Often, individuals choose to use escrow services when purchasing online. This is particularly true when large amounts of money are exchanging hands through an online auction or when the seller is unknown to the buyer. Essentially, an online escrow service holds the buyer's payment, releasing it to the seller only after confirmation that the buyer received what he or she agreed to purchase. Frequently, the buyer is allowed an inspection period as well.

Online escrow services sometimes act as referees during disputes over merchandise or services. If a buyer is unsatisfied with his or her purchase or some other dispute arises, an escrow service may work to help the buyer and seller reach a resolution before the service releases money to the seller. If no acceptable resolution is reached, the seller does not receive the money held in escrow and the buyer must return the merchandise.

Fees charged by online escrow services are frequently higher than those charged by online payment services. This is due to the fact that most online payment services simply process payments and afford little or no protection again the misrepresentation of merchandise for sale. Additionally, since such services typically forward payments to the seller right away, an unscrupulous seller could simply disappear without ever forwarding the purchased items.

Though many escrow services are legitimate, there are bogus services that accept escrow money and disappear with it. To avoid such trouble, be sure to use a licensed escrow service and check with the Better Business Bureau for negative reports about the company you plan to use. Additionally, many online auctions provide references for escrow services that are considered legitimate and safe to use.