What is a Merchant of Record and how does it facilitate global expansion?

Keys points

You’ve probably seen the term Merchant of Record (or “MoR,” for short) thrown around quite a bit. And while it may seem like a rather commonplace concept in the already acronym-filled eCommerce space, the truth is, very few people truly understand what a MoR really is and why it’s such a critical component to get right when running an online business. In this blog post, we’ll provide a brief overview of what a MoR is, the two primary MoR operating models businesses can adopt, and the relative pros and cons of each model.

What is a Merchant of Record?

A Merchant of Record (MoR) is an entity responsible for managing the entire payment process, from accepting payments to ensuring compliance with tax regulations and handling refunds. This role is crucial for companies expanding their reach across borders, as it alleviates the complexities associated with navigating diverse payment methods, currencies, and legal frameworks in different regions.

By partnering with a MoR, businesses can offload the burden of managing intricate financial operations, allowing them to focus more on their core competencies and strategic growth initiatives.

This streamlined approach not only enhances operational efficiency but also mitigates risks associated with non-compliance and financial discrepancies, ultimately empowering businesses to scale globally with confidence.

How does the Merchant of Record model work?

Let’s look at a quick example to put it into context at a high level.

Say your business sells software online. After shoppers have filled their shopping cart, it is now time to start the checkout process. This is where local or region-based taxes will be displayed in addition to the base price of the purchase. The MoR calculates, applies, collects, and remits these taxes to the rightful tax authorities seamlessly, as part of your company’s overall user experience. There is a smooth connection between your brand experience and the MoR process for handling the transaction.

Now, it’s time to pay. Your customers input their credit or debit card information to get this underway. This is where a payment gateway will securely transfer that information over to the payment processor used by the merchant bank (both entities are part of your MoR merchant account relationship) for authorization. If any billing-related issues arise or if a customer decides to request a refund or process a chargeback or dispute, the MoR is typically the first point of contact for customer support. This is because it’s the MoR’s name that shoppers see on their credit card statements or payment confirmations.

Primary responsibilities of a Merchant of Record

Even though this example above paints a fairly simple picture of how an MoR operates behind the scenes, it also begins to highlight the important role MoRs play in maintaining full financial liability over the products and services sold. This translates into the following day-to-day duties:

Two ways to operate as a Merchant of Record

There are two primary MoR operating models used by businesses today. To help you figure out which model is the best fit for your business, we’ve broken down the basics for you:

1. Be your own Merchant of Record

As an online business, you are legally obligated to act as your own MoR by default. This means you are required to tackle all of the administrative tasks mentioned above on your own.

The first thought you may have is that this all sounds like a big headache. It can be, especially if you don’t know your way around the global payment processing ecosystem. However, there still may be times when you’re still better off operating as your own MoR:

• If you only sell domestically and accept simple card payments in your local currency.
• If you have the accounting resources to open a merchant account on your own.
• If you have access to development resources to install a payment gateway on your site.
• If you are willing to manage ongoing payments maintenance and compliance measures:

  » Ensuring the security of customer information and payment data, in accordance with local data, security, and privacy regulations.

  » Collecting and remitting tax to the proper authorities.

  » Fielding billing inquiries and refund requests.

  » Handling chargebacks and taking all necessary steps to reduce fraud.

The long story short: if you’ve got the right resources in house and have a limited sales footprint and sell in a single currency only being your own MoR is doable. It’s just not always easy navigating the complex payment, tax, and regulation landscape on your own. This is oftentimes the reason why many online businesses opt for option number two.

2. Partner with a reseller as your Merchant of Record

If you weren’t able to say “yes” to any of the bullet points above, then you are most definitely in need of a partner who can manage all aspects of being a MoR on behalf of your online business.

This is especially true if you plan to sell across borders, as MoR responsibilities grow exponentially with every additional currency, country, or region you transact in. In fact, as your business expands globally, this is what your MoR responsibilities will be:

• 
  Managing relationships with acquiring banks (aka, acquirers), each with their own payment processing rates for different currencies.
• 
  Negotiating and managing payment contracts for each currency you transact in.

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  Opening international merchant accounts  to accommodate regional payment methods, including country-specific credit cards like Carte Bancaire, Carte Bleue, Maestro UK, Visa Debit, MasterCard Debit, and the list goes on.
• 
  Staying on top of global sales tax calculation which can vary significantly by state, county, and city in the United States or can face constantly changing regulations, as is the case for VAT in the European Union collection, and remittance, latter of which involves filing taxes for each jurisdiction you transact in.

If you’re still convinced that you can do it on your own, here are a few additional benefits that resellers bring to the table in operating as your MoR:

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  Collecting payments from your customers and transferring those funds to your business, less taxes and fees; what ends up in your bank account is the net amount, meaning you will not have any additional administrative obligations related to sales tax or payment processing to deal with.
• 
  Securing reduced rates with global payment processors; because resellers operate at a higher transaction volume, they have more room to negotiate.
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  Keeping strict compliance with PCI-DSS standards, global taxation requirements, country-specific payment legislation, and other data security regulations.

Trust Nexway to be your Merchant of Record

Great news! With Nexway’s extensive experience as a Merchant of Record, you can rest assured that your online venture is in good hands. Our comprehensive solution not only saves you time, money, and effort but also ensures full compliance with local and global regulations as you expand into multiple currencies, languages, and payment methods.

At Nexway, we’re committed to managing your entire payment journey seamlessly – from payment management and fraud prevention to security and data compliance, and even navigating complex sales tax regulations.

Ready to take your business to new heights?
Contact us today and discover how Nexway can help your business thrive and grow.

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