What Is Escrow and How Does It Work?
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What Is Escrow and How Does It Work?

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What Is Escrow and How Does It Work?


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With the rapid development of the times and technology, buying and selling transactions can currently be done without having to meet face-to-face alias online.

To avoid the risk of loss between both parties, the seller and the buyer, there is one trusted and safe payment method called “Escrow.”

So, what is this Escrow, and how does it work?

So, to understand it, let’s look at the full review below.

What is Escrow?

apa itu escrow

Escrow is a payment method guaranteed to be safe to protect sellers and buyers from fraud cases rife in online transactions.

The concept itself is in the form of a financial agreement. In this case, the money or funds will be held by a third party on behalf of two parties, namely the buyer and the seller, who are involved in the transaction settlement process.

In practice, Escrow will involve an escrow account and an escrow agent.

The escrow account is a joint account that stores funds entrusted to the bank under certain conditions per a written agreement.

So, the bank, as the escrow agent, will manage the money stored in the escrow account.

Later, the escrow agent will release the funds when predetermined contractual obligations are fulfilled or after they receive appropriate instructions.

So far, the escrow system is still warmly welcomed in the community because it can prevent rampant fraud in online buying and selling transactions.

Types of Escrow

In terms of the industrial sector, Escrow is divided into three types, namely as follows:

1. The property industry

An escrow account can be used for property transactions. Placing funds in an escrow account can be considered a good faith proceeding with the transfer of property requirements.

On the other hand, an escrow account will also convince the seller that the buyer is serious about his purchase.

Here, the property buyer will make payments for the property through an escrow account held by a third party.

After depositing money, sellers and buyers can continue the process to the next requirements, including inspection of property eligibility and pests.

If the requirements specified by both parties have been completed, the money in the escrow account will be transferred/given to the seller.

2. Stocks

Escrow accounts are also found in the type of stock investment. The form is a share payment service through an agreement document as a condition for the transfer.

In this case, the previous shareholder must wait until the end of the agreement period and then can transfer their share ownership.

3. Online sales

Online buyers and sellers can also use an escrow account to protect related parties from crimes of fraud or negligence.

In the process, the buyer will send the payment to an escrow account which holds the money until he receives the product.

So, if the product has been sent and verified, the online escrow service will send money/funds to the seller.

How Does Escrow Work?

cara kerja escrow

The following are points regarding how an escrow account works that you need to know:

  • First of all, the parties wishing to transact must agree to use the escrow account service to guarantee the security of their transactions. Then, ensure that all parties involved understand how an escrow account works.
  • After the buyer determines the item he wants to buy, he must also choose a payment method. Here, escrow agents will generally provide several payment methods from which the buyer can choose.
  • Then, the buyer will deposit funds according to the goods’ price and shipping costs to the destination address via the account/account provided by the escrow agent.
  • Furthermore, the escrow agent will temporarily accommodate and store the money the buyer deposited.
  • The agent will notify the seller that the buyer has paid an amount.
  • Then, the agent will ask the seller to send the goods ordered by the buyer as soon as possible.
  • The seller then follows up on the notification by the escrow agent earlier by immediately sending the ordered goods to the previously informed destination address.
  • Next, the seller will confirm to the escrow agent that the goods have been sent to the buyer. Here, the seller will also provide a delivery receipt number.
  • The escrow agent will then provide the receipt number to the buyer so they can monitor the item’s delivery.
  • If the goods have been sent to the destination address, the buyer must notify the escrow agent that the goods have arrived and been received.
  • Finally, the escrow agent will deposit the money from the sale of goods into the seller’s account.

Escrow Benefits

For both parties, namely sellers and buyers, Escrow is very useful because it involves a third party escrow, namely a third party that holds data and bridges the process of buying and selling payments alias escrow agents.

So, what are the benefits? Here’s an explanation:

1. Protect the seller

As an illustration, in several online/online transaction cases, some buyers claim to have deposited payment via bank transfer.

The buyer then asks the seller to send the ordered goods immediately.

However, in this situation, the seller needed to be more complacent and check his account first.

He immediately sent the goods desired by the buyer.

Therefore, to avoid fraud, as illustrated above, sellers need to use escrow services.

With Escrow, the seller can ensure the buyer has made a deposit.

This must also be confirmed first with the escrow agent as the intermediary for the online buying and selling transaction.

If the buyer has received the goods ordered, the seller has the right to receive the funds transferred by the buyer.

2. Protect the buyer

Sometimes the buyer will also be harmed by becoming a victim of fraud in an online buying and selling transaction.

Buying and selling online has a mechanism: the seller will deliver/send the goods to the buyer when the buyer has paid via bank transfer.

So, in several fraud cases, the seller did not send the item to the buyer, even though the buyer had already paid for the item in full.

Therefore, using an escrow account will protect the buyer’s right to receive goods because payment for the goods purchased does not go directly to the seller’s account but will go to the escrow agent’s joint account.

So, if the seller does not immediately deliver the ordered product within the agreed time limit, the buyer has the right to receive his money back.

Thus, the buyer does not suffer a loss from the money he paid.

Is Escrow Safe?

An escrow account guarantees sellers and buyers security in an online transaction.

For information, this escrow concept has also been regulated in the Financial Services Authority Regulation Number 77/POJK.01/2016.

However, even though you have been guaranteed through the above regulations, you still have to look for a service provider (the escrow agent) with high credibility!

This is important so that the payment of buying and selling transactions can occur optimally.

Disclaimer Escrow

Even though Escrow is very helpful in buying and selling transactions, primarily online, all parties involved in this transaction must still be vigilant.

Indeed, only some people can guarantee the security of this escrow account 100%.

This happens because unscrupulous escrow agents still take away transaction money between the seller and the buyer.

Therefore, you should use the services of an escrow account with guaranteed credibility.

You can look for an escrow agent based on trusted testimonials to find it.

Not only that, but you can also ask this question to friends and online businesses with high experience.



Escrow is a secure payment method that protects sellers and buyers from fraud cases rife in online transactions.

With a financial agreement, the money or funds here will be held by a third party on behalf of the two parties, namely the buyer and seller, who are involved in the transaction settlement process.

In practice, Escrow will involve an escrow account and an escrow agent.

Meanwhile, types of Escrow can be found in the property industry, stocks, and online sales.

In the crypto world, the use of Escrow is increasingly popular as a way to strengthen security in transactions.

With Escrow, transactions can be carried out more safely and reliably because the Escrow acts as an independent and neutral third party.

This is very important in preventing fraud and fraud that often occurs in crypto transactions, for example, rug pull and pig butchering.

Therefore, Escrow can be an effective solution to help strengthen trust in the crypto ecosystem.

Happy trading!

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