Merchant of Record vs. Payment Gateway: Key differences & which one you need
Merchant of Record vs. Payment Gateway: Which is right for your eCommerce business?
In the world of online sales, two terms often surface: Merchant of Record (MoR) and Payment Gateway. While both play critical roles in payment processing, their functions are distinct. Understanding these differences is essential for businesses navigating the complexities of online transactions. In this post, we’ll explore the key differences between a Merchant of Record and a Payment Gateway, and explain why Nexway’s MoR solution is ideal for your business.
What is a Merchant of Record?
Definition and role in online transactions
The Merchant of Record (MoR) is the entity that assumes legal responsibility for processing payments. This includes handling taxes, managing chargebacks, and ensuring compliance with regulations. The MoR essentially takes on the risks of online business operations, making it a crucial partner for businesses aiming for global reach.
Responsibilities of a Merchant of Record
A MoR does far more than accept payments. Here’s what Nexway, as your MoR, handles:
- Tax handling: Manages VAT, sales tax, and other tax obligations based on your customer’s location.
- Chargebacks & risk mitigation: Resolves disputes, mitigates fraud, and assumes financial responsibility for chargebacks.
- Payment processing: Collects payments and remits funds securely and efficiently.
Benefits of using a Merchant of Record
Partnering with Nexway as your MoR offers several key advantages:
- Reduced risk: Nexway absorbs many of the financial and legal risks, allowing you to focus on growth.
- Simplified compliance: Nexway manages international tax laws, saving you from the complexities of global sales.
- Streamlined payments: Nexway handles invoicing, payment collection, and remittance, ensuring smooth operations.
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What is a payment gateway?
Definition and how it works
A Payment Gateway is a technology that securely facilitates the transfer of payment information between the customer and the merchant. It ensures that payment details (e.g., credit card information) are transmitted safely to the payment processor for authorization. Essentially, a payment gateway acts as a bridge between the buyer and the seller in a secure, encrypted environment.
The role of a payment gateway in online sales
While essential for processing transactions, the payment gateway focuses primarily on:
- Authorization: Verifying that the customer has sufficient funds or credit to complete the transaction
- Transaction facilitation: Communicating with the payment processor to authorize the payment
- Data security: Using encryption to ensure the safe transmission of sensitive payment data
Popular Payment Gateways
Examples of well-known Payment Gateways include:
Merchant of Record vs. Payment Gateway: Key differences
Compliance & tax handling
A major difference between MoRs and payment gateways is the management of compliance and taxes. Nexway, as your MoR, ensures compliance with complex tax laws across multiple jurisdictions, managing VAT and other regulatory requirements. On the other hand, payment gateways typically don’t handle tax calculations or regulatory compliance.
Chargeback & fraud management
Nexway takes full responsibility for chargebacks, fraud prevention, and disputes. If fraud or a dispute occurs, Nexway absorbs the financial risk and resolves the issue. In contrast, payment gateways often offer basic fraud detection but don’t manage chargebacks or take financial responsibility for fraud.
Global sales & localization
Nexway’s MoR solution provides localized payment methods, currency conversion, and compliance with global tax regulations. A payment gateway typically processes payments in one currency and may lack the necessary tools for global sales.
Merchant of Record vs. Payment Gateway: Key differences
| Features | Merchant of Record | Payment Gateway |
| Compliance & tax handling | Nexway, as your MoR, ensures compliance with complex tax laws across multiple jurisdictions, managing VAT and other regulatory requirements. | On the other hand, payment gateways typically don’t handle tax calculations or regulatory compliance. |
| Chargeback & fraud management | Nexway takes full responsibility for chargebacks, fraud prevention, and disputes. If fraud or a dispute occurs, Nexway absorbs the financial risk and resolves the issue. | In contrast, payment gateways often offer basic fraud detection but don’t manage chargebacks or take financial responsibility for fraud. |
| Global sales & localization | Nexway’s MoR solution provides localized payment methods, currency conversion, and compliance with global tax regulations. | A payment gateway typically processes payments in one currency and may lack the necessary tools for global sales. |
Which one does your business need?
Consider Nexway’s MoR if:
- Your business operates globally and needs to manage complex tax laws
- You want a partner to handle chargebacks, fraud prevention, and regulatory risks
- You’re in an industry like SaaS, gaming, or digital products with strict regulatory requirements
A payment gateway is ideal if:
- You need a quick, straightforward solution for processing payments in a single market
- You’re not concerned with managing complex legal, financial, or tax responsibilities
- Your business is local or operates in a market with simple tax regulations
Making the right choice for your business
Choosing between a Merchant of Record and a payment gateway depends on your business needs. If you’re expanding globally, dealing with complex regulations, or need a partner to handle chargebacks and fraud, Nexway’s MoR solution is the perfect fit. Nexway simplifies payments, ensures compliance, and mitigates risks so you can focus on what matters: growing your business.
If your payment needs are simpler, a payment gateway might suffice. However, combining both solutions like using Nexway as your MoR along with a payment gateway offers the best of both worlds: seamless payments and comprehensive transaction management.
Choose the right solution for your business’s success and growth. With Nexway, you can scale your business with confidence, knowing that all your payment and compliance needs are covered.