A report reveals that fraudulent online activities are projected to cost eCommerce retailers a whopping $20 billion in 2021. These double-dealing acts range from chargeback fraud and identity theft to website pharming and account infiltration. And buyers are not left out.
Before an online purchase, you want to ensure that the product is available as seen on the virtual catalogue and that it reaches you without any hiccups.
It is common knowledge that, like with most things, online shopping has its downsides, one of the most common being the "what I ordered vs what I got" challenge; a situation where the goods delivered are distinctly different from what was ordered.
Some might argue that the solution to this is Payment on Delivery (POD), but this has some disadvantages, as fraudulent buyers can dupe unsuspecting eCommerce merchants.
Enter escrow service
There's an interesting analogy to explain the work of an escrow service provider. Think of it as entering a deal with someone for an agreed exchange of an item of value, for instance, a wallet. Then you fulfil your end of the deal and call a third party to hold on to that wallet until the other person meets their end of the agreement. That third party is an escrow service provider.
Vahlid, a Nigeria-based fintech startup, is an escrow service provider. Founded in December 2020 by Adedayo Gbede (CEO), Olusola Agbele (COO), and Anthony 'Timi' Onibon, the startup was launched to tackle online scam in virtual shopping and Africa's eCommerce scene. Gbede reveals that this has been their driving force.
"We've all been scammed in different aspects of our lives and our work environment. It's either you've been scammed, or you know someone who has been.
"So, when we sat down to look closely at the problem we were trying to solve, we shared our own stories and decided that if this had happened to us, we should ask close friends and family to determine how broad the problem is."
Upon hearing stories from close-knit folks and friends, the founders soon discovered the urgent need for escrow services in the eCommerce space.
"We found out that a lot of our family members and friends had been scammed in the process of payment transactions for online shopping.
"To actually see how crazy this was, we did broader focused research and discovered that 40-48% of the people we spoke to had either been scammed or knew people who'd also fallen victim.
"The magnitude of the problem and our respective technology development experience are why we decided to go ahead and develop Vahlid," he adds.
Gbede, who has training in software engineering, data analysis and UI/UX design, is a computer science graduate from Valley View University Accra, Ghana.
Agbele, who initially worked with Pluralsight as a software engineer, holds a BSc. in chemical engineering from the University of Lagos.
Timi is a trained architect with a knack for actively seeking ways to solve problems leveraging technology.
As more Africans put aside their initial scepticism about online shopping, it is important to ensure the safety of both merchants and buyers. Gbede says it is not out of place to picture Vahlid as the scam police.
"So, in the marketplace, we offer a middleman service between buyers and sellers. Because offline and online, you find many people misrepresenting themselves and stealing other people's money.
"Say you want to buy a bag from me, and then I promise to deliver the product to you upon payment, you pay directly into my account, and then I cut you off, I don't call you back, I don't deliver, and then your money is gone.
"And you find a whole lot of that happening in the marketplace, whether it's a WhatsApp, Instagram, or Twitter store, or a big eCommerce platform. The core of our business is bringing trust into the marketplace."
Vahlid enables buyers to pay through its platform and then holds on to the money until the seller delivers the expected product. It also protects sellers from prospective fraudulent buyers.
On the seller's side, it's commonplace to see situations where buyers commit to paying for items upon delivery but fail to do so when dispatch riders show you at their doorsteps.
Vahlid comes in as an intermediary between the poles of merchandise and purchase, ensuring that both parties fulfil their obligations.
"Since the buyer pays into escrow, they don't need to know who the seller is, just as the seller has no idea who the buyer is. The seller sees that money has been paid on their behalf and goes ahead to deliver.
Once the buyer certifies that the delivered item matches their order, they pay the seller," Gbede explains.
He emphasises that it helps buyers and sellers avoid fraud and cases of unmet expectations.
"It cancels the need for going to the bank to cancel the transaction or reporting to the police. It puts the buyer in control, and it also puts the seller in control, ensuring the agreed parties meet all the objectives necessary."
He further states that although the startup is focused on building trust in financial transactions for online retail and eCommerce platforms, their services also extend to milestone payments for freelance work.
"Right now, escrow service is at the forefront of what we're delivering to the market. Beyond that, the trust issue is in other aspects of financial transactions.
"Say someone wants to employ you to do work for them, but they might not want to pay you all the money upfront until the job is completed; they can use Vahlid to pay in milestones.
"They'll put the money per agreed milestones, and we release the money as they hit each milestone. If any tier is not hit, we refund the amount left to you."
Currently, the service can be accessed via its web application at Vahlid.com. However, Gbede reveals that a mobile application is in the works and should launch on Android and iOS devices this month.
"Our website is up and running, so you can sign up on the web app. Our mobile app should be out, give or take, in September. Right now, we're on track to being the first escrow service mobile app for Android and iOS devices in Nigeria."
On sustainability and modus operandi
Like Vesicash, a Meltwater Entrepreneurial School of Technology (MEST) portfolio escrow service startup, Vahlid runs a B2B2C model, with an arm handling B2C and charges determined by transaction size.
"We charge buyers a transaction fee depending on the scale of the transaction. On our website, you can see our transaction fee model. We charge between 1.5% and 2.5% of the transaction. Then there's a flat fee for the seller when they get the money and are about to check out," Gbede submits.
The escrow service field is not a novel industry despite only a few players on the continent, and Vahlid is not without competitors in Africa, including PayScrow, Vesicash, and Atarapay.
However, Vahlid's trained focus on the eCommerce sector, instead of only individuals and a broad range of businesses, sets them apart from their competition. Gbede adds that Vahlid's affordability and user interface model are important differentiators.
"We're one of the most affordable and user-friendly escrow platforms in Nigeria. We offer a unique system whereby once you sign up with Vahlid, you can be a buyer, a seller or an organisation with the same ID. Your dashboard as a user is segmented to reflect every transaction undertaken in the different aspects."
He also reiterates sellers protection on the platform with Vahlid's raise a dispute feature.
"As a buyer, you cannot pay for goods and services and invalidate the transaction after it's been confirmed by the seller that your goods have been delivered. If there's an issue, you raise a dispute, and our Dispute Resolution and Compliance team gets on the issue to ensure sellers are protected."
Sellers and buyers confirm shipments and deliveries respectively via the app. After the buyer gets a notification that the seller has confirmed shipment, they validate the transaction by confirming that the goods have been delivered.
Plans for the future
Currently, the platform gets most of its revenue from transaction charges. Speaking about plans for funding, Gbede says he believes growth and user traction are essential right now.
"The more we talk to potential users, the more we realise that many people are actually surprised that such a solution as escrow services exist. Some have even come to see scams as normal. As much as we're open to investors, a major challenge right now is sensitising more people on the importance of the value we're offering."
Expressing confidence in the brand's relevance, Gbede shares that Vahlid's scalability is hinged on the magnitude of the problem it is solving.
"When you talk of profitability, you need to look at it in terms of the scale of the problem you're trying to solve and the addressable market. The problem we're solving exists, and it's deep, and all the channels we intend plugging into reflect the large-scale viability of the solution we're offering. So for revenue projections, we're solid."
From WhatsApp and Instagram-based stores to established eCommerce giants like Jumia and Konga, online fraud spares no one. In 2020, Konga’s Co-CEO, Prince Nnamdi Ekeh, revealed that the company operates at a loss of about ₦100m per month, mainly because of eCommerce fraud.
Sad as it is, the situation cannot be extinguished in one fell swoop. Vahlid is looking to establish mergers to reduce the number of fraudulent activities in the space, with a view to eliminating them over time.
"The e-marketplace is massive, and that is why there's a need for some sanitation when it comes to scams. The tech ecosystem in Nigeria will grow faster if there are more collaborations, but there's a lot of fragmenting. We are speaking to a lot of eCommerce platforms right now, so you can check out through escrow and pay through Vahlid."
Vahlid's long-term plans include a foray into Ghana, addition of new product offerings to include escrow services for real estate, and the expansion of the current team.