Making the payment process as easy as possible is crucial for success as a business. 22% of abandoned carts occur simply because the checkout was too complex. So, ensuring seamless transactions can make or break the customer experience. That’s where Payment Service Providers (PSPs) come in.

PSPs simplify the payment process, helping businesses accept payments securely and efficiently. Among the big players in this space are Stripe and Stripe Connect, both under the Stripe payments brand.

Understanding Stripe and Stripe Connect

What is Stripe?

Stripe is a payment processing powerhouse. It’s a comprehensive payment solution designed to handle payments for businesses of all sizes, from small startups to enterprise-level companies. With Stripe, you can accept payments online, in-person, and even through apps, for the ultimate user experience.

Developers and tech-savvy businesses especially love Stripe because it offers extensive APIs that let you customize the platform to suit your needs.

Key features of Stripe accounts include:

• Accept payments through credit cards, debit cards, digital wallets like Apple Pay and Paypal, and other payment methods—and in multiple currencies to expand your business internationally.

• Payment gateway to accept online payments.

• Manage recurring payments with ease, making it ideal for SaaS businesses or membership programs.

• Automate invoice generation and payment tracking for smooth cash flow.

• Issue refunds.

• The Stripe dashboard provides data insights.

• Fraud prevention measures that help reduce chargebacks and provide use authentication.

• Customer support and a variety of account types, such as a standard account or a custom account for larger businesses.

Stripe is user-friendly, flexible, and adaptable, making it an excellent choice for businesses with relatively straightforward payment needs.

What is Stripe Connect?

Stripe Connect is essentially the Stripe payment system with add-ons, tailored specifically for platforms that need to process payments for multiple parties. If you’re running a marketplace, gig economy platform, or a SaaS platform that facilitates transactions between users, Stripe Connect is what you’re looking for.

Unlike standard Stripe, a Stripe Connect account goes beyond simple payment processing. It’s designed to handle complex transactions like splitting payments among multiple parties or managing compliance for marketplace users.

Stripe Connect’s additional features include:

• Streamline and split payments between sellers, service providers, and your platform effortlessly.

• Control how and when funds are distributed to users on your platform. Choose, for instance, if you want to provide instant payouts.

• Built-in compliance management tools for KYC (Know Your Customer), AML (Anti-Money Laundering), and tax reporting.

• Scalability through APIs.

Stripe vs. Stripe Connect: How to Choose

Let’s break down some key areas and provide insight on why you may want to choose one platform over another in that scenario. 

Target Users and Use Cases

Stripe is best for businesses operating as single entities. Examples include online stores and brick-and-mortar businesses.

Stripe Connect, on the other hand, is built for platform-based businesses. Think marketplaces like Etsy, gig platforms like Uber, or SaaS products like subscription management tools.

In short, Stripe works great for businesses that manage their own payments, while Stripe Connect caters to those managing payments for others.

Features and Functionalities

Stripe core features are payment processing, recurring billing, and invoice automation. It’s a straightforward payment platform.

Stripe Connect’s added functionalities take Stripe’s core capabilities and layers on features like:

• Splitting payments among multiple parties.

• Managing compliance requirements for users.

• Custom payout schedules that suit your platform’s unique needs.

Pricing and Fees

Stripe charges a standard processing fee (e.g., 2.9% + 30¢ per transaction in the U.S.) for payments made through its platform. This straightforward pricing works well for most small to medium-sized businesses.

Stripe Connect adds extra fees on top of Stripe’s standard pricing. These fees depend on the specific features you use, such as marketplace payments, compliance tools, or customized payout structures. For example, a marketplace using Connect might pay an additional fee per transaction to cover the added complexity of multi-party payments and compliance. 

Compliance and Regulatory Support

Stripe ensures all businesses using its platform meet basic compliance requirements, like PCI compliance for secure payment processing.

Stripe Connect goes further by offering tools to handle more complex regulatory and fraud prevention needs. This includes:

• KYC (Know Your Customer): Identity verification of your platform users.

• AML (Anti-Money Laundering): Preventing fraudulent or illegal activity.

• Tax management: Assisting with tax reporting and withholding where necessary.

• For businesses operating in heavily regulated industries or across multiple countries, Stripe Connect’s compliance tools are a game-changer.

Scalability and Flexibility

Both Stripe and Stripe Connect are highly scalable, but Stripe Connect’s API offers more flexibility.

Pros and Cons

Now let’s break down the pros and cons of each software platform clearly.

Pros of Using Stripe

• Easy to set up and use, even for non-technical users.

• Cost-effective for smaller businesses with straightforward payment needs.

• Stripe’s APIs are powerful and allow developers to create custom integrations and workflows.

Cons of Using Stripe

• Not ideal for businesses needing to split payments between users.

• Lacks compliance tools like KYC or AML.

Pros of Using Stripe Connect

• Built for marketplaces, SaaS platforms, and gig apps.

• Handles complex regulatory requirements seamlessly.

• Offers customizable payouts that work for your platform’s business model.

Cons of Using Stripe Connect

• Requires more setup and technical expertise than standard Stripe.

• Comes with additional costs.

• Offers a variety of features some business models will simply never use.

Deciding Between Stripe and Stripe Connect

Still unsure which one is right for you? As you go into the decision-making phase, the questions you need to answer to choose between these platforms are:

• Do I need to split payments between multiple users?

• Is compliance (like KYC and tax management) a major concern for my business?

• Do I have complex payout schedules or multi-party payment needs?

If you answered “yes” to any of the above, Stripe Connect might be the better fit.

Case Studies

Example 1: DoorHub

DoorHub, a distributor of commercial door hardware, partnered with Stripe to launch a custom ecommerce platform offering over 1.1 million customizable SKUs. Leveraging Stripe’s Payments API and PCI-compliant processing, the platform ensures secure, seamless transactions while saving over $100,000 in compliance costs and four months of development time.

Example 2: ShareTribe

Sharetribe enables fast marketplace creation, powering over 1,000 businesses in 50+ countries. With Stripe Connect, Sharetribe provides seamless user onboarding, secure transactions, and compliance across global markets. Stripe’s developer-friendly API allowed Sharetribe to integrate complex marketplace functionalities—like holding funds, deducting commissions, and delaying payouts—in just one month with a single developer. 

FAQs

What are the main differences between Stripe and Stripe Connect?

The biggest difference lies in their target users and functionality:

• Stripe is designed for single-entity businesses like e-commerce stores, subscription services, or physical shops. It focuses on straightforward payment processing and billing tools.

• Stripe Connect, on the other hand, is tailored for platform businesses, such as marketplaces, SaaS companies, or gig economy apps. It offers advanced features like multi-party payments, compliance tools, and customizable payout schedules, making it ideal for businesses managing transactions for multiple users.

Can I switch from Stripe to Stripe Connect as my business grows?

Yes, you can transition from Stripe to Stripe Connect as your needs evolve. Many businesses start with Stripe for its simplicity and cost-effectiveness, then upgrade to Connect when they require more advanced features like managing payouts for multiple users or handling compliance requirements. Switching does require some setup and technical work, especially to integrate Connect’s APIs, but Stripe’s support team can assist with the transition.

How do fees compare between Stripe and Stripe Connect?

• Stripe’s Fees: Standard Stripe charges a transaction fee of 2.9% + 30¢ per successful card payment (in the U.S.). Additional fees apply for features like currency conversion or advanced fraud protection.

• Stripe Connect’s Fees: Connect adds fees for its advanced functionalities, such as:

  • Per-user charges for managed accounts.

  • A percentage or fixed fee per transaction for multi-party payments or platform services.

  • Additional compliance and regulatory tools.

Is Stripe Connect necessary for a SaaS business?

Not always. The necessity of Stripe Connect for a SaaS business depends on the business model:

• If you’re managing payments only for your own subscriptions or services, standard Stripe is sufficient.

• If you’re a SaaS platform facilitating payments between users (e.g., a platform where clients pay service providers), Stripe Connect is essential. It enables you to manage user payouts, handle tax and compliance, and split payments effectively.

How does Stripe Connect handle compliance and security?

Stripe Connect offers built-in tools to simplify compliance and ensure security:

• KYC (Know Your Customer): Verifies the identity of your platform users, ensuring compliance with financial regulations.

• AML (Anti-Money Laundering): Prevents illegal or fraudulent transactions on your platform.

• Tax Management: Handles tax reporting, withholding, and filings, reducing the burden on your platform.

• PCI Compliance: All Stripe products, including Connect, ensure secure payment processing with industry-standard encryption.

These tools are especially valuable for marketplaces or platforms operating across borders or in heavily regulated industries.

Does using Stripe Connect impact my customers’ payment experience?

No, using Stripe Connect doesn’t change the payment experience for your customers. They’ll still enjoy a seamless checkout process, regardless of whether you’re using Stripe or Stripe Connect. The differences are behind the scenes, with Connect handling multi-party payments and regulatory requirements for your platform.

Conclusion

At the end of the day, the choice between Stripe and Stripe Connect depends on your business model. 

Whatever your choice, both platforms are built to scale with your business, ensuring you’re set up for success as you grow. Take some time to evaluate your specific needs, and you’ll be well on your way to choosing the perfect PSP for your business.