Split Payments Defined (part two)

The concept of split payments is kind of like cc-ing someone in an email, but with a payment. Unlike being copied on an email that allows everyone to view the entire email, a split payment is divided into parts with no single recepient ever receiving the whole thing. The receiving fees due to PayPal would be shouldered proportionally by all recipients, charging each recipient for only the portion of the payment he received.

Currently, splitting payments using PayPal cannot be done. Today a payment must be deposited into a single account before it can be redistributed. For example, if you were to build a payment application on top of PayPal’s platform, and your application required an incoming payment to instantaneously pass through your account before it ended up in a secondary account, it could easily cost over six percent of the payment. Fees this high prevent entrepreneurs from building atop PayPal.

The reason I like the idea of split payments so much, and hope PayPal will someday provide it, is because split payments could support a ton of innovation. With split payments, entrepreneurs could take the PayPal toolkit into new and interesting directions, outside of traditional e-tail applications. Meanwhile, PayPal could stay focused on the big picture of building transaction volume while the leaving the details of product innovation to a community of highly motivated entrepreneurs.

So, what can be done now? I was discussing this topic recently with a friend at PayPal, who passed on an interesting hack that comes close to working like split payments and might be the best way to go.

Using mass payments, it would be easy to write a script that would instanly split a payment between multiple PayPal accounts. Here’s how it would work. A parent account would receive the initial payment and then instantly initiate a mass payment to one or more child accounts. Mass pay is the most affordable way to currently split payments using PayPal, but it’s still not cheap. The fees are paid by the sender of the payment which is contrary to way PayPal’s fees are typically calculated.

Note: Be sure to check out this comment from PayPal’s Dave Nielsen. Dave provides some additional details on how to execute the split payments hack. Thanks Dave!

One Response to “Split Payments Defined (part two)”

  1. Dave Nielsen Says:

    Great description of split payments. Using Mass Pay with Website Payments Pro (Direct Payment API and Express Checkout) would be pretty straight forward because both use SOAP-based Web Services. You might add that IPN or PDT would be needed for real time split payments using Website Payments Standard.

    http://www.paypal.com/pro
    http://www.paypal.com/standard
    http://www.paypal.com/sdk

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