Big question. Let’s break this down. Let’s start with “What is Escrow?” then move on to “What is Infrastructure as a service?” and finally we’ll discuss how the combination of the two is going to revolutionise the way transactions are made - especially in markets like construction and delivery where in 5 years time it will be the standard way to pay and protect yourself.
Escrow is where a buyer will guarantee a transaction is made by paying a trusted third party first who holds the funds until the seller has completed the job. This ensures that money will only be released to the seller once both parties reach consensus and also ensures that sellers do not go unpaid if they fulfill their end of the deal. In this process, both parties are also fully verified to make sure that you aren’t transacting with a criminal or potentially a dog!
However, despite being an ancient way to pay, only recently have everyday consumers started using it. This is because historically escrow was restricted to payments made via lawyers with slow processing and, as you can imagine, exorbitant costs, therefore restricting escrow to very large transactions like house purchases. At trustshare, we have built out the infrastructure layer for new entrants to unlock the ability for smaller online transactions to be handled via escrow.
To market escrow well you need a lot of “trust capital”. Consumers first need to know you and next need to trust you to handle their money and not run away with it. They also want reassurance that you understand their market and will do the right thing. It’s very difficult for regulated escrow firms to combat this because they are relatively unknown to the general public.
This comes onto our next point: “What is Infrastructure as a service?” Infrastructure as a service is a type of offering where a company provides the core building blocks of a service but allows its clients to combine these into brilliant end products that perfectly fit their markets’ respective needs
Why is this important in the escrow market?
1. Trust Capital
Escrow is currently not offered by firms with a lot of industry trust capital. Consumers want large household name brands or industry leaders safe-guarding their transactions, rather than relatively unknown escrow providers.
2. Market knowledge
Consumers want their escrow providers to have extensive market knowledge in their particular industry to answer questions and make balanced judgements. For example, trade associations and consumer bodies are well suited to do so, generic escrow providers are not.
3. Product-market fit
The process of buying a car from a private seller is completely different to running a multi-stage housing development which in turn is almost the polar opposite of handling last mile delivery. An infrastructure as a service offering allows the businesses in the know to build a product perfect for that particular use case. Think multi-stage payments, QR code driven dispute handling or car history guarantees.
Escrow will soon be the gold standard way to pay in multiple markets - especially the construction industry (in a similar vein to how Klarna’s buy now, pay later method of payment has become mainstream in the fashion industry). However, the gap to bridge is to work with key players in each industry to allow them to leverage their trust capital, reputation and network for large commercial upside. The commercial opportunity here is huge - some of our clients are increasing their total revenue by 300% per member for every transaction made and several other companies have launched from scratch off our infrastructure.
Trust and network effects are the two most important assets modern day platforms can have. When Andreessen Horowitz says that “every company is going to become a Fintech company”, we believe that escrow will be a key mechanism to facilitate this by providing the world with trustless transaction frameworks.