Role
of intermediary is extremely important in any
buy-sell transaction. Traditionally, banks have
played this role, and are still considered most
reliable option in export import trade.
However, on-line world brings fresh challenges
that traditional paper-based systems find hard
to adopt. The anonymous world of Internet demands
more proactive role for the intermediary than
mere checking or exchanging papers.
Necessity, as they say, is the mother of invention.
Though, 'escrow service' is not exactly an 'invention'
(it's been around for hundreds of years) - its
on-line avatar is certainly an innovation that
overcame many shortcomings of traditional payment
options in on-line environment. Besides being
inexpensive, escrow offers extra safeguards for
both buyer and seller that traditional payment
options do not provide. As a result, on-line escrow
service has become extremely popular among Internet
users, specially those using on-line auctions.
What is Escrow Service ?
Origin of the word is French 'escroue' or 'escroe'
- which means strip of parchment. Dictionary meaning
of escrow is 'Money, property, a deed, or a bond
put into the custody of a third party for delivery
to a grantee only after the fulfillment of the
conditions specified'
In on-line environment, an escrow service acts
as a third party or intermediary for buyers and
sellers who have reached an agreement on an item
for sale. The escrow service will hold the payment
in trust until the buyer inspects and accepts
the merchandise. Once the buyer is satisfied,
the escrow service will release the payment to
the seller.
So, online escrow services provide a third-party
intermediary to ensure buyers and sellers fulfill
business agreements. Instead of paying a seller
directly, buyers pay an escrow company, which
then shuttles the payment to the seller - only
after the buyer receives and approves the goods
How on-line escrow service works:
Here is a step by step description of how escrow
service works
- Step 1 Buyer and seller meet
over Internet, typically in an auction site,
where seller has put up his/her product for
sale.
- Step 2 Buyer decides to buy
seller's item, places his/her bid
- Step 3 Seller accepts buyer's
bid. Both agree to terms of the transaction
including the price of the item and shipping
costs.
- Step 4 Buyer sends the agreed
amount to the escrow service
- Step 5 Escrow informs seller
payment is received in full
- Step 6 Seller ships the merchandise
to buyer
- Step 7 Buyer receives the
merchandise and inspects quality
- Step 8 Buyer approves the
merchandise and informs the escrow
- Step 9 Escrow then pays the
seller after deducting its commission
We shall discuss how escrow safeguards both buyer
and seller in next issue.
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