O

nline trading activity has steadily increased in Indonesia. Sellers feel that it is way easier starting an online store than starting a conventional store, for it is cost efficient and does not require complex legal procedures.

Buyers prefer online trading since it is easier to tap on your smartphone screen than go to a conventional store, and online stores usually have a larger collection of items.

A buyer can order a particular item from a big city such as Jakarta, which has a geographical advantage since the location of the seller is usually close to the producer.

Problems occur in relation to the payment method. There are five main procedures for online payment: credit card payment; direct payment to the express logistics guy; cash on delivery (CoD); bank transfer, before or after the item has been received; and an escrow account.

An escrow is a contract in which a third party receives and pays a certain amount of money or other items of choice to the transacting parties, with the payment depending on the conditions agreed to by the transacting parties.

The usage of escrow accounts may vary from providing an account for paying rent to your landlord (you keep your money in the escrow account until the end of the lease, then the landlord returns your money, less any money withheld for damage); to keeping your money in direct transaction in case of legal dispute; or in online transactions, when an online buyer has received the item he buys, he then contacts the escrow agent to disburse to the seller.

The term '€œescrow account'€ in this article only applies to the online transaction usage.

Escrow agents in Indonesia have become increasingly popular. For example Bank Mandiri Escrow and Account Service (the big and established one) and smaller agents such as Rekber Blackpanda ('€œrekber'€ stands for rekening bersama, a common term in the Indonesian online trading world).

The advantages of escrow accounts compared to other payment methods are as follows.

Escrow account vs credit card payment: In developing countries like Indonesia, not everyone has a credit card. It is usually members of the upper-middle class who own such things.

Not to mention in our Muslim-majority country, even the upper-middle class sometimes prefers not to use credit cards because of religious reasons (interest rates, etc). The other thing is that credit card owners are usually adults, so if teenagers and young adults (a huge portion of Internet users) want to buy those cheap-yet-cool-looking headphones online, they can'€™t use a credit card.

Escrow account vs direct payment to the express logistics guy: It still involves hard cash so there is risk in the handing of the cash to the logistics guy.

And if we don'€™t have cash in hand when the item arrives, we need to go to the ATM to withdraw the money, which is impractical and risky, whether it is the risk of robbery or the risk of not having cash at that moment (which is embarrassing).

Escrow account vs CoD: CoD means you meet the seller in person then give them the cash. CoD cannot be done if the buyer and the seller are geographically far apart. An escrow account does not has that disadvantage.

Escrow account vs bank transfer: Criminals mostly use the bank transfer method for their fake online shops as it is easiest, even though if the police put in an extra effort, it could be traced from their bank account.

But the reality is the overburdened police are not so zealous in pursuing such cases if they have a lack of concern if the transaction does not involve a huge amount of money.

An escrow account is way safer since the seller cannot close the deal and disburse the money without permission from the satisfied buyer.

The problem is, there is a lack of awareness among Indonesian citizens and government. There are many people who do not even know the term '€œescrow account'€. Online buyers do not know much about escrow accounts since sellers do not use them even if they are aware of such a service.

Of course the sellers (especially individual sellers) choose to use the bank transfer method, since there is no harm in them receiving payment first before sending the items.

The only thing able to force them to use an escrow account is if a buyer wants to use it. Or if the website enforces the usage of escrow accounts. Or if the government forces the websites to enforce sellers using escrow accounts.

Even though it is important, there is no regulation on online payment procedures. Law No. 11/2008 on information and electronic transactions does not mention it, or its derivatives. To solve this problem, I highly recommend the government make a regulation that makes the usage of escrow accounts in online transactions compulsory, no matter how small the transaction is.

The implication of this regulation would include the power of the government in supervising online traders who have become more powerful. If someone wants to open an online shop, he/she needs to make an arrangement with an escrow agent.

Even if I want to sell my comic book, the payment should use an escrow account. It is cheap, by the way, because escrow agents'€™ fees are only a very small percentage of our money in the transaction.

The Indonesian Financial Services Authority should make regulations on the legal requirements that have to be fulfilled by an escrow agent to obtain a license.

It has to regulate registration and physical office presence (to trace the agent if something fishy happens) and capital-to-asset ratio (in case of bankruptcy).

Last, the government needs to supervise and enforce sanctions on escrow agents so there are no scam agents popping up like fungus everywhere.

The writer works for the Finance Ministry'€™s Directorate General of State Assets Management. The views expressed are his own.