It’s used to buy and sell everything that’s “complex and expensive”, from boats and planes to space station tickets, gemstones and exotic animals.
But despite processing more than $5.6 billion in deals, including the sale of some of the internet’s biggest domain names including Twitter, Gmail and Instagram, it’s the “biggest fintech you’ve never heard of”.
Matt Barrie reckons they “should have added a few zeros” to the $10 million sale price of little-known US website Escrow.com when he snapped it up three years ago.
Escrow.com, as the name suggests, provided online escrow services for e-commerce platforms by holding payment between buyer and seller until a transaction is completed.
Its commercial partners include Shopify, GoDaddy and AutoTrader.
It was started in 1999 by US mortgage services firm Fidelity National Financial, which traded it to software company iLumin three years later. In 2004, it was acquired by a California-based private investor who sold it to Freelancer.com in early 2016 for $US7.5 million.
“It was a bargain,” says Mr Barrie, Freelancer’s founder and chief executive, who says the purchase was a combination of “luck and timing”.
“(They) should have added a few zeros. It’s an incredible business, and it’s literally a business no one’s ever heard of,” he said.
At the time it was acquired by Freelancer, Escrow was processing $US430 million worth of payments. Last year it processed $US571 million, a 33 per cent increase on the previous year. To date it has processed more than $US4 billion.
Freelancer has spent the past three years “rebuilding and modernising” the website, which launched in Australia a few months ago.
“It’s a payment system. You can think of it in some ways like PayPal, but Escrow is used to sell things that are very complicated and expensive,” Mr Barrie says.
“Boats, cars, jewellery, sculpture, fine art, robotics equipment, animals, import-export. If you want to bring in 20 tonnes of alfalfa on a shipping container you can do it through Escrow.”
Today the company employs 72 people in five countries, mainly located in Australia but with its headquarters in San Francisco and offices in London, Buenos Aires and Manila.
Escrow gives both sides peace of mind by putting funds into trust with a third party, just as when buying and selling real estate.
“We’ve got 47 financial services licences around the world,” Mr Barrie says.
“It’s a very complicated business to run. The benefit from a seller’s perspective is you never have a chargeback or reversal because it goes into trust.”
Depending on the industry vertical, the site offers “value-added services like post-inspection adjustments”.
“For example, if you want to bring in 50 shipping containers from China but you’re worried about the quality of the product, we bring goods in and inspect. If there’s a defect rate above a certain amount (we can make a payment adjustment).”
Mr Barrie says Escrow doesn’t “really” have any direct competitors.
“The way you typically do things is go to a bank and arrange a letter of credit, or go to a lawyer to draft up an agreement and set up a trust account,” he says.
“Typically import-export uses a letter of credit. This is so much simpler.”
Since launching, however, Escrow’s biggest money-spinner has been its domain name business.
“In the domain name space we have a phenomenal presence, almost a monopoly I’d say,” Mr Barrie says.
“SpaceX.com, Twitter.com, Uber.com, Instagram.com, Gmail.com, Chrome.com, Prime.com just sold to Amazon and so forth. The domain name industry is going gangbusters.”
Buying and selling multimillion-dollar domain names can be a complicated process. “Sometimes you might have four different brokers (involved in the sale of a) $20 million domain name,” he says.
Escrow’s fees depend on the industry, but on average it takes about 1.45 per cent.
Fees range from 35 basis points for something like an aircraft to 1-2 per cent for a domain name, up to 3 per cent for a retail customer selling a wedding dress.
Mr Barrie says there is a lot of innovation in the payments technology space but “most of it around buying and selling cups of coffee”.
“Facial recognition, tapping your phone, maybe borrowing some money,” he says. “Most of the PayPal variants (are developed by) 20-year-olds, and that’s their experience. But this is for serious payments.”