Doing business across borders in Africa and the Middle East can be a challenge for buyers and sellers, particularly in the payment process. In addition to currency differences, each country can have unique regulations and compliance procedures controlling how business is done.

There are agents in each country equipped to help companies comply with regulations. But when seller and agent are in different countries, paying for goods and services can be risky because traditional means of establishing credit, such as with a letter of credit, are cumbersome and often lengthy processes. And paying with a credit card usually isn’t a viable option for high-dollar transactions because of fees that credit card companies charge as a percentage of transaction value.

Morocco-based Local Applicant runs a marketplace that aims to address these issues for companies wishing to do business across borders in Africa and the Middle East. It serves global exporters who need their goods certified by national certification authorities around the world, and sellers offering a range of approval services. But there are inherent risks for a business buying from or selling to a new trading partner, particularly across an online marketplace with the global reach of Local Applicant.

Payments between buyers and service providers on the Local Applicant portal were cumbersome for both parties until June, when the company launched escrow-based payments technology from Payoneer on its marketplace. Since then, the escrow payments service has helped “build trust between our Fortune 100 customers and agents, while processing our global payments at scale,” says Local Applicant CEO Amine Rachdi.

Payoneer, a provider of technology and services that businesses use to send and receive international online payments, provides its escrow service clients a software application programming interface, or API, and a software development kit designed to help clients connect their e-commerce sites to the escrow payment service. An API is a set of software instructions for letting disparate software applications integrate and share data.


The API enabled Local Applicant to integrate “a secure escrow payment service into the transaction flow on our site,” Rachdi says.

The escrow service aims to provide alternatives to traditional risk-assessment approaches for transactions with new customers, says Scott Reynolds, vice president of B2B services at Payoneer. “The letter of credit is the standard, but that’s an inefficient manual, paper-based process not suited to the internet,” he says. Smaller transactions can occur through credit cards and services such as PayPal, but those methods are “not suited for high-end transactions,” he says.

Payoneer’s escrow service works like this: the buyer makes a payment into escrow, which Payoneer holds. Then the seller ships a product or provides a service. Once buyers receive a product or service they review what was delivered and then release funds or initiate a dispute. “We have a dispute resolution service, but there are surprisingly few disputes,” Reynolds says. “The theory is that the structure of escrow ensures the transactions are viable.”

Escrow is a service that reduces risk for both buyers and sellers, “especially trading partners that are unknown to one another, which leads to distrust,” says Nancy Atkinson, a payments industry analyst at research and advisory firm Aite Group. “In our e-commerce-driven world, it is not unusual for buyers and sellers to be strangers.”

By comparison, in the traditional letter of credit scenario, banks serve as the trusted third parties “that provide authentication for their clients, ensure the deal proceeds as agreed and protect against a potential loss by providing compensation in the event a deal stumbles or fails,” Atkinson says. But letters of credit are document-based, and the process is complex and time-consuming. “They are not appropriate for single or infrequent purchase transactions between trading partners,” she says.


Escrow offers similar advantages to users, and does it for a far lower cost than letters of credit, Atkinson says. “In this instance, Payoneer is the trusted third party for trading partners.”

Escrow services aren’t without risk, however. Users need to be sure they’ve done adequate due-diligence on the provider, Atkinson says. If, for example, an escrow service provider closed or went bankrupt, then the funds held in escrow will be lost to both the buyer and seller. And users need to thoroughly understand any dispute resolution process and be sure they agree with its terms.

Payoneer charges a 1.5% fee for transactions below $5,000 and the rate slides down to 0.35% for transactions topping $1 million in its escrow service, which is fairly new. In March, Payoneer acquired Armor Payments and its web-hosted escrow service. At the time, Payoneer said the acquisition combined the security of payments provided by Armor Payments with Payoneer’s multi-currency, cross-border payment capabilities, and targeted B2B transactions between $500 and $1 million, where credit cards and letters of credit are not practical.

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