Picture this: the puppy of your dreams is being sold on Gumtree and very soon you will become the proud owner of a 12-week-old Schnauzer. The only issue is, your new baby is sitting in Durban and you live in Johannesburg. The owner tells you that he will send the puppy down by plane and all you need to do is pay for the flight and the dog upfront. Not a problem at all, so you pay and off you toodle to the airport to fetch your girl only to find that there is no dog and the “seller” has disappeared with a whole wad of your money.

This kind of story is by no means unusual. In fact it is more common than you think. In a 2014 survey by global firm PwC, 69% of South African respondents said that they had fallen victim to some form of financial crime in the two years prior to the survey, compared to 37% of global respondents. This means that over half of South Africans have been in a situation where either they paid for something and didn’t receive the product or service on offer, or they never received the product or service that they bought.

With stats like these, a solution is needed to help avoid any more situations like these. This is where escrow comes in. And this is….

What is an escrow facility?

Simply put, an escrow facility is an extra layer of security that is added to the transaction process between a buyer and a seller. It is a neutral third party that will securely hold money for payment of purchases in a trust until the deal has been completed. Its purpose is to protect both parties against payment fraud, non-payment and the hassle of chasing payments.

Today, most escrow services are secure online portals but can be used to protect buyers and sellers trading through online marketplaces (Gumtree and OLX), traditional classifieds (The Star, Sunday Times etc.), or those who simply want additional protection when trading with people they don’t really know.

How does it all work?

Say Peter is buying Paul’s Schnauzer. The first step would be for both parties to agree on how the transaction will be processed, including the price. Peter transfers the money for the Schnauzer into a trusted escrow account. Only once Peter receives the dog from Paul and he is completely satisfied that the Schnauzer meets how Peter advertised her, will the money be released to Peter. Likewise, if the dog doesn’t meet the standards advertised, the escrow service will simply not release the funds until the issue has been sorted out between the buyer and the seller. This way, no one can run away with the money or take possession of the sale item without paying for it.

Benefits of the service:

  • Protection for both the buyer and the seller in any deal, trade or transaction
  • It can be used for buying and selling both products and services including the renting of property and the selling of businesses
  • The fee charged for is much less than the risk and costs involved in being scammed

An escrow comparison

In South Africa there are four escrow facilities available including