficiaries, and who are the gainers or losers in this article. We want to make the right expectations, comments, and moves in this newly adopted concept in Bangladesh.
What is an Escrow Account?
Escrow may be defined as a deposit of funds with a third party as security for payment. The receiver will get the fund only when all conditions are met. Thus, it ensures both safety and capacity.
The fund is held with the third party until all the conditions are fulfilled and paid to the receiver. An example may be in the 5 step process:
- Two parties reach a deal with conditions
- Buyer pays to the escrow account
- Sellers ships goods/services
- The buyer takes the delivery and ensures all conditions met
- the seller gets payment from the escrow account
Why is it important
It is essential to avoid fraud, forgery, and non-payment. In addition, it ensures trust and security.
The applications of Escrow Account
Escrow is usually used in high ticket transactions. Besides, deals between unknown and remote parties seek it. Common transactions with escrow service may be the three areas:
Real estate: Real estate takes a long time to settle the deal, and escrow helps the process. You will sometimes hear the name as a pre-closing or real estate escrow account.
Online Sales: Online sales, especially high-ticket deals like flipping websites, require escrow as the transactions take place between remote or unknown parties.
Stock Market: The stock market may be a good place for escrow. Sometimes, the bonus shares to executives are kept in this account so that the high-ups can not leave the organization soon.
Origin and evolution
Escrow came to use around the 1590s. It originates from the old French word escroe, Anglo-French word escrowe. It literally means scrap, small piece, rag, etc.
Who provides the service?
Some of the international great players providing escrow and buyer protection:
Escrow account in Bangladesh
The demand and discussion on escrow are not new in Bangladesh. With the growth of digitization, e-commerce, and freelancing, people have been demanding the service for a long time. Recently, on June 24, 2021, the govt., E-CAB, BB, Ecommerce stakeholders sat for discussion to prevent the delayed/no delivery of eCommerce platforms even after taking the advance payments. The meeting concluded that the eCommerce would receive money only after delivery, and the fund will be on a third-party trust/escrow account for safety. Bangladesh Bank has been granted the authority to ensure the escrow service under its supervision. So, the issue has revived radically as the eCommerce industry is going through some shaking stages lately.
Escrow service providers in Bangladesh:
- PSP/MFS providing e-wallet service
Benefits for eCommerce
Focus: Platforms will focus on fair business cultures and customer satisfaction as the fund will come after delivery. So, they will not engage in fund collection rather than core business. But, it will help them pinpoint their targets.
Better growth: People will no longer be in tension and confusion regarding the delivery or refund. Customer confidence will be a pioneer to the eCommerce industry growth.
Image: Platforms will ensure fast delivery to obtain the fund and thus enjoy the upheld image of smooth delivery.
Fair competition: Companies are no longer in competition for advance funds; they will fight for market share with products and services. Proper pricing and competition will be in place.
Fewer Disputes: As the e-commerce firms do not take funds from clients before delivery, fewer disputes arise.
Brand Loyalty: With smooth delivery and fewer disputes, customers get loyal to the brands for a longer time.
Benefits for consumers
Peace of mind: Consumers will be in mental peace about delivery and refund. They are no more on the run to get the products somehow.
Insurance: Escrow does the job of insurance for the payer and receivers too. Consumers feel insured as the payment has been safeguarded by a third party and is designated to make win-win arrangements.
Trust: Clients trust the platform and system that eventually reflects in their dealings and performance.
Disadvantages of Escrow
Costly: Escrow service is costly. There might be a 1-3% charge to enjoy the security against frauds and scams.
Time-consuming: The final payment to the seller may be delayed heavily. Such delay disrupts the overall payment experience and hence discourages the use of escrow services.
Fund Stuck: Sometimes funds may get stuck with the escrow providers and both the buyers and sellers may suffer from fund release hassles. In the case of Bangladesh, more than Tk 5.60b stuck up in payment gateways.
Out of the amount, Qcoom, Alesha Mart, E-orange and Evaly got stuck over Tk 3.91 billion, Tk 516 million, Tk 446.36 million and Tk 286.18 million respectively in the gateways until January 31 last.
Escrow account in Bangladesh is a long-demanded service that is going to be available soon. It will be a boon for the e-commerce platforms, online purchasers, and the online freelancers of Bangladesh. It will be challenging to implement and ensure top-notch service for the starting days but definitely will mature over time to serve digital Bangladesh.
“An escrow officer does so many things during an escrow and wears many hats. Here are a few… Attorney! Therapist! Teacher! Coach! Account! Firefighter! Super Hero! And a friend!” Americas Escrow Inc.
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