Castler Escrow

What is Digital Escrow and How Does It Work?

With a constantly digitizing world, individuals and businesses are forming an online presence. Consequently, processes are also increasingly being carried out online. At the same time, cyber frauds are donning a digital silhouette. Read about what digital escrows are, and why this transaction solution is increasingly becoming popular today for tackling this problem.
What is Escrow?
Escrow refers to a mechanism by which two or more parties carry out agreement-based transactions. The method is a popular one owing to the high level of security and transparency it offers. A distinguishing factor of escrow accounts is the presence of an unbiased third party that facilitates the transactions. Since the third party is neutral, escrow protects the interests of all transacting parties equally.  This ensures a fair transaction process.
Who Can Use Escrow Accounts?
Any firm and/or individual can use escrow as long as its identity is verifiable. The use cases and applicable industries are also incredibly diverse:
  • Startups can use escrow accounts for specific purposes such as collections, supply chain, procurement, etc.
  • Micro, small, medium and large businesses can use escrows for specified purposes. They can also use escrows for facilitating high-value generic transactions.
    • Why Should You Use Digital Escrows?
    Escrows harbour a high level of flexibility and varied applicability. So then why is it not a popular transaction method in India yet? This is because complicated processes and tedious documentation have made it diffcult for people and businesses to avail this solution. A general lack of knowledge about escrows is to blame as well.
    Generally, all Indian banks offer escrow services as a part of their solutions suite. However, the process of opening and using a traditional escrow account is time-consuming and tedious. In addition to this, the turnaround time for opening an escrow account with a general commercial bank is approximately 4 weeks. This results in an increased setup and processing time, which further contributes to the anxiety of payment problems. When completing transactions takes too much time, the chances of unprecedented changes also multiply-
  • One or more parties may want to change clauses that are less suited for their needs. This can impact the remaining parties negatively and/or result in more time delays.
  • There is a chance that over the course of time, the relevance and urgency of carrying out the transaction may fade.
  • Financial positions can change quickly. One or more parties may become bankrupt, or their funds may get liquidized unexpectedly.
  • Besides this, there can be other unforeseen issues like pandemics, social unrest, climatic catastrophes etc, which can lead to a further postpone the transaction process.
    • The Escrow Process
    The digital escrow transaction process is more or less the same as traditional escrow process, but faster and more convenient.
    This example illustrates a typical escrow transaction-
    Alex is scrolling through online used-cars marketplaces and finds a car she would love to buy. She’s not sure, however, whether she can trust the word of the seller. (Maybe the car is not in as good a shape as the seller says? It’s quite possible.) Alex decides to open an escrow account (which is an agreement-based account) and deposits the payable amount of the car in the escrow vault. The seller delivers the car to Alex, knowing that his due payment is deposited in the escrow vault. Two scenarios can arise from this juncture-
  • Alex is unsatisfied: She inspects the car and realises that her fears were true – the car is not in the same condition as the seller had shown online. She returns the car to the seller and is able to retrieve her money from the escrow vault.
  • Alex is satisfied: She inspects the car and is quite happy with its condition. She decides to go ahead with the purchase and releases the payable amount to the seller.
    • Steps For Opening Your Digital Escrow Account
    Going digital helps you carry out this entire process online. This means that you can make, check, and approve transactions anytime and from any part of the world. You get access to virtual dashboards as well, through which you can open numerous virtual escrow accounts and carry out unlimited transactions.
    The typical digital escrow account opening process looks somewhat like-
    Step 1: Transacting parties submit documents for eKYC to the escrow company and sign the escrow agreement.
    Step 2: Fill in the transaction details on the escrow company’s portal and open an account.
    Step 3: Transfer funds into your digital escrow account.
    Step 4: Track the real-time updates you receive about activity in your account.
    Step 5: Verify the payouts and close up your escrow account.
    A "Win-Win"
    Digital escrows are increasingly becoming a go-to transaction solution for businesses and individuals due to the bridge of ‘trust’ that escrows create. Although traditional escrows are time-consuming and costly, digital escrows are able to counter this problem. (Perhaps much of this is owed to the absence of a brick-and-mortar setup.)
    When using digital escrows, you are constantly up-to-date about activity in every virtual escrow account and every transaction you make. Additionally, using a digital escrow service like Castler’s comes with transaction insights for better data analytics. You can use these to make smarter financial decisions. The perks are clearly many – its no wonder that digital escrows are gaining popularity as they guarantee the safest transaction ecosystem possible.

    Comment your thoughts down below and share with us what you think! You can also mention any particular fintech topics you would like us to cover in our upcoming blogs.

    Read More: How to Transact With Confidence Amid COVID-19 Related PPE Fraud

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