Escrow In India

By Tarun Mor on June 10, 2015 10 Comments / 4992 views

Hello Rodinhoods,

I run an on-demand service for home tutoring – LearnMor.com

We are currently using a payment gateway in a traditional sense, where once a student makes a payment through our payment gateway it comes to our account. We then take a cut and bank transfer the fee to the tutor immediately.

There are two issues with this:

1) It is not clear for the student when to make the payment – at the start of the classes or at the end.

2) It is prone to students disappearing, without paying after a few classes or tutor disappearing after the payment is received.

We would like to avoid these risks by setting-up an escrow based payment. The student makes the payment as soon as the tutor is hired, we will keep the payment and will release the payment once the student finishes the classes. That way both student and the tutor is protected. This is similar to how Odesk.com or Elance.com does it.

Here’s what I need help with:

1) I would like to know if there are any regulations AGAINST setting up escrow payments in India?

2) If we can, should I change my payment gateway to something like Paytm or PayU?

Thanks,

Tarun

Twitter: @tarunmor

Comments

Tarun Mor

10 Comments

Veer Mishra June 11, 2015, 7:29 am

Hey Tarnu, this was the same case with me as well.
The problem with indian payment gateways is that you can remit the funds directly to tutors from the payment gateway. So the way we went was, we incorporated our startup in US and took a US payment gateway Stripe. What stripe allows u to do it you can remit the funds directly from PG to the tutors.
Tarun Mor June 12, 2015, 7:52 pm

Veer, thats a really good tip!

Don’t the Paytm or PayU wallets work in similar way? Cant we do a wallet to wallet transfer between student to LearnMor to the tutor?

What we want to do is, hold the payments for the term of the learning. For example, if a student has hired a tutor for a month for Rs 10k. The student pays let’s say on June 15, we receive it in LearnMor.com’s wallet immediately, and we transfer those funds to the tutor after a month on July 15. We would like to know if there are any regulations stopping us from holding the payments for that one month period.
Ishani June 12, 2015, 8:29 pm

Tarun, that would be an ideal & simplest solution.. Accept payment thru paytm in your wallet and once the tuition period is over, pay to the tutor’s wallet from your wallet…
Tarun Mor June 13, 2015, 11:22 am

Thanks Ishani!

Are there any regulations holding us from paying the tutor after the study period is finished?
Veer Mishra June 14, 2015, 11:01 am

Hey Tarun, I think PayU or PayTm will not be that flexible.

But you can work it out the other way around just like Uber in India. make it necessary for both (Tutor and student) so a student has to by credits and pays you, which you then pay to tutor and in case of fraud, you can issue a refund anytime.
Tarun Mor June 14, 2015, 11:11 am

Thanks Veer, that’s how we are thinking about it!

I just want to make sure, there are no regulations against us paying the tutor after the learning term is finished, which doesn’t seem to be the case. I am assuming it can be a part of our payment policy!
Veer Mishra June 14, 2015, 11:26 am

yep.
paritoshsharma1231 June 16, 2015, 3:53 am

Tarun, as per regulations, you can’t hold the payment.

Use PayU. We will open an Escrow account for you (which is done for every transacting merchant). Each tutor can be a merchant on board PayU – linked to your account.

Happy to put you in touch with my team here who will get you on boarded in no time.

Disclaimer: I head SME and Partner business growth at PayU.
Tarun Mor June 16, 2015, 5:35 am

Thank you Paritosh!

Is there any documentation on this that we can go through?

I am not sure why we cannot hold payments when all the eCommerce marketplaces can? Someone like flipkart or snapdeal or even small eCommeree market players take payments in advance from customers and release them to suppliers (after taking their 10%-30% cut) in 7, 15, 30 days? How are we different from them?
Nitin Jain June 16, 2015, 8:00 am

Hi Paritosh,

Would appreciate if you could share any online links describing the rules and regulations with regards to escrows in India. This is critical.

We are starting a new venture, and would be happy to associate with PayU. My requirements are a little different though. I will get back to you separately.

Many Thanks