Escrow payments on a resale marketplace mean that the marketplace holds the buyer's money until the item arrives as described, and only then releases it to the seller. Escrow means that a third party keeps money safely until both sides of a deal have done what they promised. Here, the marketplace is that third party.
Escrow solves a problem between strangers. If the buyer pays first, the buyer risks paying for an item that never comes, or comes broken. If the seller ships first, the seller risks never being paid. With escrow, the buyer pays the marketplace, not the seller. The seller ships, knowing the money is already there. The buyer checks the item, knowing the money can still come back.
Take, for example, a used camera lens. A buyer in Bhubaneswar buys it for ₹22,000 from a seller in Kolkata on a resale app. The buyer pays ₹22,000 through the app's payment gateway. The app holds the money and tells the seller that the payment is secured. The seller packs the lens and a courier collects it. Two days later, it is delivered, and a 48-hour inspection window starts. The buyer fits the lens on her camera, takes a few photos and taps "Item is as described". The app then releases the money. If its fee is 10%, the seller receives ₹19,800, and the app keeps ₹2,200. If the buyer had not responded within 48 hours, the app would have released the money anyway.
Now suppose the lens had arrived with a scratch that the listing did not mention. The buyer reports it within the 48 hours and uploads photos. The money stays on hold. A member of the app's support team compares the photos with the listing. If they agree with the buyer, the lens goes back to the seller, and the buyer gets a full refund.
Where is the money while it is held? In India, an app that collects payments on behalf of sellers must follow the RBI's rules for holding other people's money. The money is kept in a special bank account, and it is paid out to sellers through payouts. The page on split payments explains this account and how one payment is divided between the seller and the marketplace.
How is escrow different from cash on delivery? With cash on delivery, the buyer pays the courier at the door, but cannot check the item properly before paying. With escrow, the buyer can check it first. Escrow is one of the three ways in which recommerce builds trust between strangers.