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

What is a Merchant of Record
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?

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:

Maintaining a merchant account
Maintaining a merchant account and payment gateway on your e-commerce site for processing payments.
credit card processing
Negotiating, managing, and submitting credit card processing fees.

Ensuring strict compliance with PCI-DSS standards

Ensuring strict compliance with PCI-DSS standards for protecting cardholder information and adhering to all local, regional, and global data security regulations.
Managing full tax liability
Managing full tax liability, including tax calculation, collection, and remittance (varies by country and region)
Building strong relationships
Building strong relationships with merchant banks and payment processors, including managing contracts with global payment service providers.
Staying compliant
Staying compliant with country-specific payment laws and regulations.
Remaining up-to-date and compliant with ever-changing card association regulations.
Remaining up-to-date and compliant with ever-changing card association regulations.
Handling refund requests, chargebacks, and fraud resolution.
Handling refund requests, chargebacks, and fraud resolution.

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

The reason why many global online businesses look to resellers to operate as their MoR is because they don’t want to deal with the hassle of all of these compliance measures at the local, regional, and global levels on their own.

Not only are resellers experts at dealing with all of these minute details, but they can also help mitigate your business’s sales liabilities and risks. For this reason, resellers are oftentimes seen as cost-, time-, and resource-effective ways to grow and scale your online business, fast.

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:

  • Collecting payments from your customers and transferring those funds
    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
    Securing reduced rates with global payment processors; because resellers operate at a higher transaction volume, they have more room to negotiate.
  • Keeping strict compliance with PCI-DSS standards
    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.

Frequently Asked Questions

Without a Merchant of Record, you will need to handle various aspects of payment processing, tax management, and regulatory compliance by yourself. This may involve dealing with the complexities of setting up and managing relationships with payment gateways, acquiring banks, and other financial institutions.

A Merchant of Record (MoR) bears full financial responsibility for its business customers, whilst Payment Service Providers (PSPs) simply process the payments. The PSPs enable the payments without any additional liabilities, meaning that a selling business is still responsible for administrative tasks such as compliance, security, and payment disputes, which can instead be delegated to a MoR, such as Nexway.

The Seller of Record (SoR) is another separate and critical player in the transactional process within the e-commerce landscape. The SoR undertakes the responsibility of handling legal and financial matters associated with a transaction, ensuring adherence to laws and tax obligations. While having some characteristics in common with the Merchant of Record, the Seller of Record might have a more limited scope in terms of legal and financial aspects, leaving other responsibilities like payment processing and order fulfillment to other parties.

When businesses use Stripe to process payments for regular direct transactions, the business itself remains the MoR while Stripe acts as a payment processor or payment gateway. This means that the business is responsible for transactional compliance, tax obligations, and managing refunds and chargebacks while Stripe handles the technical aspects of transaction processing..

Nexway has been serving as Merchant of Record for online businesses for over 20 years. We manage full payment operations, including checkout user experience, taxes, and currencies, allowing you to prioritize product development and go-to-market strategies. From payments monitoring to global taxation and compliance, Nexway evolves with you to create the perfect custom fit for each solution we deliver.