What’s the difference between Stripe Connect and paying my users out with the transfers API?
They both seem to be designed for marketplaces. What's the difference? Do they compete with each other?
Accepting payments on behalf of your users by using Stripe Connect or by collecting the payments in one account and paying out your users via API are indeed both intended to make accepting payments in a marketplace easy. However, they’re very different models in terms of how your payees get set up, how much control you have over the payout schedules, who is responsible for refunds and disputes, and more.
We’ve outlined some of the main points of differentiation between the two models below, but we’d be happy to help you out if you have any additional questions about which one works best for your business.
Stripe Connect is a simple and straightforward way for platforms to set up payments for their users without being directly involved in the flow of funds.
Collecting funds into one Stripe account and transferring funds via the API is intended for Stripe users who are providing some service or product for their customers, but need to be able to pay out third parties like sellers, vendors, or service providers.
Flow of funds
With Stripe Connect, you’ll send your users to Stripe in a co-branded flow that enables them to connect an existing Stripe account or seamlessly create a new one. They’ll then be redirected back to your site, and you’ll automatically have access to their Stripe account. When collecting customer payments, you’ll redirect the payments to your users' accounts via their respective API keys, and all transfers are automatically handled by Stripe.
You’ll have full API access to charge your users a transaction fee on top of Stripe’s fees (to be deposited in your own bank account) or refund payments, but you’ll never have to worry about being in the flow of funds or dealing with any extra accounting.
If you’d like to pay out your users yourself, you’ll first collect all of the payments in your own Stripe account. Your payees will likely never know about Stripe: they’ll submit their bank account details or a debit card number directly on your site, and you’ll have the ability to programmatically send them transfers to their bank account or a debit card via the API. This means you’ll have fine-grained control over what, when, and where you send money to from your Stripe account. However, this also means that you’ll need to keep track of how much you owe each of your users and trigger payouts explicitly.
With Stripe Connect, your users have a Stripe account, so they’ll have a direct relationship with Stripe: we’ll underwrite them, take care of sending them automatic transfers for the funds they’ve received, and handle issuing 1099-K forms. Your users will also have access to the full Stripe dashboard including reporting, analytics, and payment management functionality (though you’re welcome to provide your own dashboard for your users by pulling the data through the API).
Otherwise, you’ll have full control over your relationship with your users. You’ll vet and collect bank account details or a debit card number from individuals or businesses you’d like to send money to, handle payout schedules and customer support, and be responsible for sending them 1099-MISC tax forms, if necessary.
With Stripe Connect, the responsibility for refunds or disputes lies with your users and not with the platform (though, through the API, you have the power to take refund and dispute actions on behalf of your user). Your users should also have a direct relationship with their customers: their business name will appear on the credit card statements, and they’ll be ultimately responsible for refunds or disputes.
If you’re taking all of the payments into a single Stripe account, your platform will handle and is ultimately responsible for all refunds, disputes and customer support. It should be clear to your user that they’re paying you directly, and your business name will appear on your customers' credit card statements.
With Stripe Connect, your users in any one of our supported countries can seamlessly set up Stripe accounts to accept funds. As Stripe continues to expand internationally, you’ll instantly be able to accept payments for users in those countries as well.
Paying users out with funds from your Stripe account is restricted to the country you’re currently in (no cross border transfers). Sending transfers is US-only at the moment, and we can only currently support paying out to U.S. Visa or MasterCard debit cards.