1. What is a split transaction?
A split transaction occurs when a customer buys from more than one merchant on an online marketplace or software platform. Instead of making separate payments to each seller, the customer pays for everything in one payment.
Let’s reverse-engineer this:
At a brick-and-mortar shopping mall, you have several different stores in one building. However, there’s no central checkout counter that handles payments for all of the stores. Instead, you have to make separate purchases at each store you want to shop from. This works fine when shopping in person, as it’s a different experience.
When it comes to online shopping, the above approach would be extremely inconvenient and frustrating for the buyer. That’s why platforms that accept payments on behalf of multiple merchants need the ability to let customers buy from any of their merchants, with just one payment transaction.
Use cases for using split transactions
Split transactions are especially relevant for online marketplaces and software companies with multiple merchants selling on their platforms. Here are some specific examples.
There’s some famous marketplaces that use split transaction functionality you’re likely well acquainted with, including Amazon, eBay, and Etsy. When shopping at marketplaces like these, as far as the customer is concerned, they’re buying from “Amazon,” not making three separate transactions at Heather’s Electronics, Stephanie’s Kitchenware, and Richie’s Tees.
Another example is Doordash. While you’re ordering food from Nate’s Tacos or Kyle’s Pizzeria, and adding on a pick-up from Kam’s Groceries, from the customer’s perspective, it’s all handled through one Doordash transaction. The “splitting” of the consumer’s payment out to the three merchants happens behind the scenes.
Without split transactions, these companies wouldn’t be able to offer the convenient and seamless buyer experiences we all enjoy when using their platforms.
* If you’re a marketplace, or thinking about working with one, it’s important to keep in mind that there are many ways to structure payment fund flows for marketplaces. Some require registration with card networks, for example, so be sure and understand your payment needs when deciding which payment provider to work with.
Another use case is for software platforms that process payments for companies with multiple sellers or independent contractors. For instance, let’s say you’re a booking software company like Styleseat or Phorest that serves hair salons that rent booths to hairstylists.
The salon needs to be able to split a transaction from someone paying for hair services or products so it can pay itself, the stylists, and manage fees. To do this, your platform would need a payments provider that supports split transactions.
2. What is a split payment or split tender?
We’ve covered split transactions. And while it might sound the same, a split payment is something entirely different.
A split payment (also known as split tender) is when a customer uses two or more payment methods to make a single purchase. In this case, the purchase is split into different amounts or payment methods, but the funds go to the same seller.
Use cases for split payments
Split payments or split tenders are attractive to buyers as they can offer more flexibility and control over how they pay. For example, a customer could pay for a large purchase by putting a specified amount on their debit card and the remainder on a credit card.
Other popular use cases include diners splitting the check at a restaurant or when roommates make their payments from two separate bank accounts to cover the full amount of their rent.
3. What is a split payout?
Next, we have the term split payout. This one’s a little trickier as a few providers call their split transaction functionality split payouts. Others use it to describe a feature that lets you split a payment between multiple bank accounts—we won’t let you get caught in the confusion!
What we mean at Finix by split payouts is splitting settlements, which means you’re settling a group of transactions to different bank accounts belonging to the same company. A common application for this is when a company is using separate bank accounts for different departments. This way, they can track which transactions occur within those departments.
Use cases for split payouts
Split payouts or split settlements are used by businesses that facilitate payments for other businesses, or that want to have aggregated funds from certain transactions funneled to specific accounts within their own business. An example of this would be settling to different bank accounts for different departments.
4. What is split pay?
To add to the confusion for businesses searching for a specific “split-a-something” functionality, there’s also split pay. This term is most commonly used for creators who split royalty payouts.
Use cases for split pay
A good example of this would be a platform that caters to music artists. When artists collaborate, they set up royalty splits in advance. Split pay functionality funnels the funds to the individual contributors once royalties start coming in.
This is not a common use case for software platforms, marketplaces, or PayFacs that embed payments into their products. But as the saying goes, knowledge is power. The more informed you are about payments, the easier you can find the solutions you want and need.
How split transactions work: The technical side
Each payments provider has its own approach to splitting a transaction.
Here’s the gist:
With split transactions, the buyer’s card is typically authorized for the entire purchase amount. Once the transaction is captured, the payment platform calculates what each merchant is owed, deducts any processing and/or platform fees charged to each merchant, and then pays them individually. This works whether the buyer bought something from two merchants or 100.
How this is accomplished boils down to the provider’s payments API.
At Finix, you can easily configure our API to split the funds of a transaction among any active merchants. And you don't have to change any other API configurations to do it.
Once split transactions are enabled, anytime a customer makes a purchase involving two or more merchants, the API splits the funds of the transaction among the specified merchants based on the details used to create the transaction.
If you want to learn more about the nitty-gritty details, visit our Split Transactions documentation.
Split features available at Finix
Finix offers a robust suite of payment features designed for building optimal experiences for your business and your buyers or merchants. Along with payment processing and standard payout services, we support:
Split Transactions for software platforms and marketplaces.
Split payout functionality, which lets you send settlements to different bank accounts within the same company or bank accounts belonging to different businesses you work with. This is also sometimes referred to as “multiple account settlements.”
Split payment terms explained
Now that you know more about all the “split this, split that” terminology, it’s easy to see how using these terms interchangeably can cause confusion. The TL;DR of it is this. With split transactions, consumers can purchase from multiple merchants at a time and pay for everything in a single transaction.
Where the most confusion comes in is when people use the term split payments, split payouts, or split pay, when they really mean split transactions, or vice versa. A split payment (aka split tender) is when a customer pays for a single purchase with more than one payment method or when two people split one bill. Split payouts refer to payments dispersed between multiple merchants or bank accounts, while split pay usually refers to royalty splits.
To learn how split transactions work at Finix and how our functionality can help your business manage payments more effectively, fill out the form below:
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