Armor’s Escrow Service Eases B2B Payment Friction

In the world of B2B, a common point of friction is the act of payment itself. And nowhere is that point of friction more acute than in B2B marketplaces where buyers and sellers meet to do business in a totally digital environment. Armor Payments has set out to eliminate one of the more complicated pain points in completing that transaction by launching its Escrow-as-a-Service payment solution. As one of only four California licensed Internet Escrow Agents, Armor Payments removes the regulatory burdens associated with providing such services on behalf of buyers and guarantees security for payers and payees. MPD CEO Karen Webster spoke with Armor Payments President and Co-Founder, Scott Reynolds, about the motivation for creating this new payments solution and what it is doing to overcome one of the most challenging hurdles in the B2B space.

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KW: Let’s start with the basics. What is Armor’s Escrow-as-a-Service solution – how does it work?

SR: We’re excited about the launch of our Escrow-as-a-Service solution. This is the first solution that allows third-party sites like business-to-business marketplaces, for example, to easily integrate via a simple API and offer escrow payments to their buyers and sellers. The goal is for them to be able to offer a seamless checkout and payment flow right on their site, while leveraging the security and cost-effective payment option through our escrow service. So Armor Payments takes care of the regulatory compliance, the money movement challenges, and dispute resolution, so our marketplace partners can easily integrate that and facilitate more transactions on their site.

KW: Specifically, you mention marketplaces. This is obviously something that is quite appealing to the marketplaces you serve. Is that the primary driver of this particular solution, wanting to accommodate that pain point?

SR: It really is designed for a variety of third-party sites, marketplaces being one of the key targets for us. We’re seeing a variety of marketplaces for goods and services integrate our service into their platform, but we’ve also seen significant interest from other areas. For example, crowd financing sites, where they’re bringing investors together to place loans or equity financing into smaller companies, as well as B2B disbursements, where payers need a secure way to pay a payee based on some sort of deliverable. We’re really seeing interest across a range of different use cases, but B2B marketplaces are probably the core area of focus for us.

KW: What, in particular, did you have to do to enable this capability for the customers of your platform? I’m sure there were a variety of regulatory and compliance issues that you needed to take care of.

SR: We are literally one of only four companies that are licensed by the state of California as an Internet escrow provider. That required us to jump through all sorts of hoops in terms of background checks for all employees, fidelity bonds to protect our users, and a financial audit to ensure our financial stability. That’s a key element of our offering, is we can take that regulatory burden off of our partners to allow them to focus on servicing their buyers and sellers.

KW: What is your business model, and how do you monetize this particular service?

SR: There is a fee per transaction that is typically a smaller percentage of the completed transaction. The fee is a point of negotiation between buyers and sellers, too. It can be paid by either side, or split between both sides of the transaction, depending on the industry and the dynamic of the transaction.

KW: With a typical payment by credit card there is always recourse that buyers can say, ‘this didn’t meet my requirements, and I’m going to send it back and dispute this particular charge with my card company.’ Why would someone opt for this solution and not the more traditional payment method?

SR: It’s an interesting question, and in my experience, having worked at MasterCard and PayPal, is that those chargeback mechanisms are very effective in protecting consumers, and are really optimized for a consumer environment. Now that we’re focused on B2B with larger transaction sizes, we see that credit card penetration in terms of acceptance is much lower, but the dynamics – in terms of both sides requiring protection – is still there. That’s why we’ve created our service that has a very transparent, fair and effective dispute platform that is really designed to provide that protection for both sides in case the transaction doesn’t meet expectations of one side or the other.

KW: So 2015 is off to a roaring start on the consumer side of payments, and certainly the momentum has carried through from the end of 2014 ,thanks to things like Apple Pay and tokenization. The retail side of payments seems really revved up. What do you see happening on the B2B side of payments in 2015? What kind of momentum and energy do you feel?

SR: We’ve seen, certainly from our perspective, an exciting emergence and refocus on marketplaces to enable these types of transactions. Certainly on the consumer side with Etsy and Airbnb and TaskRabbit and even Uber, there is a whole host of peer-to-peer or consumer-oriented marketplaces that have emerged and had a huge impact on various segments. We’re starting to see an equivalent development on the B2B side, where we see a number of startups raise significant venture money. Certainly Alibaba plays a commanding role in cross-border transactions to Chinese suppliers. That’s really driving a lot of the interest in our solution as marketplaces look to facilitate transactions between the buyers and sellers that they’re servicing.

KW: I think payment is often a friction point when buyers and sellers try to come together online to enable a transaction. Invoicing has become something that is a very familiar process between buyers and sellers, but payments can make that whole piece of the transaction very difficult to manage. It sounds like what you’re offering is a way to break the logjam and remove some of that friction.

SR: Exactly. It’s a way to provide a secure way for buyers and sellers to conduct business without friction as these transactions move online.

KW: What has the response been since you announced your escrow as a service? I know it’s still in its early days.

SR: We’ve signed agreements with a handful of marketplaces already, who are in various stages of integrating via our API. We’re really excited by the response, and by people, companies and marketplaces searching us out because – quite frankly – they’re not able to find a suitable solution available elsewhere.

Scott Reynolds

President & Co-Founder, Armor Payments

Scott’s no stranger to the payments world. In fact, the concept for Armor Payments was born out of his experience tackling a wide range of B2B payment challenges in senior roles at MasterCard and at PayPal. Most recently, Scott led a product team at PayPal overseeing significant growth among small and medium-sized business customers with products such as online invoicing and digital goods checkout, accounting for over $2 billion in payment volume. On the weekends, Scott likes to sneak in mountain bike rides in the Santa Cruz Mountains and the occasional tennis match, in between shuttling his two kids to soccer games and the local skateboard park. He has his BA (Honours) from Queen’s University in Kingston, Ontario, and his MBA from the Tuck School of Business at Dartmouth.