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What is The Merchant of Record & Why Should It Matter To You?

  • Felix Rose-Collins
  • 9 min read
What is The Merchant of Record & Why Should It Matter To You?


Selling SaaS, software, or digital goods online is pretty much a slam-dunk in profitability, right? The tech industry is so closely aligned with the world of eCommerce, so finding eager buyers doesn’t seem to be a challenge. Plus, without the issue of shipping, growing your business anywhere in the world seems like an effortless and risk-free business. Though there is enormous profit potential, there are also certain complexities that, more often than not, prevent developers from efficiently accomplishing success in this market.

Putting together a global revenue infrastructure is all about handling complex transactions, managing billing, and tax collection, not to mention adhering to ever-changing compliance regulations. And make no mistake, it can be difficult, time-consuming, and, more importantly, it takes you away from what matters most: your product. Whether you are running a SaaS CMS or a live chat tool, your attention needs to be on constantly improving your product.

Fortunately, there is something that can make global expansion significantly easier for you, called the Merchant of Record solution. This may not be a familiar term to many so let’s see what the MoR model means and how partnering up this type of payment solution is one of the ways you could easily boost eCommerce sales.

What is a Merchant of Record?

A Merchant of Record is a legal entity authorized to act as a reseller on behalf of a business and distributes digital products or services to the end consumer, among many other things. By doing so, the MoR takes on the financial liability of all transactions between a particular business and its buyers.

One of the greatest advantages of working with an MoR is not having to worry about tax calculation management and financial compliance handling associated with global payments. This allows merchants to easily expand globally and find more customers in new and emerging markets while gaining the freedom to focus on what matters most: developing new products and improving existing ones.

What is a Merchant of Record?

Why should you use a Merchant of Record?

Though tax and compliance management is a huge benefit when using an MOR, the truth is that there are so many other advantages of using this model. Allow us to explain how partnering with an MoR solution can make a notable difference in your business growth.

Access to a Self-Standing Growth Mechanism

With an established and reputable MoR, you’ll be partnering with a SaaS business that has already laid the groundwork, allowing you to quickly expand globally.

MoR models are typically responsible for the entire customer interaction, international tax, and compliance management, as well as all other growth-associated responsibilities such as:

  • Subscription Management
  • Payment Processing
  • Refund & Chargeback Management
  • Customer Support & Reconciliation
  • Currency Conversions
  • Analytics & Reporting
  • Fraud & Risk Protection/Management

Instead of managing these services on your own or partnering with dedicated third parties to share some of the responsibilities, you are connecting your business to an established, reputable company ready to provide you with all the tools required to obtain the highest conversion rate possible and quickly scale around the world.

With the MoR solution in place, you are freeing up your team from these labor-intensive tasks allowing the partnership to set in place a plan that will quickly achieve your growth goals. Because they provide you with the foundation needed to run your SaaS company, you can focus on other internal initiatives that are necessary to keep your business y running competitively.

Enjoy a Cost-Effective One-Stop Solution

There are multiple advantages of using an MoR, all of which allow merchants to minimize many unnecessary and unplanned costs.

Tax Collection

Collaborating with a Merchant of Record helps you save the high costs of tax advisors needed to establish the country-specific tax mgt. associated with global growth. An MoR understands and follows the ever-changing international tax and payment regulations, efficiently processing customer transactions and ensuring your business avoids incurring extensive fines that could seriously affect your profitability.

PCI-DSS Compliance & Data Protection

Achieving PCI-DSS compliance and ensuring consumer and data protection work similarly, as your business must abide by different laws and regulations, which are prone to constant and unexpected change. This means having a dedicated team of specialists with sufficient experience and expertise to comply globally. Not only do you have to sustain all business expenses associated with these standards, but any mistake made by your specialists could make you a target for hefty penalties.

PCI-DSS Compliance & Data Protection

Payment Processing & Currency Conversion

Without an MoR, you must manage relationships with payment processors and create merchant accounts in all the markets in which you are selling. This can be complex, time-consuming, and costly. You will also need to handle currency conversion, which, when managed by someone without experience, can lead to revenue loss.

A Merchant of Record has everything already in place. Instead of working with multiple third parties, you only need this one partnership, which acts as a trusted advisor in helping you grow and manage your business.

Moreover, because Merchant of Record solutions partner with local acquirers, your payment authorization rates will significantly improve, leading to higher revenues and improved shopper satisfaction.

Going Global by Staying Local

Providing buyers with an excellent customer experience pays off greatly for businesses, specifically those running on a subscription billing model. The better the experience of using your product or service is, the more loyal your customers will be, increasing the likelihood of recommendations. But what does this have to do with an MoR?

Staying local can mean lots of things, and you know that, especially if you’ve used search engine mapping. However, to really grow your SaaS globally, you need to take a step further. The payment process is crucial to the overall customer experience, so localizing it will undoubtedly increase buyer satisfaction and overall trust. Providing local payment methods, multiple currencies, support, and checkout pages in the buyer’s language make it a positive experience for shoppers. A Merchant of Record has a global payment infrastructure already set in place, enabling you to immediately operate worldwide without having to do this work from the ground up.

From payment methods, currencies, and direct connections with banks in all corners of the world to offering 24/7 payment-related customer support and assistance as well as systems to reduce payment failure rates, MoRs are the partners that can help grow your SaaS business and make you a formidable competitor in your industry.

How Does the Merchant of Record Model Work?

To establish whether or not your business needs an MoR partnership, you should first have a clear sense of how this model functions. So, here are the five steps to consider:

  • Step 1: As a result of initiating a purchase, the buyer is redirected to the checkout page hosted by the Merchant of Record.
  • Step 2: The payment is made between the buyer and the MoR, creating a single transaction
  • Step 3: On behalf of the business, the MoR provides the buyer with ownership rights once the transaction is completed.
  • Step 4: Upon completion, the statement will show a combination of the business and the MoR in the descriptor as a reminder to the shopper where the purchase was made
  • Step 5: Since the MoR is liable, it will handle post-sale disputes, including chargebacks.

MoR Vs. PSP Vs. Seller of Record: What sets them apart?

When optimizing your payment infrastructure, you’ll find there are many options available to you. It’s important to remember that much of your success can depend greatly on the partner and tools you choose to run your business. Let’s look at three business models widely considered by developers worldwide, specifically at the services they offer.

The Merchant of Record

As we’ve said, an MoR is a legal entity that sells products or services to an end customer on behalf of the business. In doing so, the Merchant of Record will take on the liability for each transaction. This entails managing the entire tax and compliance management in all markets the business owners wish to expand.

MoR Services

You will also be free of the following operations since they fall under the management of the solution:

  • Global Tax & Compliance Mgt.
  • Chargeback & Refund Mgt.
  • Payment-related Customer Support
  • Fraud & Risk Mgt.
  • Payment Processing

MoR Services

The Payment Service Providers (PSP)

Payment service providers are third parties which allow business owners to accept payments seamlessly. To do this, PSPs connect eCommerce businesses to a greater payment infrastructure that includes a merchant account and payment gateway.

PSP Services*

When contracting with a payment service provider, you will be entitled to

  • Security management ( PSPs comply with PCI-DSS standards)
  • Cross-border payment processing (multiple currency transaction processing)
  • Reporting

The Seller of Record

Often mistaken with the MoR, the Seller of Record is when the legal entity assumes the seller's identity as the owner of a product or service. With this model, the SoR has the legal right to sell goods by the business owner.

SoR Services

This legal entity will provide you with:

  • Simplified Sales Tax Mgt.
  • Customer Recourse Mgt.
  • Liability Outsourcing
  • Payment Tools

5 Challenges You Will Face Without an MoR*

If you are wondering if your business can function as your own MoR, the answer is yes. But know this: expanding globally will not be easy. Without a Merchant of Record, you will have to face several challenges, complicating matters further if you do not have the proper experts on staff. As an example, here are five complicated financial responsibilities you will need to sort out on your own.

1. Tax management

This is a highly complex process, especially if you plan to accept international payments. Not only do you have to clarify the amount of sales tax applicable to each order, but you will also have to understand each market’s specific tax registration requirements. This is a time-consuming endeavor, to say the least, as legislation concerning local taxes keeps changing, requiring a dedicated team of tax experts to review modifications.

2. Setting up and maintaining merchant accounts

If you want to sell products globally, you will need to set up a merchant account in each market you wish to sell. While this might sound simple, there are several underlying aspects of processing payments you need to be well acquainted with. Everything will fall under your responsibility, from the types of merchant services you require to the costs associated with setting up and maintaining your accounts.

3. Achieving compliance

As in the case of tax management, compliance is a matter that needs to be handled by experts, not only because it is complex and payment laws differ from market to market but because errors can lead to significant fines and reputation damage. Remaining compliant with tax issues likely means additional costs and operational difficulties as well since this too changes frequently.

Achieving compliance

4. Handling payment processing fees

When selling globally, negotiating processing fees is just one of the necessary steps to figure out in your business plan. You also might be required to manage partnerships with multiple third parties, which would be necessary if you don’t go with an all-in-one solution. These are not simple tasks and would require both time and expertise that you likely don’t have currently covered with your existing team.

5. Taking care of chargebacks

Even though chargebacks are meant to be a measure to safeguard customers, merchants don’t particularly see them as such anymore. They can be real profit and business sustainability killers since there is now so much abuse of this “right”. Disputing chargebacks is also a complex and very labor-intensive administrative task, as several procedures need to be followed and followed up on repeatedly. On the other hand, not doing anything isn’t an option, as a high chargeback rate could put you out of business.

Should Your Business Partner with an MoR?

If you sell software, SaaS, digital goods, or video games and want to reach global audiences, the Merchant of Record is an effective solution for your business. Beyond providing much-needed tax assistance, an MoR provides support in many other crucial global growth areas. Because it is an all-encompassing solution, B2B eCommerce software owners are not required to establish multiple partnerships to run their businesses.

There are many instances when the help of an MoR model can be a real game-changer in making a name for your business locally. One example is the US market because of its never ending web of tax rules. With over 14,000 state-specific tax jurisdictions, a Merchant of Record can clarify complicated concepts like sales thresholds, evaluation periods, and tax registration processes.

For Ranktracker, working with an MoR proved to be a very wise decision. With over 25,000 weekly users, Ranktracker needed a partner that could carefully oversee and manage the technicalities of our global expansion. Not only that but one that was equipped with innovative tools and robust systems -essentially a trustworthy Merchant of Record partner that could provide us with the strategic guidance to effectively grow our business. While remaining in control but being able to offload the operational work, a partnership with an MoR also gives us the freedom to continue optimizing and improving our service.

Even though acting as our own Merchant of Record was a possibility, it was never a real option for Ranktracker. Our focus was and continues to be our product, and handling the technicalities of global growth in-house would have taken us away from what matters most. Plus, why risk financial exposure, hefty fines, or reputation damage when we could join forces with a trustworthy partner that came with a team of experts?

Given their experience, cutting-edge payment tools, dedicated revenue growth systems, and flawless customer support, PayPro Global is Ranktracker’s choice of partner. Their one-stop solution provides our business with an efficient, technology-first business scaling infrastructure, managing the entire operational work and removing so many responsibilities we no longer have to worry about. They are constantly optimizing their products, adding new features to meet our needs and help us keep our clients happy.

While joining forces with a Merchant of Record can be hugely beneficial for many businesses in the SaaS and software industry, including B2B open source software, choosing a partner ready to go above and beyond to help you achieve your goals is crucial. Consider working with a unified eCommerce solution capable of equipping your business with the tools meant not only to optimize existing revenue streams but also to effectively identify various growth opportunities across acquiring and retaining customers and work proactively to prevent revenue leaks.

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