Split payments occur when a transaction is divided between multiple payment methods or split among multiple people. This can mean using two credit cards to cover a purchase, paying partially with cash and partially with a card, or splitting the bill between friends at a restaurant. In business, it can also refer to when payment processors divide a transaction between multiple recipients, such as automatically routing funds to different sellers in an online marketplace.

Below, we’ll cover the different types of split payments businesses typically encounter, how to set up split payment processes, and how working with Stripe Connect can help businesses overcome common hurdles.

What’s in this article?

• How are split payments used in business?
  
• How to set up split payments
  
• Pros and cons of working with split payments
  
• How does Stripe Connect simplify split payments?
  
• How Stripe Connect can help
  

How are split payments used in business?

Businesses that rely on split payments might be dealing with multiple payers, multiple sellers, or multiple payment methods from a single customer. Here are some situations where businesses might handle split payments:

• Multiple payers: A group at a restaurant, roommates sharing a streaming subscription, or a team splitting a software plan all involve multiple payers for a single bill.

• Multiple payees: Marketplaces such as Amazon and eBay, gig work through platforms such as Uber and DoorDash, affiliate programs, and booking sites all include multiple parties taking a cut from a single purchase.

• Multiple payments: Some customers prefer to pay off purchases in installments or to mix payment methods, such as using a gift card and then a credit card for the remaining balance. In this way, businesses that accept split payments can close more sales.

How to set up split payments

To implement split payments for an online marketplace, you need to coordinate the flow of funds between buyers, sellers, and your platform. Here's how to approach it:

Map out the money flow

Identify who gets paid, when, and how much. This includes sellers, your platform's cut, and any third parties.

Choose your payment architecture

From there, you have two paths:

• Use a payments provider that supports split payments, such as Stripe, which handles multiparty transactions natively.

• Build it yourself using a standard payment processor and managing payouts manually. Be prepared to handle reconciliation, tax reporting, and potential regulatory requirements.

These are some considerations you can either automate through a provider such as Stripe Connect or handle manually:

• Paying out third parties (e.g., sellers, freelancers, or service providers): You’ll need to verify their identity, collect tax information, and ensure compliance with local financial regulations. This means collecting W-9s or W-8 BENs in the US or other relevant tax documents, depending on where your business and users are based.

• Setting payout timing: Some businesses hold funds for a set period to prevent fraud, handle refunds, or manage cash flow, while others will offer instant payouts for a fee. Your goal should be to balance user expectations with your own risk and cash flow needs.

• Deducting commissions: If your business takes a cut, you’ll need to deduct commissions before sending out the remaining payouts. If you’re handling this manually, you’ll need to build logic into your payment flows.

• Managing refunds: When a customer requests a refund, you’ll need to pull funds proportionally from each recipient.

Pros and cons of working with split payments

Implementing split payments comes with technical and operational obstacles. Businesses that offer them need to monitor the following:

How does Stripe Connect simplify split payments?

Stripe Connect removes the usual challenges of handling split payments with a structured, API-driven way to move money between multiple parties. Stripe Connect has processed more than $1 billion across 95 different platforms. Here’s how it works:

• Native multiparty payments: Some payment processors assume money moves in a straight line from buyer to business. Stripe Connect is built for more complex flows, such as splitting a transaction between sellers, platforms, or service providers in real time. Businesses can set up automatic revenue splits at checkout instead of handling it manually later.

• No need for transmitter registration: Businesses transferring money between third parties often have to register as money transmitters, which involves a significant amount of legal and compliance work. With Stripe Connect, Stripe is the financial entity handling the transfers, so businesses can process split payments without taking on that regulatory burden.

• Integrated refunds and chargebacks: Generally, if a customer requests a refund or files a dispute, businesses have to contact individual sellers or service providers to return their portion of the funds. Stripe Connect automatically pulls back the correct amounts from each party.

How Stripe Connect can help

Stripe Connect orchestrates money movement across multiple parties for software platforms and marketplaces. It offers quick onboarding, embedded components, global payouts, and more.

Connect can help you:

• Launch in weeks: Use Stripe-hosted or embedded functionality to go live faster, and avoid the up-front costs and development time usually required for payment facilitation.

• Manage payments at scale: Use tooling and services from Stripe so you don’t have to dedicate extra resources to margin reporting, tax forms, risk, global payment methods, or onboarding compliance.

• Grow globally: Help your users reach more customers worldwide with local payment methods and the ability to easily calculate sales tax, VAT, and GST.

• Build new lines of revenue: Optimize payment revenue by collecting fees on each transaction. Monetize Stripe’s capabilities by enabling in-person payments, instant payouts, sales tax collection, financing, expense cards, and more on your platform.

Learn more about Stripe Connect, or get started today.