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How Ex MobiKwik & Razorpay Execs’ Escrow As A Service Startup Castler Is Transforming B2B Payments

SUMMARY

Backed by The Venture Catalysts++, fintech startup Castler claims a quick turnaround, setting up a fully operational digital escrow account in 14 business days

Castler offers seamless API integration, allowing users to sync its escrow services with existing systems and applications

After its recent funding, the startup aims to introduce new services and onboard 10 more banking partners

As businesses must embrace tech-driven strategies in times of rapid digitalisation and industrial automation, adopting digital escrow services is increasingly sought for fast and reliable digital payments. 

The traditional escrow infrastructure has been here for a long time, though. Put simply, it is a legal arrangement where a neutral third party (usually a bank/financial institution) holds assets/funds on behalf of the transacting parties until the deal is closed satisfactorily after meeting the terms and conditions mutually agreed upon. Escrow keeps transactions safe and protects buyers and sellers from financial fraud or non-fulfilment of obligations. However, the traditional route to escrow operations has been inconvenient and time-consuming all along.

It was early 2020 when Vineet Singh (former CBO of the fintech unicorn MobiKwik) sold his car to an online platform that promised a fund transfer within 30 minutes. But after numerous follow-ups and a 10-day payment delay, frustration peaked, prompting him to find a way out of transaction mismanagement. But setting up an escrow account via the traditional route could have taken up to 140 days due to the enormous paperwork and lengthy verification procedures.

Taking note of the growing demand for plug-and-play digital escrow capabilities, Singh and Dinesh Kumar (former sales head at MagicBricks) launched castler in 2021, a cloud-based EaaS (escrow as a service) web platform offering domestic and cross-border solutions for enterprises. In May 2023, Kumar Amit (former VP of enterprise business at Razorpay) joined the startup as cofounder & COO. Five months later, Ritesh Tiwari (former senior executive at Visa, the UK and Ireland) came in as cofounder and chief product officer. 

The core mission of Castler is to significantly reduce the turnaround time required to open escrow accounts and provide quick and secure digital escrow solutions for B2B and B2C customers. The startup takes 14 business days to open a fully functional digital escrow account as it automates sign-ups, handles identity verification through eKYC, enables online e-agreement signing via eStamp and verifies the merchant’s identity at the time onboarding using AI/ML once the merchant is onboarded.

Post these procedures, it opens an escrow account on behalf of the transacting parties. Next, buyers can deposit the money in the escrow accounts; sellers can monitor the fund status, and the money is finally released from escrow accounts and sent to sellers’ accounts when buyers get their products.   

The fintech SaaS startup has a subscription-based revenue model and caters to various industry segments such as logistics, retail, real estate, fintech and more. It has partnered with nine leading banks to help customers operate escrow accounts. Castler also raised $7 Mn from marquee investors, including Venture Catalysts++, Flipkart Ventures, Capital 2B (an Info Edge fund) and IIFL Fintech Fund, Zerodha’s Rainmatter, 9Unicorns among others.

According to Singh, the platform has more than 5K active escrow accounts and completed 5 Lakh transactions in November 2023. The fintech SaaS boasts a customer retention rate of 80%, clocked INR 1 Cr in revenue in FY23 and targets 6x revenue growth in the current financial year. 

How Ex MobiKwik & Razorpay Execs’ Escrow As A Service Startup Castler Is Transforming B2B Payments

Bridging The Trust Gap: The Castler Way

“Globally, escrow has been proven effective in addressing trust deficits, securing financial transactions and verifying identities. With India poised to become a $5 Tn economy by 2025, the potential for escrow to solve key challenges faced by businesses and consumers is immense,” said Singh.

A look at India’s global status further solidifies his statement. According to a World Bank report, India ranked 163 in 2020 out of 190 countries in the ‘enforcing contracts’ category. To climb the ladder further and be in the top echelon, the country will require more streamlined processes, seamless payments management and enhanced transparency to iron out trust issues. Digital escrow could be the ideal solution to achieve these and more.

The startup lists various use cases demonstrating how customers can benefit from a fast and secure transaction ecosystem. Castler covers each service component, from business verification and opening escrow accounts (for sales, business deals, property leasing, lending, brokerage and more) to transaction processing and transaction management through a dedicated CRM system. In addition, transacting parties have constant access to a web dashboard for real-time status tracking.

Castler enables seamless API integration, allowing a user to sync its escrow solutions with existing systems and applications. Besides, API integration with partner banks helps it service various business requirements, such as cash collection or invoice discounting.

The startup has built multiple layers of protocols to ensure compliance and risk management per banking norms. Each transaction on the platform undergoes verification and approval by a SEBI-backed trusteeship company responsible for safeguarding assets or funds until the pre-set terms and conditions are fulfilled by all parties and the deal is completed.

Additionally, it is a PCI DSS-certified startup working closely with leading banks, which have in-house data security and compliance audit systems. For context, PCI DSS, short for Payment Card Industry Data Security Standard, is a compliance standard mandatory for any organisation handling card payments.

“Our PCI and bank partners conduct audits per defined time intervals to ensure there is no security or compliance gap in the system,” said Singh.

Apart from digital EaaS, the startup caters to B2B customers in various capacities. For example, it works like a trusted intermediary in digital lending scenarios, ensuring that loan disbursals and repayments are processed smoothly and securely. In the case of invoice discounting, it can assist lenders in securing their receivables

In the B2C space, Castler currently provides escrow services for tenants’ security deposits. When a tenant moves into a rental property, a security deposit is typically paid to the landlord to cover potential damages or unpaid rent at the end of the lease. Now, a landlord can open a digital escrow account on Castler to safeguard this amount until the lease ends.

Castler has two revenue streams. On one hand, it operates like any other SaaS platform and charges a monthly or annual subscription fee to its customers. On the other hand, it works as TSP to banks.

Pitfalls And Growth

At first, Castler’s chances to hit it big dwindled as incumbent banks were sceptical about partnering with a digital escrow startup. The founders also realised that hard-selling their business pitches would not get a stamp of approval from these banks. To win them over, they sought investors who could validate the startup’s credibility. Once the startup proved its potential to the marquee investors, the banks followed the suit.

“We reached out to Venture Catalysts++ (VCats) during our idea stage in Jan 2021 and raised $1 Mn at the ideation stage,” said Singh.

Set up in 2016, Mumbai-based VCats is a sector-agnostic and multi-stage VC investor with BluSmart (EV ride-sharing), Beardo (D2C brand for men’s grooming), fintech unicorn BharatPe, Shiprocket and others in its portfolio. Given its track record, VCats’ backing turned out to be a game-changer for Castler, increasing its credibility among bankers and providing lucrative opportunities to expand its customer base through the VC firm’s extensive industry connections. 

“VCats’ vast and active founders’ network enabled us to offer our escrow services to many startups seeking funding through the VCats syndicate,” added Singh.

Additionally, the VC firm gave access to top funding events attended by large domestic and global VCs and family offices. 

Castler leveraged this exposure well and raised two more rounds of funding. In May 2023, it raised $5 Mn in a pre-Series A round led by Capital 2B (an Info Edge fund) and IIFL Fintech Fund. This round also saw participation from Venture Catalysts along with Stride Ventures, Rainmatter, 9Unicorns and FAAD Network. In September, it bagged an additional $5.5 Mn as part of its ongoing pre-Series A and got Flipkart Ventures to be part of this funding. 

Castler aims to bolster its expansion strategy for both domestic and cross-border escrow services and establish partnerships with over 25 banks, targeting substantial growth in the coming years with the fresh funding. 

Can New Entrants Dominate The Digital Escrow Market In India?

Globally, the SaaS escrow market is estimated to reach $18.4 Bn by 2031 from $5.4 Bn in 2021, growing at a CAGR of 13.4% for the projected period, a report by Allied Market Research says. It also suggests that the growth was fuelled by the Covid-19 pandemic when an increase in digital payments prompted the need for secure and cloud-based solutions.

Closer home, things could only get better. According to a Redseer report, India’s overall B2B payments market is estimated to grow from nearly $8 Tn in FY22 to $10-11 Tn by FY26. However, 50-60% of the current payments are done via cash and cheque. Given the growing adoption of digital payments, escrow transactions can rise exponentially, enhancing contract compliance and quickly resolving business disputes. 

Aware of the shape of things to come, homegrown fintech super-apps like Razorpay and Cashfree Payments or proptech startup Square Yards have diversified into the digital escrow space, challenging a host of pure-play startups like Castler and Escrowpay. 

One way to survive the growing competition is to move away from the broad-range escrow space and develop specialised services for niche customers. After all, various escrow markets are now emerging fast, dealing in M&A, real estate or even intellectual property. Others may look at focus and technology shifts and explore the scope of a decentralised escrow payment system, as blockchain technology is a core element triggering escrow growth. Think of Descrow and its community-driven solutions, which can give banks and big fintechs a run for their money.

However, industry insiders are still betting big on digital escrow players like Castler and its ilk, as this sub-industry is still scratching the surface. With the rise in digital-first enterprises and borderless business transactions, winners will be those who can improve and diversify their escrow services, prioritise data security and keep expenditures on a tight leash. 

That’s a tall order, but certainly not undoable.

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