In a digital commerce ecosystem, two parties that have never met before must agree to transactions or assignments, deliver and receive products and, perhaps most importantly, ensure payments occur as quickly as possible. All of the steps in digital transactions require trust, which can be difficult to come by. Those selling expensive items, like vehicles or paintings, might be more reluctant to relinquish their goods without first seeing a payment.
Trust is also an essential factor in the growing gig economy. Freelancers often struggle with whether they can trust an employer located across the country or globe. When they complete and deliver assignments, they’re left hoping and waiting for their employers to deliver their payments in the correct amounts.
Some marketplaces are now turning to digital escrow solutions to protect the interests of buyers, sellers, employers and gig workers. Escrow solutions are widely used in the real estate market to hold funds for property-based transactions until both parties are satisfied with the terms and costs.
With digital escrow tools, funds for sales or gig assignments are held by a third party until both sides fulfill their agreed-upon terms. Funds are disbursed to the appropriate party once the transaction is completed.
The following Deep Dive examines how digital escrows are being used to disburse funds to big-ticket sellers and remote gig workers, and how introducing faster disbursements could contribute to market growth.
Helping offline sales go digital
Digital marketplaces like Craigslist and Facebook Marketplace use API-based solutions to introduce escrow offerings into their operations. This enables these sites to move past a linear format, and allows buyers and sellers to access escrow tools that facilitate trust in the process.
Secure and fast disbursements could open new doors for big-ticket items to be exchanged online. Approximately 42.7 million used cars were sold in the U.S. in 2017, a significant share of which were accomplished through P2P transactions made via online marketplaces like eBay and Hemmings.
Escrow solutions can also be used to help secure online real estate transactions. Some companies, like Efty, specialize in selling online domain names and website templates. Companies could utilize escrow solutions to purchase the web domains they want while keeping payments secured until transfer of ownership is completed.
Being able to receive funds quickly and securely following the completion of a sale, particularly through technologies like real-time push payments, could encourage more big-ticket sellers to participate in online commerce — and have the same impact on the gig economy.
Getting gig workers paid quickly
Buyers and sellers need some level of trust to successfully complete online transactions, and gig workers need the same when taking on assignments. Freelancers depend on their employers to follow through with their payment expectations: to pay them quickly and in the expected amounts. Failure to do so could hurt them financially and even cause them to reconsider gig economy participation.
Speed is crucial to gig workers. According to the May 2018 Gig Economy Index, 84 percent of those surveyed said they would accept more assignments if they were paid faster. As such, many gig economy companies are now deploying instant money solutions to offer real time disbursements to freelancers.
Digital escrow tools could address both speed and inaccurate payments by ensuring freelancers that the price for their work will not change and that they will be paid soon after their assignments are completed.
Spending is projected to grow rapidly in the creative services market, which employs a significant share of designers, artists, engineers, contractors and other freelance professionals. By some accounts, the streaming video on demand and over-the-top (SVOD/OTT) services market will reach $108.6 billion by 2026 as companies like Netflix and Hulu ramp up their efforts to produce original content. This means there will be more opportunities for creative professionals in the gig economy to find work, and that digital escrow tools will likely expand in this area as a result.
Digital escrow solutions have the potential to improve trust between freelancers and employers by ensuring that payments are available and delivered on time. As these solutions become more popular, they could open new opportunities for tremendous big-ticket eCommerce and gig economy expansion.