Different business models have different needs when it comes to managing payments. If you run a platform business, or you’re thinking of starting one, you’ll want to know how payments for platforms work. We covered the basics in a previous post about key payment features for platforms. Now, we’re going one step further with a specific focus on split payments for B2B platforms.
In this post, we explain how split payments for B2B platforms work. We also discuss the two primary payment models for B2B platforms, including the pros and cons of each.
What is a B2B platform business?
A platform is a business model that facilitates exchanges between groups. Many platforms are B2C, meaning they facilitate exchanges between businesses and consumers. Airbnb and Uber are popular examples of B2C platforms.
B2B platforms run on similar principles but facilitate exchanges between businesses. Obee is an example of a B2B platform business model. Obee is a reservation, table and waiting list management system for restaurants. Obee facilitates payments from restaurant customers for reservation security or gift vouchers. Payments are then distributed to the restaurants, minus platform fees.
How platform payments work and which model to choose
There are three main parties or groups in a B2B platform business – the owner, merchants, and customers. In the Obee example, Obee is the platform owner, the restaurants are merchants, and the customers are the end users (the merchant’s customers).
In order to manage payouts and fees, platforms require a system that allows them to split payments between merchants. This can be done using one of two common payment models – the referral account model (which Obee uses) and the platform payout model. We discuss these in detail below, so you can choose the best split payment model to suit your B2B platform business.
Model 1 – Referral account model
In the referral account model, each merchant has their own payment account. When a customer makes a payment on the platform, it is processed on the merchant’s payment account. From there, funds are settled directly to the merchant’s bank account.
How this works on Pin Payments
- The platform owner integrates their platform with Pin Payments once (they do not need to sign up for an account)
- Each of the platform’s merchants signs up for their own Pin Payments account
- When the platform refers a new merchant, Pin Payments takes care of the onboarding process, ensuring all KYC AML compliance requirements are met
- The merchant manages their own payments via the Pin Payments dashboard
- Reduces risk to the platform owner, as each merchant is responsible for their own account and the flow of funds
- Reduces compliance costs by outsourcing merchant onboarding to Pin Payments
- Creates a potential new revenue stream, as platform owners can set a fee for each transaction (eg: Obee charges restaurants a fee for each payment made on the platform)
- Does not require a lot of development work or resources to integrate
- May not suit platforms which require complex payout schedules
Model 2 – Platform payout model
In the platform payout model, all customer payments are processed in an account owned by the platform. The platform distributes funds to merchants, according to logic built into their platform.
How this works on Pin Payments
- The platform owner signs up for a Pin Payments account
- Each merchant is represented as a ‘recipient’ in the platform’s account
- The proceeds of transactions (minus fees) are paid to the platform’s account
- Business logic in the platform determines when and how much funds to transfer to a recipient (merchant)
- Merchants must complete the KYC AML verification process before funds are released
- More flexibility for the platform owner to split payments based on their needs
- Merchants aren’t required to manage their own payment account
- Popular among platforms servicing a single industry, where proceeds of transactions need to be shared between multiple beneficiaries
- Requires more up-front development work than the referral account model
- Higher risk for platform owners, as they are responsible for KYC AML compliance being completed, plus exposure to chargebacks
- Need for platforms to build software functionality for merchants, as merchants don’t have access to a Pin Payments dashboard
Talk to Pin Payments about split payments
Choosing the right payment model is essential for minimising risks and costs. It ensures split payments are processed smoothly (which keeps merchants happy, too). If you’re unsure about which split payment model best suits your B2B platform, contact Pin Payments for support.