What is Online Escrow?

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  • Written By: Jim B.
  • Edited By: Jacob Harkins
  • Last Modified Date: 23 September 2019
  • Copyright Protected:
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An online escrow refers to the process of parties involved in an internet transaction using a third party to manage the transaction. By doing this, the parties gain security from one party failing to fulfill their obligation in the deal. When using an online escrow, the buyer of a product or service advertised on the web sends the payment to an escrow service, which then authorizes the seller to send the product or perform the service. Using a reputable escrow service is a safeguard against the fraudulent buying and selling practices common on the internet.

Many people conduct buying and selling transactions on the internet, lured by the ease and speed of the process and the seemingly limitless availability of every imaginable product and service. This boom in online transactions has been accompanied by deceit and fraud by scammers, and there is often little that those on the wrong end of those scams can do to rectify the problem. Online escrow is one method of heading such fraud off before it occurs by allowing a certified third party to officiate the transaction.


The first step in a transaction using online escrow comes when the buyer of a product or service sends the required payment along to an escrow service, which commands a small fee for its part. Once the escrow service verifies that the payment is valid, it authorizes the seller to ship the product or perform the advertised service. Finally, once the buyer confirms that he or she has received the product or service and there are no problems with it, then the service releases pay to the seller.

This process assures that there is never a time when one party involved in the transaction is in possession of both the product for sale and the money to be used for payment. Since there is a small fee attached to the escrow service, transactions of less expensive items may not necessarily need a third party's oversight, as there is little at risk anyway. It is advisable to use online escrow whenever a purchase of a bigger ticket item that requires security for both buyer and seller is transacted.

Both buyer and seller are equally protected in a transaction that is supervised by online escrow. The buyer gets the assurance of knowing that the escrow service will track the shipment and verify delivery as well as keep their payment protected in case the seller doesn't come through. In contrast, the seller gets the benefit of the escrow service checking to see that payment is valid and confirming when the product arrives.



Discuss this Article

Post 2

Beware. Online escrow is fantastic, and can save you.

But there are many, many fraudulent online escrow websites, that are just created to steal your money. They look professional, and you think they must be genuine. But they are not.

Only ever use a government registered escrow service. If it is government registered, it should greatly protect you. If not, run.

Post 1

Great post.

Perhaps I can just add to this that the best way to guard against being ripped off by online sales or auctions of any kind, and whether seller or buyer—is to use a *bona fide* online escrow company, especially for pricier items like antiques, jewelry and autos. Although it does add some cost, it takes the uncertainty out of the transaction, and that’s a small price to pay for peace of mind.

Take care,

Ulf Wolf

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