What Is the Purpose of Fund Segregation?

In 2022, 2.3 billion online transactions were recorded, representing €146.7 billion in France. This exponential growth demonstrates the crucial need for online businesses to secure their transactions in order to protect their funds and their customers. With more and more consumers making online purchases every year, e-tailers need to offer robust security systems to protect their users.

Blocking funds is one of these secure solutions.

What is ring-fencing?

Escrow is a payment method whose purpose is to guarantee the security of the buyer's and seller's funds. This security mechanism makes it possible to guarantee the availability of funds before authorising the finalisation of a payment.

The blocking of funds, also known as an escrow payment, allows a buyer to pay for a good or service, but not to immediately transfer these funds to the seller.

The funds are then placed in a digital safe, which acts as a gateway to the transaction. The seller, for his part, can check that the funds are available, and only receives them if all the conditions necessary for final validation of the transaction have been met.

The finalisation rules can be many and varied, such as receiving a parcel, scanning a QR code, entering a code, or any other validation method you choose.

The aim of this payment method is to protect the interests of both buyer and seller by generating more trust. Once the transaction has been approved by both parties, the funds are released and transferred to the seller.

What are its advantages?

• Security: blocked funds are placed in a digital safe and are only available once the transaction conditions have been met. This mechanism can help e-merchants protect their users against risks such as scams and fraud.

• Guarantee: the seller guarantees that the buyer has the necessary funds to complete the transaction, and the buyer guarantees that he will only make the final payment when he is sure that his purchase is in order.

• Transparency: ring-fenced funds are segregated and identifiable, providing greater transparency, easier verification and real traceability.

• Transaction management: if the buyer or seller cancels the deed of purchase, there is no need to make a repayment, as the hived-off funds are returned directly. Management is therefore simplified.

Who are the funds earmarked for?

The blocking of funds makes it possible to secure online transactions by ensuring that funds are available. The aim is to reduce the risk of fraud and payment errors. This mechanism is useful for all e-commerce sites, especially marketplaces, which do not know their users directly, whether they are buyers or sellers.

The ring-fencing of funds is just as useful for CtoC (private individual to private individual) transactions as it is for BtoC (business to business) or BtoB (business to business) transactions.

Generally, the segregation of funds is provided by a third-party financial institution, such as a bank or payment service provider.

What are the different types of ring-fenced funds?

There are different types of segregation of funds, such as on-demand segregation of funds and permanent segregation of funds.

The on-demand system is used for one-off transactions.

Permanent is used for recurring transactions.

It is important to choose a trusted financial institution to manage the transactions and to ensure that the funds hiving-off system chosen is suited to the e-merchant's needs.

By using additional security systems to protect online transactions, companies can concentrate on their core business with complete peace of mind.

How can companies guarantee the security of segregated funds?

The security of ring-fenced funds can be guaranteed by adopting good management practices and using reliable and regulated financial services providers. They can also put in place strict internal controls, regular audits and security protocols to protect the funds from error or fraud.

Online sales platforms can ensure that financial service providers use state-of-the-art security systems to protect sensitive financial information and online transactions. They can also ensure that ring-fenced funds are segregated from their operational assets to minimise the risk of confusion or loss of funds.

They can also set up guarantee agreements to ensure that funds are available when needed.

How can ring-fencing improve the transparency of financial transactions?

By using financial service providers, online sales sites can ensure that the funds involved in a transaction are managed transparently and in compliance with the laws and regulations in force.

Boxing funds at Obvy :

Obvy offers payment for transactions with blocked funds. This method strengthens the confidence of users, who feel more reassured and supported when making online purchases. The range of applications is vast: payment on receipt or dispatch of goods, blocking of funds during the provision of a service, guarantee deposit, deposit or reservation, etc. Blocking of funds makes it possible to ensure the viability and security of many transactions of varying degrees of sensitivity, by providing strong guarantees.

These guarantees will facilitate the act of purchasing while increasing the average transaction basket, providing real ease of use and enhanced security at every stage.

For more information on the types of payment offered, visit our page dedicated to the functionalities offered by Obvy to businesses.