Online Escrow Services Protect Both Business and Consumers From Fraud (1/14)

Online Escrow Services Protect Both Business and Consumers From Fraud

Online fraud recently made it into the national spotlight when it was revealed that a nationally televised online auction held by eBay was rife with fake bids. Escrow services can take the risk out of shopping in person-to-person Web auctions, online classifieds and newsgroups, says Sherman Kwok, president of online escrow service provider i-Escrow. "Strangers on the Internet are often reluctant to buy and sell from each other, but escrow services bridge that gap, protecting the seller from nonpayment and shielding the buyer from 'bait and switch' tactics," he says.

Indeed, online escrows are emerging as a new way to provide more efficient customer service and a safer shopping experience, two ongoing challenges for Web merchants. "Buyers get to inspect the merchandise before they authorize the escrow service to release funds to the seller. So buyers are completely protected if the seller used 'bait and switch tactics,' says Sanjay Bajaj, vice president of i-Escrow. He adds online escrow services also benefit business owners more directly, providing protection for Web merchants by first accepting payment from the buyer and depositing the monies in a trust account before the company ships the merchandise to the consumer.

Using online escrows can protect vendors from both bad checks and fraudulent credit cards and does not add any time to the sales process. In fact, Bajaj says the opposite is true: Because escrow services accept payments using credit cards from buyers, a seller is able to ship the product on the same day. "Otherwise if the seller received a personal check or money order directly from the buyer, he would have to wait for it to clear before shipping the merchandise. i-Escrow releases payment to the seller; soon after the escrow is complete," he explains. "And our free transaction-management tool helps online merchants track shipping deadlines, pending sales and action items in an easy-to-read table so that they can better serve their customers." The average fee for escrow services is approximately 5 percent of the product cost, usually with a $5 minimum charge. However, there are lower fees for larger dollar transactions.

Online auctions, themselves, are beginning to guarantee financial exchanges by offering similar insurance programs designed to reduce the risk of Internet shopping.

Auction Universe, for example, recently responded to consumer concerns with Bid$afe, a policy that enables buyers to keep their checking account numbers and other financial information private. Policies like Bid$afe remove the risk of online shopping by holding the payment until confirmation of both parties' satisfaction is verified. Online auctions are passing insurance costs on to their consumers, charging an average of $20 per year for protective coverage. With Bid$afe, subscribers must also pay an additional 3.5 percent service fee per auction to offset the credit card fee and administrative costs of the service.

"This has been an amazing season for e-commerce, with holiday shoppers turning to the Web in record numbers to buy gifts," says Larry Schwartz, president and CEO of Auction Universe. "People have been finding one-of-a-kind gifts and enjoying the thrill of bidding at online auctions. Bid$afe ensures that online auctions, which have received great praise, do not suffer from unscrupulous types."