[News Terms] Will the Tmon and Wemakeprice Crisis Be Resolved by Introducing 'Escrow'?

E-commerce platforms TMON and WEMAKEPRICE have failed to settle payments to travel and distribution companies that have joined their platforms, causing damage to spread as travel products purchased by consumers for summer vacations are being canceled. On the 23rd, TMON and WEMAKEPRICE announced through a press release that they will introduce a new settlement system called ‘Escrow’ next month. However, it is uncertain when the situation will return to normal.

The settlement delay issue that started at Wemakeprice, an online shopping mall operated by Qoo10 Group headquartered in Singapore, is spreading to Tmon. On the 24th, citizens are passing by the Tmon building in Gangnam-gu, Seoul. Photo by Jo Yongjun jun21@

‘Escrow’ is a sales protection service where a third party mediates transactions when the credit relationship between the buyer and seller is uncertain. It is also called a ‘payment deposit system.’ It is mainly used in online transactions under the name ‘safe payment.’ Naver Pay Safe Payment is a representative example.

Payments through the escrow service go through several steps. First, when the buyer and seller agree to use escrow payment for a transaction, the seller provides the escrow account information to the buyer. The buyer deposits money into that account and then verifies whether the goods sent by the seller are normal. Once the buyer completes the verification and approves the purchase, the money deposited in the escrow account is finally transferred to the seller. If the buyer does not receive the goods or wants to return them, a refund is made immediately, preventing online transaction fraud damage.

This system has been implemented since April 2006 under the Electronic Commerce Consumer Protection Act (ECCA). This was because, with the activation of online transactions in the 2000s, cases of fraud where payments were made but goods were not received surged. Initially, the system was applied only to cash transactions over 100,000 KRW. Therefore, to sell goods over 100,000 KRW, communication sales businesses such as online shopping malls were required to mandatorily adopt escrow.

Later, according to the 2013 amendment to the ECCA, cash payments under 50,000 KRW also became eligible for escrow service protection. Accordingly, escrow is mandatorily applied to all cash transactions, and all communication sales businesses must apply for escrow services from their main bank and obtain a confirmation certificate. Credit card transactions or online lectures, webtoons, etc., which do not require delivery, are not subject to mandatory application, but escrow services can be used if desired.

iPhone X sale post listed on Junggonara.
[Photo by Junggonara]

However, as internet-based secondhand transactions have become active recently, fraud crimes impersonating ‘safe payment’ have surged, requiring special caution. Fraud methods are becoming increasingly sophisticated, such as inducing buyers to make payments through fake safe payment site links sent by sellers. According to statistics from the National Police Agency, the amount of damage from internet direct transaction fraud over five years from 2017 to 2021 increased annually: 17.5 billion KRW in 2017, 27.7 billion KRW in 2018, 83.3 billion KRW in 2019, and 89.7 billion KRW in 2020. In 2021, it soared to 257.3 billion KRW, nearly 300% compared to 2020.

Meanwhile, escrow has also been mentioned as a preventive measure against real estate jeonse deposit fraud. In February, Park Sang-woo, Minister of Land, Infrastructure and Transport, appeared on a broadcast program and said regarding this issue, “We will positively consider introducing escrow.” The real estate escrow system was introduced through the amendment of the Licensed Real Estate Agents Act (then Real Estate Brokerage Act) in 2001. However, it was a recommendation, not mandatory, and it did not become active due to fee issues and lack of awareness about the system. Although it has the advantage of preemptively blocking risks in real estate transactions such as false listings and double contracts, some voices argue that it is difficult due to the characteristics of the domestic jeonse system, which uses jeonse deposits as operating funds.