Escrow services are intended to ensure security by acting as a middle-man in transactions where the two parties do not trust each other. Rather than sending money or goods directly to the other party (which is insecure, as one or other party must send their item first, at the risk that the other party may not then send theirs), one party sends their items (usually money) to the escrow service, which holds them until the initial sending party receives their item, then sends the items on to the recipient party. If either party fails to deliver their part of the deal, the other party's item will be held at the escrow service and eventually returned to them.

As with traditional Escrow, Internet escrow works by placing monies in the control of an independent and licensed third party in order to protect both buyer and seller in a transaction. When both parties verify the transaction has been completed per terms set, the monies are released. If at any point there is a dispute between the parties in the transaction, the process moves along to dispute resolution. The outcome of the dispute resolution process will decide what happens to money in escrow.

Major shortcomings of the traditional escrow firms that have tried to service the Internet trade is their reliance on the expensive pricing model based on traditional escrow, a poorly defined process for making sure that buyer and seller separated by large geographical distances are in agreement, and a lack of web-based dispute resolution. With the growth of high value transactions on the Internet, new services have been developed to replace traditional escrow with a more complete solution. Companies like Safefunds.com have developed total systems to allow buyers and sellers to create transactions, deposit funds, protect the funds, settle the transaction, and resolve any disputes without intervention. The new total systems are more economical because of a pricing model that considers the automated process.