Escrow.com President Brandon Abbey discusses Escrow.com and the challenges of starting an escrow company.
Big ticket domainers — and even smaller ones who want safe domain transfers — often turn to Escrow.com for domain name escrow services. The company was founded in 1999 by Fidelity National Financial, but has been privately held since May 2004. I’ve met Escrow.com president and managing director Brandon Abbey at a handful of domain name shows, and have always been curious how the company runs. In the interview that follows, you’ll see that the escrow business is highly regulated. Abbey will tell you (and he’s not joking) that the penalties for not running a tight ship are high: he’d go to jail.
DOMAIN NAME WIRE: It seems that more and more companies are offering escrow services for domains. What makes escrow.com different?
ABBEY: Escrow.com is an escrow company; most other companies offering domain escrow services are not licensed as an escrow company. We have very stringent requirements regarding how we manage our clients’ funds and personal property. All our employees have been through and passed a background check conducted by the California Department of Corporations (DOC). The DOC sets the requirements for bonding; we have a $4M bond. You will notice that some escrow companies do not offer services in California and Arizona. This is because they do not have the appropriate licenses. These companies are not subject to the same stringent regulations we are. If an unlicensed escrow company were to perform escrows for a California buyer or seller they would be in violation of the Financial Code. The potential penalty is a fine, not to exceed $10,000, imprisoned in county jail for up to a year, put in state prison or punished by both fine and imprisonment. Arizona penalties appear to be just as severe and Idaho also requires an escrow license. It is illegal for a California escrow company to earn interest on their clients funds. All money retained by Escrow.com is held in a non-interest bearing trust account at Bank of America. We have our books reconciled every month by one of the most respected accountancy firms in the country, Morton Alan Haas & Co. Funds belonging to our clients are safe.
DOMAIN NAME WIRE: How difficult is it to set up an escrow company? Tell me more about getting “licensed” to run an escrow service.
ABBEY: When the company changed hands in 2004 we did not have an Arizona license. The application process and requirements are not easily met. After much due diligence by the state we obtained application approval and our CFO, Escrow Manager and I flew to Arizona to meet with the Department of Financial Institutions. After an extensive review of our business practices and policies we were granted a license. The licensing entities have the right to conduct an onsite audit of your operation at any time. These audits are paid for by the escrow company including travel and lodging. The barrier to entry is getting higher, especially if you do it right.
DOMAIN NAME WIRE: Can you give me an idea of the volume of domain transactions you handle, either in dollar terms or number of domains? In many ways this is the “silent market” that doesn’t get reported on DNJournal.
ABBEY: This is not information we report. Many of our clients do not want to see their transactions in print. I can only remember a couple of times where both the buyer and seller asked me to verify their transaction publicly.
DOMAIN NAME WIRE: How many resources does Escrow.com commit to preventing fraud? What are some of the steps the company takes to make sure transactions do not involve fraud?
ABBEY: Everyone at Escrow.com is on the lookout for potential fraud. We have been involved in the reporting and takedown of well over a thousand fraudulent escrow websites. In 2007 the Internet Crime Complaint Center reported that there was close to $160M in losses for Internet auction related fraud. Most if not all could have been prevented if the victim used our service. We have built a very close working relationship with the FBI and have assisted them on numerous cases. We have a number of internal checks we go through when approving and releasing funds. Many of these checks are built into the system, but all transactions are reviewed manually by management before closing.
Given the volume of business Escrow.com rakes in from their “Domain Escrow Service”, I wonder if there are any plans to implement true domain escrow — that is where BOTH the funds AND the domain are held in escrow.
Escrow.com’s present system of holding just the funds until the WHOIS data changes is inherently broken and downright dangerous. A malicious domain seller need only change the WHOIS details to reflect that of the buyer while maintaining exclusive control of the domain in their registrar account. Escrow.com gets notified: “Transcaction complete!”. Funds are released, and now seller has both the money and the domain. No amount of previous government red tape protects the buyer from this scenario.
Assuming the buyer catches on to what is happening they could notify Escrow.com “I don’t have the domain!”. Now it’s the buyer’s word against the sellers (“Yes, they do!”). Uh, now what? Go to court to sort it all out? That’s what we pay an escrow service to avoid.
It seems to me that Escrow.com is charging for the illusion of a secure transaction, not the an actual thing. Until Escrow.com becomes an accredited registrar and begins securing BOTH funds AND domain before clearing a transaction, buyers might as well wire money blind and take the same transaction risks for free.
Does anyone really believe that the state of Arizona will help an individual domain name seller get his $200 for a domain name sale if the certified escrow company failed on his transaction? LOL.
We put our faith in companies reputations when we do business with them. These certification programs are just revenue sources for the states that require them and it is implausible that an international Internet service could comply with all the revenue-programs-disguised-as-public-safety in every jurisdiction in the world.
I love escrow.com but not because they got screwed by two of our fifty states.
@ Roger – I think the point is that it may be illegal to provide services for people in these states without the appropriate license.
@ Mode80 – the SELLER notifies Escrow.com that the transaction is complete, not the buyer. So the seller has to have control of the domain first. If they dispute that they have ownership, I’m sure Escrow.com steps in to take care of it. Have you ever heard of this happening to someone?
I agree it would be better if domains were pushed to Escrow.com first, but I don’t think it’s ideal that they become a registrar. They would just need to have accounts at various registrars. Transferring all domains to Escrow.com registrar would mean delays due to 60 day locks et al.
@Mode – Why would they need to become an accredited registrar? Couldn’t they just set up accounts at all the major registrars and rely on free pushes to their account? I also think Escrow.com needs to start taking possession of the domain.
Great interview Andrew.
The scenario I described actually happened to us — the seller changed the WHOIS details and pretended the domain had been delivered. Yes, Escrow.com stepped in and ultimately returned our funds. However, they basically took our word that we didn’t get the domain (based mostly on our long-time account history vs the seller’s newbie account status).
Still, if we had been the crooks, the seller would have got screwed. I don’t think “trust” should play a role in escrow where the whole point is to eliminate that factor.
We have and continue to use Escrow.com for many high dollar transactions, mostly as a buyer. I do it for the seller’s sense of security on the prayer that they won’t exploit the vulnerability I described. We could use Moniker, which does things properly, but unfortunately the non-domainers we buy from often don’t know Moniker. Escrow.com has the category killer name and the automatic trust that comes along with that. They should live up to the credibility of their good name by not taking shortcuts.
@ Mode80 – It’s worth setting the inspection period at a few days to protect yourself.
Perhaps Escrow.com could offer a feature like you describe as part of a different class of service for expensive domains.
“the SELLER notifies Escrow.com that the transaction is complete,not the buyer.”
I don’t agree with this Andrew.
The Seller notifies Escrow.com that HIS part
of the sale is complete.
The Buyer then also has to notify Escrow.com that the transaction is indeed complete.
At least that’s how it worked when I was the Seller.
“So the seller has to have control of the domain first.”
I believe you meant that the Buyer has to have control of the domain first. The Seller already has control.
The potential Escrow fraud scenarios described above seems to be exactly why EscrowDNS.com came into being. EscrowDNS receive the domain into their registrar account first and then transfer to the purchaser after the funds have been received. No chance for a dodgy seller or purchaser to fiddle with the Whois records making it look as if the transaction has been completed, or not. I’ve not yet used EscrowDNS, but it seems worth a look.
Agree with MODE80. Noth parties can cheat (seller change whois, claim he pushed or buyer change whois back to sellerand claim he did not get the domain)
@ Patrick – you are correct. I was busy working on the Toys.com story when I replied. I meant the buyer gets to say he received it.