CHRIS: Those are the fundamental concepts that we're dealing with. And usually what this means is, whenever we're going into a bid with auction software development, we need to do some form of pre-authorization, making sure that they actually have the funds. Now, this can happen in several different ways. We can do a simple look at the financials, we can look at a credit statement of the business, verify the business entity that's bidding on the item. There really are a lot of different things we can do. It can be a deposit, it can be a full payment into a clearinghouse where the funds are in that clearinghouse, and it's essentially a third party or an escrow. These are all options that we can consider.
A lot of times what ends up working well is a nonrefundable deposit of some kind or earnest money. Once the purchase is actually completed, that nonrefundable deposit or earnest money gets rolled into the overall purchase. This is a way to show goodwill, but not have the buyer completely on the hook and allow the seller to see, “Hey, they're serious, and they're legally obligated. So now I'm going to go ahead and fulfill.” It's a give and take.
And that's really the big thing that we see here, Ron. Another common model that we've used in many types of auctions is the payment clearing governance. Again, money gets sent in, and maybe it's the full amount, maybe it's a partial amount, but it has to be there in advance of the bid. Maybe it's a proportion of the bid amount. So fundamentally, there's going to be some “proof of life” in this transaction. And what you want to think about here is that we're leveraging the credibility of the eAuction software of your business to show the buyer and seller, “Hey, you're allowed to work together. You can trust each other through our process that this is going to go well, things are going to be handled fairly.”
There’s another really popular option—especially with international payments or maybe long lead time, long lag time type of fulfillment, and even for like houses and such—is an escrow type of model. Basically, the concept for a lot of fine art or expensive jewelry, et cetera, would be that we're basically going to be putting a portion of the funds, or all of the funds, from the buyer into an escrow account.
We've seen this a lot with developing countries in different auction types, that might be perceived from the seller's side to have issues with delivery and fulfillment and meeting the expectations that they set. So the buyer puts their funds into an escrow account, the escrow account is managed. If there are issues, there's an arbitration process. Again, we've talked about this in previous videos, but then the seller can fulfill knowing that the funds are in that escrow. Once the buyer accepts, then the buyer can issue an approval and then the seller gets paid in full via the payment hub solution.
The other thing that's really interesting, and this is relatively new, at least in the level of popularity that we're seeing, is setting up payment plans. So we can use third-party APIs for payment plans. This is pretty unique, and this makes it attractive for folks, especially for lower- to mid-sized ticket items to be able to finance these purchases after the purchase is made. This can turn it into a monthly or periodic payment that they're making instead of having to pay for everything all at once.
You hit on international a little bit, Ron. Feel free to elaborate on that and any of these other points that you think would be helpful for folks to understand the nuances of these.
RON: Sometimes you have to think about what is being sold and how is it sold outside of an online eAuction? I've bought five homes; every single one of the homes, when I go in to a bank, I have to be pre-approved. And then, typically, I have to put some earnest money in, and I get like ten days so that I can get an inspector to come in and go through and [make sure] it's right.
If I'm going to buy that house, that same house that I bought in person online, I'm going to probably want the same thing. So now are you going to require the home seller to provide an inspection a week before the eAuction so people can review that, so they have an idea that the home's already been through an inspection? A third-party certified inspector that you chose that's not biased? OK, is that done?
Do you—before the bidders come on—do you force them to already upload their pre-approval. Do you force them to put in their earnest money? So as soon as the auction's closed, the earnest money is captured by the ERP payment system and sent to the seller, and now they have that two-week time to get their own third-party inspector if they want to do that. At which point in time do they have to provide the funds?
It's got to be the same level of trust and high fidelity as an in-person engagement, but online. So that is very difficult in and of itself just here in the U.S. and why it's so important to work with an online auction platform development company.