How Using Escrow Can Drive Online Marketplace Sales

March 18th, 2023 | 6 min read

Alibaba is killing it! The eBay of wholesale. A global online marketplace connecting buyers and sellers.

It's a vast eCommerce platform. Alibaba handles significant transactions on its users' behalf.

Alibaba noted that providing a secure payment process was essential.

Alibaba noted that providing a secure payment process was essential.

To protect buyers and sellers from fraud, Alibaba offered its escrow service. The escrow service known as Alibaba Secure Payment.

The escrow service holds the funds until both parties have completed the transaction, protecting both parties.

The escrow service holds the funds until both parties have completed the transaction, protecting both parties.

Through Alibaba Secure Payment, Alibaba built trust in the platform.

How an escrow service helped:

Why would you want to learn about using escrow services?

Similar to Alibaba, GunBroker also needed escrow.

GunBroker is a leading online marketplace for buying and selling firearms and accessories. GunBroker carries some high-value items (think thousands of dollars).

Providing a secure transaction process was crucial!

With that, GunBroker offers the option to use an escrow service to ensure buyers receive their firearms. And at the same time, sellers receive payment for their sales.

GunBroker differentiated itself from competitors with escrow. It built trust with its users.

GunBroker differentiated itself from competitors with escrow. It built trust with its users.

Creating a trusted payment solution from escrow service helped GunBroker prevent fraudulent transactions/disputes. And in turn, buyers and sellers were more willing to conduct business on the platform.

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How Fraud Prevention Brings Peace of Mind to High-Value Transactions

Fraud reduction or prevention is one way escrow helps online marketplace increase trust.

How? An escrow service acts as a neutral third party that holds a transaction's funds until all transaction conditions are met. It provides:

  • Security to both the buyer and the seller.
  • Reduced risk of fraud or scams
  • Everyone goes home happy.

Buyers are assured that their money will only be released to the seller when they receive the promised goods or services. Sellers are confident that they will receive payment.

Specifically for their products/services as soon as the buyer confirms they are satisfied.

Imagine:

  • With escrow, your online marketplace could witness fewer complaints.
  • You "see" the relief on users' faces because they know their hard-earned money is safe!
  • You hear positive feedback from users, grateful for their peace of mind!

As an operator, maybe you are thinking:

  • Is implementing an escrow service a significant undertaking?
  • What about time, resources, and money?!
  • What about any ongoing additional operating costs?

It isn't necessarily that expensive or difficult to implement. You can:

  • Leverage add-ons (e.g., Yclas' escrow add-on)
  • Charge a commission off the escrow service to cover costs (+ revenue)
  • Use it to differentiate yourself

Escrow is becoming more common in marketplaces. Why? Security is a serious thing:

  • 89% of the complaints reported to Internet Fraud Watch in 2003 were associated with online auctions. (Science Direct)
  • 1 in 5 online listings during Black Friday 2020 seemed fraudulent. (Tech Digest)
  • 60% of the more than 1700 fraud and payments professionals reported to see were emerging types of fraud. (Ravelin)

eBay saw how important escrow was. eBay implemented its escrow service through Escrow.com.

With escrow, eBay could protect buyers and sellers in high-value transactions from fraud.

With escrow, eBay could protect buyers and sellers in high-value transactions from fraud.

Want to implement escrow in your online marketplace?

  • Research and implement escrow service providers (try add-ons)
  • Educate users about the value proposition of the escrow service
  • Monitor and continually improve the escrow service

How to Differentiate Yourself from the Competition with Escrow Services

Differentiation is another way escrow can increase revenue in your online marketplace.

By offering an escrow service, you can differentiate your online marketplace. You're providing a more trustworthy payment option than simply a credit card.

By offering an escrow service, you can differentiate your online marketplace. You're providing a more trustworthy payment option than simply a credit card.

Trustworthy payment options:

  • Build customer trust
  • Encourage more transactions
  • Increase repeat business

Imagine, with an escrow service, what an opportunity to differentiate online. You would have something concrete to point to when people ask why they should use your platform.

Differentiation is key:

  • Stiff Competition: 60% of online marketplaces are in the United States. (McKinsey) There can be stiff competition with online marketplaces.
  • Using Trust to Differentiate: 55% of business leaders believe that lack of trust is a foundational threat to their company. (PWC)
  • Freelancers Want Their Payments: 84% of gig workers surveyed in 2018 reported that they would accept more projects if paid faster. (PYMNTS)

Upwork's escrow service stands out. By holding funds in escrow until the work is complete, freelancers rest assured that Upwork will provide payment.

Escrow services give peace of mind!

Escrow services give peace of mind!

The escrow service has been a critical factor in building Upwork's credibility - freelancers who have that positive experience using Upwork's escrow service return.

Ultimately, Secure Payment Options Enable Happy Marketplace Users

Implementing an escrow service enhances the customer experience.

As we already discussed, the escrow service serves as an added layer of security. It builds customer loyalty and ensures fairness in disputes.

Customers will jump in on purchases knowing a third party provides "fairness."

You'll see flashy security badges on your home page, thanks to the escrow. Showing everyone, it's time for business!

You'll see flashy security badges on your home page, thanks to the escrow. Showing everyone, it's time for business!

You might be asking; will my users see the benefit of the service? The marketplace experience is paramount, however!

  • 45.9% of business professionals surveyed said that customer experience would be the top priority for their companies in the next five years. (Super Office)
  • 81% of companies consider customer experience as a differentiator. (Dimension Data)
  • 74% of consumers are inclined to purchase solely based on their previous experiences. (Forbes)

StockX, a premium online marketplace, built a loyal customer base by offering "peace of mind" escrow service.

StockX's escrow service ensures that payments are not released until the item has been verified for authenticity and shipped to the buyer.

StockX's escrow service ensures that payments are not released until the item has been verified for authenticity and shipped to the buyer.

Doing this, again, protects buyers from fraud and scams and helps establish StockX as a trusted and reliable marketplace.

As a result, many buyers return to StockX for future purchases, knowing they can trust the authenticity of the items. They buy and know their payments are protected until they receive their purchases.

By implementing an escrow service, StockX was able to differentiate itself from other marketplaces:

  • Provide a great user experience
  • Build a loyal customer base that values security and authenticity
  • Give peace of mind when buying high-value items.

Closing Summary

Implementing an escrow service as a payment solution online can significantly benefit buyers, and sellers (as well as online operators).

Escrow services can:

  • Reduce fraud and disputes
  • Increase trust by providing an added layer of security
  • Help marketplaces differentiate themselves
  • Enhance the overall "peace of mind" customer experience

What about you?

  • Do you value escrow services as a payment solution in marketplaces?
  • Have you used escrow services for purchases outside online marketplaces?
  • Do you feel like consumers are more alert when it comes to fraud?

Want to learn more about launching online marketplaces? Check out our last articles about how much commission online marketplaces take or reasons to use fees in your featured listings.


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