Escrow Basics
Marketplace
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June 3, 2025
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6 MINS READ

Trust is money in the digital economy. If you're purchasing a designer purse through an online exchange or negotiating a multimillion-dollar real estate transaction through a B2B site, there's one paramount concern that remains: How do they both know the transaction is secure and equitable? That's where marketplace escrow systems enter the picture.
A marketplace escrow system is a third-party agent that holds money during a transaction until all conditions are satisfied. It prevents problems associated with fraud and promotes trustworthiness—particularly in high-value or trust-sensitive transactions. In this guide, we demystify what a marketplace escrow system is, how it operates, and why it's increasingly necessary in today's digital-first commerce landscape.
What is Escrow?
Prior to discussing the details of marketplace escrow systems, one should know what escrow is in general financial terms. Escrow refers to a financial situation in which a third party retains and controls the payment of funds needed for two parties in a transaction. The third party releases the money only when all the conditions of the contract are fulfilled.
Conventionally, escrow was applied in mergers and acquisitions or real estate. However, in the current digitalized age, escrow now applies to e-commerce websites, gig economy marketplaces, software licensing contracts, and B2B trade.
How Does a Marketplace Escrow System Work?
Let's have a simple example. Suppose there is a freelancing platform where clients pay for services and freelancers provide work. If a client pays in advance without any protection, the freelancer may go missing. If the freelancer provides work without payment guarantee, the client may go missing. This is how escrow resolves this dilemma:
Initiation: The buyer chooses a product or service and agrees to terms with the seller.
Escrow Financing: The seller receives the payment as agreed by the buyer into the escrow account.
Authentication: The system alerts the seller that funds are in place. The seller makes delivery.
Delivery & Acceptance: After delivery of the product/service, the buyer accepts and verifies satisfaction.
Release of Funds: Upon verification, the escrow provider releases the money to the seller.
This model is especially useful in marketplaces, where there's minimal personal history or relationship between buyers and sellers.
Why Marketplaces Require Escrow Systems
Marketplaces by their nature are operating with high volumes of transactions and many unknown parties. Whether a gig marketplace such as Upwork, a collectibles marketplace such as eBay, or an international B2B marketplace, trust and transaction certainty are mission-critical. Some strong reasons that marketplaces require escrow systems are:
Fraud Prevention: Escrow mitigates the risk of fraud as it ensures money gets released only when the agreed conditions are fulfilled.
User Trust & Retention: Buyers and sellers are more likely to come back to a platform that ensures secure transactions.
Dispute Resolution: Escrow systems can have built-in conflict resolution and refund mechanisms.
Compliance & Transparency: A properly regulated escrow system ensures platforms are compliant with regulation requirements and have transparent records.
Key Industries Benefiting from Marketplace Escrow
The use cases of marketplace escrow systems range across industries. Here are some sectors where escrow has been found to be game-changing:
Freelancing & Gig Economy
Platforms such as Fiverr and Upwork operate in the freelance marketplaces that employ escrow for project-based transactions, allowing both the clients and the freelancers to feel secure. A McKinsey report states that more than 36% of the workforce in the United States undertakes freelance employment, reflecting the increased demand for secure payments within this sector.
Real Estate Marketplaces
Property websites, particularly rental, resale, or vacation property sites, employ escrow to secure deposits and protect landlords and tenants from default.
High-Value E-commerce
Marketplaces selling high-end products, collectibles, or art need more secure transactions. Escrow aids in authenticity checks and ensures payment only after validation of goods.
B2B Trade & Procurement
A lot of B2B marketplaces, especially cross-border ones, deploy escrow to de-risk transactions involving high amounts or intricate terms. It is also becoming increasingly important for supply chain finance and vendor payment programs.
Digital Escrow and API-based Rise
Escrow these days isn't merely digital—it's programmable and scalable using APIs. This enables marketplace platforms to integrate escrow capability into their UI/UX flows directly, making transactions frictionless for end-users.
For example, an e-commerce platform can utilize escrow APIs to automatically open, handle, and close escrow transactions in a manual-less manner. This type of automation minimizes errors caused by humans, maximizes operational efficiency, and increases platform reliability.
Current escrow providers provide bespoke dashboards, real-time alerts, and reporting ready for compliance, all of which enable platforms to conduct operations efficiently and transparently.
Regulatory and Compliance Aspects
With great trust comes great responsibility. Escrow systems must operate within regulatory frameworks such as RBI’s Payment Aggregator Guidelines in India, FinCEN guidelines in the U.S., or PSD2 regulations in the European Union.
Marketplace platforms must ensure that their escrow service provider is:
Licensed or authorized to offer escrow services in the relevant jurisdictions
KYC/AML compliant, following all Know Your Customer and Anti-Money Laundering rules
Secure data, with end-to-end encryption and solid cybersecurity measures
Collaborating with an audited and regulated escrow provider ensures that marketplaces don't get into trouble and gain long-term credit with users and investors.
How Castler Is Powering Marketplace Escrow Systems
As India's largest digital escrow platform, Castler is at the forefront of revolutionizing how trust is established in online transactions. Our escrow-as-a-service platform is specifically designed for marketplaces, fintechs, NBFCs, and businesses involved with intricate or high-risk transactions.
Here's how Castler enables marketplace platforms:
Seamless Integration: Castler provides a solid Escrow API stack, enabling platforms to integrate escrow services directly into their apps or websites.
Multi-Party Support: Whether you require two-party or multi-party escrow flows, Castler provides total flexibility to suit your use case.
Banking-Grade Security: Castler collaborates with top Indian banks and runs under full regulatory compliance, providing bank-grade security for your users.
Transparency and Control: Platform operators and users receive access to bespoke dashboards, real-time fund tracking, and automated settlements.
Use-Case Agnostic: Castler is used across gig marketplaces and supply chain networks to high-value real estate platforms, enabling a vast number of marketplace verticals.
Conclusion
As marketplaces remain the head of the digital economy, security and trust will be the cornerstones of their expansion. Escrow systems in marketplaces provide a robust, scalable means to make purchases secure, transparent, and compliant.
To new and incumbent platforms equally, implementing an escrow system is no longer a "nice-to-have" but a competitive imperative. And that is where Castler steps in.
By offering secure, flexible, and regulator-approved escrow infrastructure, Castler is redefining transaction trust in the digital age. Whether you’re launching a new gig economy platform or scaling a global B2B exchange, Castler is your trusted partner in building a safer, smarter financial ecosystem.
Written By

Chhalak Pathak
Marketing Manager