eBay brings escrow aboard

The demand for the service has grown with recent reports of fraud on the auction site, according to Escrow.com, the company that is offering the feature.

4 min read
eBay has reintroduced a service that can help protect customers from auction fraud.

The online auction giant has partnered with Escrow.com to offer escrow services on eBay's main site. Escrow services help to safeguard transactions by withholding funds from a seller until the buyer receives and approves the goods. eBay has not had an escrow partner outside of its eBay Motors automotive site since I-Escrow closed shop in December.

Even when they were available on eBay, escrow services were not particularly popular. But the demand for escrow services has grown with recent reports of fraud on eBay, said Adrienne Cole, general manager of Escrow.com.

"I think people are realizing the value of online escrow services," Cole said.

eBay representatives did not return calls seeking comment.

Escrow services such as those offered by Escrow.com have been around for a number of years. Although such services seem like a common-sense solution to the question of trust on online auctions, few sellers accept escrow transactions and few bidders even ask to use the service.

Many sellers have dismissed escrow as a hassle, charging that the service is cumbersome and takes too long for them to receive payment. Meanwhile, bidders have turned to other outlets for fraud protection.

eBay itself offers insurance against fraud. The company insures buyers up to $175 in cases of fraud. In the past, most auction transactions were for less than that amount.

In recent years, eBay members have been increasingly turning to credit cards to pay for and safeguard transactions. Most credit card companies provide fraud protection such that customers don't have to pay anything for items they don't receive.

But recent trends may encourage people to think again about escrow services. eBay has been making a big push for higher-value transactions. In addition to eBay Motors, which has become one of the top categories on eBay in terms of gross merchandise sales, the company lists items such as computer and electronics products, high-priced jewelry, fine art and real estate. Credit card limits are often lower than many of the high-end auctions on eBay.

Meanwhile, fraud has been a persistent problem on eBay. The company says that less than 0.01 percent of its auctions end in confirmed cases of fraud. But eBay has been the subject of several security concerns in recent months and a growing number of people have reported that their accounts have been hijacked and used to set up fraudulent auctions.

Escrow.com began offering its services on eBay's main site and on its high-end eBay Premier site last week, Cole said. Cole did not give details on Escrow.com's deal with eBay, but he did say that Escrow.com is not paying for promotion on eBay. Typically, eBay shares revenue with its service-provider partners, but Cole declined to say if Escrow.com is sharing revenue with eBay.

In a typical escrow transaction, following the close of an auction, a buyer sends a payment via check or credit card to the escrow service for the purchase price of the auction item. The escrow service then notifies the seller that it has the payment in hand and asks the seller to ship the item. After a predetermined inspection period, the escrow service will send the payment on to the seller, assuming the buyer accepts the item. If the buyer returns the item, the escrow service will refund the payment.

Escrow.com charges a transaction fee for its services that ranges according to the amount of the purchase and the payment method. For goods priced between 1 cent and $1,500, for instance, Escrow.com charges $22 plus 0.5 percent of the purchase price if the buyer pays using a check, money order or wire transfer. For a transaction in the same price range using a credit card, Escrow.com charges $22 plus 3 percent of the purchase price.

For transactions on items greater than $20,000, Escrow.com charges a fee of 1.5 percent of the transaction price. Escrow.com does not accept credit card payments for purchases totaling more than $7,500.

Either the buyer or seller can pay Escrow.com's transaction fees. The company deducts the fees from the amount it sends the seller.

Escrow.com promises to pay sellers within five to seven business days after buyers approve the goods they've purchased. The company will expedite the payment by sending it through priority mail or sending it via a wire transfer, but it charges a $20 fee for either of those options.

Escrow.com has been offering escrow services on eBay Motors since eBay launched the site in April 2000. Escrow.com's services are a centerpiece of eBay's "assurance program," which aims to protect eBay's car customers from fraud or misrepresentation.

With a goal of reaching $3 billion in revenue by 2005, eBay has been pushing to increase its revenue in part through selling additional services to sellers. The company announced Thursday that it is offering a new appraisal service to sellers through CollectingChannel.com. Related: