Risk and liability management with Connect

Learn how to manage risk and liability for your SaaS platform or marketplace.

One of the most important considerations when planning your Connect integration is how to handle risk and loss liability. You need to understand your business’s sources of risk and take steps to prevent and mitigate losses. As a Connect platform, you also need to determine how to handle the risk of losses associated with your connected accounts. Depending on your business model and the payment types you use, your platform can take responsibility for losses incurred by your connected accounts, or you can assign that responsibility to Stripe.

Connect platform risk options

Negative transactions such as refunds and chargebacks can cause a connected account’s Stripe balance to become negative. Negative transactions apply to balances according to whether the associated payment was a direct or indirect charge:

Direct charges occur on a connected account, so negative transactions for direct charges affect the connected account’s balance. SaaS platforms typically use direct charges.
Indirect charges occur on the platform, so negative transactions for indirect charges affect the platform’s balance. Marketplaces typically use indirect charges.

Stripe attempts to apply negative transactions against future payments, but in some cases, a negative transaction can cause a balance to become negative. Your platform is always responsible for its own negative balances. However, responsibility for connected accounts’ negative balances can belong to your platform or to Stripe, depending on your integration.

If a connected account’s balance becomes negative, Stripe attempts to offset the negative amount by collecting funds from the account’s external account. If your platform is responsible for negative balances, Stripe also holds funds in your platform account in reserve, pending collecting the funds from the connected account. In that case, if a connected account’s balance remains negative for 180 days, we transfer funds from the platform reserve to cover the negative amount.

If Stripe is responsible for negative balances, we don’t transfer funds from your platform balance to cover negative balances on your connected accounts.

Marketplace liability

Connected account balance liability applies only to connected account balances. It doesn’t affect negative platform balances caused by transactions related to indirect charges. If you use indirect charges, assign negative balance responsibility to your platform, not to Stripe. Assigning responsibility to Stripe doesn’t absolve your platform of responsibility for its own balance.

Negative balance responsibility

Responsibility for negative balances affects many other configuration options and behaviors. Consider them carefully when designing your integration:

	Stripe is responsible	Platform is responsible
Losses	Stripe covers losses due to your connected accounts’ negative balances.	Your platform can incur losses due to your connected accounts’ negative balances.
Payment fees	Stripe can collect payment fees directly from connected accounts or from your platform.	Stripe collects payment fees from your platform.
Operational responsibilities	Stripe’s risk teams manage all payments-related merchant risk. Your platform can take advantage of Stripe Managed Risk, which automatically monitors risk signals and applies risk interventions.	The platform manages all payments-related merchant risk. You can’t use Stripe Managed Risk.
Reserve funds	Stripe doesn’t hold reserves on your platform account to cover negative connected account balances.	Stripe might hold reserves on your platform account to cover negative connected account balances. Your platform can hold reserves on connected account balances.
Connected account experience	Your connected accounts can use the full Stripe Dashboard, but not the Express Dashboard. Stripe directly contacts your connected accounts to prevent, mitigate, and resolve payments risk-related issues, and in some cases can take action against them.	Your connected accounts can use the Stripe Express Dashboard, but not the full Stripe Dashboard. Your platform has a greater degree of control over the payments risk-related experience of your connected accounts.
Payment and payout pauses	You can’t pause payments or payouts for your connected accounts.	You can pause payments or payouts for your connected accounts.
Connected account debits	You can’t directly debit connected account balances.	In certain regions, you can debit funds from your connected accounts.
Know Your Customer (KYC) requirements	Stripe is responsible for collecting KYC information from your connected accounts.	Your platform is responsible for collecting KYC information from your connected accounts unless they use the Stripe Express Dashboard.
Stripe fees	If you pay Stripe’s listed prices for other fees, we don’t charge additional fees for negative balance liability.	Stripe charges no additional fees.
Banking as a Service	Your platform can’t use Treasury or Issuing.	Your platform can offer Treasury and Issuing features to your connected accounts.

Identify negative balance responsibility

You can identify whether Stripe or your platform is responsible for a connected account’s negative balances by examining its properties. The specific property you need to check depends on the version of the Accounts API:

Accounts v2: defaults.responsibilities.losses_collector (To retrieve the defaults hash, you must specify defaults in the include parameter.)
Accounts v1: controller.losses.payments

In both versions, if Stripe is responsible, the value is stripe, and if your platform is responsible, the value is application.

Components of payments risk

Any approach to risk management involves many potential sources of payments risk, in two general types:

Transaction risk: The risk that a customer might charge back a transaction, such as disputes or fraud identified from card testing. With direct charges, transaction risk primarily affects connected accounts; with destination charges and separate charges and transfers, transaction risk primarily affects platforms.
Account risk: The risk that a connected account is unable or unwilling to cover the costs of chargebacks on its transactions, leading to unrecoverable negative balances. Account risk primarily affects platforms.

There are two main types of merchant risk: credit risk and fraud risk. Both can result in chargebacks and unrecoverable negative balances.

Type	Description	Examples
Credit risk	The risk that connected accounts are unable to fulfill their obligations to their customers, such as failing to deliver orders due to unforeseen supply issues. If a connected account accumulates more refunds and chargebacks than it can financially cover, it can result in default.	During the COVID pandemic, some hotels and short-term accommodation providers represented by connected accounts went out of business. As a result, customers who had pre-paid for future stays submitted chargebacks, which were covered by the platforms that processed those payments.
Fraud risk	The risk that dishonest owners or employees of connected accounts intentionally don’t fulfill their obligations to their customers, such as taking orders for unavailable goods and services.	No intent to deliver: A fraudulent online storefront charged customers for goods that they didn’t intend to deliver. The connected account then paid out the money to their external bank account. When the customers realized that their orders were never going to arrive, they submitted chargebacks, which were covered by the platform. Payment method cashing: A fraudster stole a customer’s credit card number, opened a connected account, and made purchases through that account using the stolen payment method credentials. When the customer discovered the fraudulent charges, they submitted chargebacks, which were covered by the platform.

Stripe solutions for risk management

Stripe provides several tools to help your platform manage transaction and merchant risk. The main tool is Radar for Platforms, which helps detect and prevent fraud by scanning every payment. It also offers tools to prevent, detect, and mitigate risks posed by your connected accounts.

Platforms that aren’t responsible for connected account negative balances can also take advantage of Stripe Managed Risk, a full-service solution that protects your platform by managing risk and covering any negative balances on your connected accounts.

Know Your Customer (KYC) and compliance

In addition to operational risk management solutions, Stripe provides KYC and risk-based screening to help onboard connected accounts and maintain compliance with evolving regulations. Stripe screens include the following:

Identity verifications
Risk-based KYC and AML checks for individuals and businesses
Sanctions screening
MATCH (Member Alert To Control High-risk businesses) list checks
Secure credit card data tokenization for PCI compliance
Money transmitter licenses (MTL) in the US and e-money (EMI) licenses in the EU
Prohibited business checks

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