Problems Escrow Is Intended to Solve

Escrow is a legal arrangement in which a third party temporarily holds large sums of money or property until a particular condition has been met (such as the fulfillment of a purchase agreement). Agents hold the funds or assets in digital 3rd party escrow accounts until the predetermined contractual obligations are met by the two parties.

As such, digital escrow is emerging as a major alternative to other forms of major B2B and B2C payments such as letters of credit, while also solving age-old problems of fraud and credit risk. This problem-solving capacity is linked to the many benefits of escrow, such as buyer and seller protection, regulated payments, transparency, the full visibility of funds, and real-time payments.

Let’s take a look at all the issues that escrow irons out:

1. Credit risk in businesses

Business owners on the buying side can rest assured that they will only release their money once the seller has fulfilled its side of the agreement, for example shipping the items. Further, the buyer's money is not released until after both parties have agreed upon the delivery timelines in the escrow agreement. Consider the case of a seller.

As the buyer funds the escrow account before releasing the items, the seller is assured of the buyer's intent and ability to pay. In addition to cross-border trade, you can also use escrow services across various industries and geographical areas. Escrow accounts protect both parties regardless of how much the transaction is worth.

2. Trade risks across borders

A trusted escrow provider can eliminate international trade risks such as payor, enforcement, and KYC risks involved with cross-border trade payments.

3. Lack of investment security in fixed asset transactions

Escrow services are recommended for significant investments in physical fixed assets like machinery or vehicles, but there are use cases for digital fixed assets too. These include domain name purchases, email lists, social media accounts, online eCommerce stores, and more.

Large transactions often mean the processing time is extended. Depositing money in an escrow account then allows the funds to remain protected until the obligations of shipping or transfer of data is completed.

4. High-value online transactions lack trust

Frequently, small business owners use the benefits of escrow services to facilitate online transactions or transfers, no matter how high or low the transaction value might be.

When conducting business with someone you have not met - whether it is a buyer, seller, service provider, or freelancer - it's best to exercise caution and to transact securely. This is where escrow platforms provide trust in online transactions by being regulated by various international monetary authorities.

5. Traditional escrows at banks are cumbersome

Escrow services are not a new thing. Banks all over the world continue to offer traditional escrow accounts to consumers and businesses.

However, opening such an account is time-consuming and cumbersome. Time is the biggest issue because the buyer's and seller's position can drastically alter during the time it takes the traditional escrow to complete transactions. This is where 3rd party digital escrow offers a hassle-free, quick, convenient, and completely transparent alternative to traditional B2B and B2C payments – all through easy apps and digital devices.

6. Letter of credit is prone to financial frauds

Letter of credit (LoC) is a popular B2B transaction method. However, it is fraught with risks such as sight credit fraud wherein the bank will make the payment to anyone who can produce the letter of credit or irrevocable letters of credit that are subject to change at any time.

Letters of credit are also notorious for hidden charges. This is where digital escrow provides a clean, transparent, risk-free, and zero-hidden-cost means to secure your online transactions.

With more high-ticket transactions taking place online, it's not surprising to see digital escrow services becoming the preferred method to secure transactions. This is especially the case among businesses and consumers who are wary of online payment fraud and want to find a way to protect their business when transacting with a new party online.

Whether you want to safeguard your cross-border payment or receive guaranteed payment for your sales, you can trust Omoney to solve your transactional issues easily. It’s fast, transparent, lets you accept multiple payment options, and offers the best FX rates with a low platform fee to boot. Contact us today to find out more