What is a merchant of record (MoR)?
A merchant of record is a term used to describe the legal entity selling goods or services to a cardholder and to whom the cardholder owes payment for such goods and services. They process all payments and take on all of the liability related to those transactions, including collecting sales tax, ensuring payment card industry (PCI) compliance, and honoring refunds and chargebacks. Businesses can choose to be their own merchant of record, but MOR service providers exist to take the burden of payment processing and compliance away from those who prefer to spend their in-house resources elsewhere.
How does the merchant of record model work?
If you choose to sell through a merchant of record, your customers still go to your website to access the products. But with the MoR acting as a reseller, there are actually two transactions taking place during the sale: One between the end customer and the MoR, and the other between the MoR and you.
When the transaction is complete, it’s the merchant of record’s name that appears on the customer’s credit card statement and to whom the cardholder has recourse in case of any dispute, as they are technically making the sale with the end customer. This is how and why the merchant of record becomes the liable party.
What types of businesses benefit from an MoR and why?
The merchant of record model is particularly useful for companies that sell to cross-state or international customer bases where the company isn’t set up locally. Selling across borders comes with a lot of financial and legal admin. The MoR can free a business from having to worry about any of that. Industries that benefit from this include:
SaaS: If you sell software as a service then your customer base is global by default – anyone can sign up. Or at least try to. This can make payments, billing, taxes, and compliance complicated fast.
E-commerce & D2C: A lot of online retailers and direct-to-consumer (D2C) businesses sell across state lines or internationally without having local offices or bank accounts etc.
Digital downloads: Similarly, businesses that sell downloadable items like eBooks, games, or academic papers will attract customers from all over the globe.
Partnering with a merchant of record is also beneficial even if you don’t sell across state or national borders. You may just prefer to outsource the responsibilities (and financial headache) so you can focus on the more interesting stuff, like attracting customers and growing your brand.
What issues do businesses face when they don't partner with a merchant of record?
Wondering if your business should be looking into obtaining an MoR? Here’s a quick overview of some of the issues and responsibilities you’ll likely be tasked with without one:
Merchant accounts: setting up multiple merchant bank accounts in the countries where you have a substantial customer base, to accept payments in additional currencies
Payment and data compliance : Managing payment card security (PCI-DSS) and upholding relevant data requirements in the locations you sell to, or integrating additional tools to manage this
Local entity creation: establishing local business entities to facilitate merchant accounts, tax registration, payment relationships, and so on. Each one can take over two years and cost up to $2M per market to set up.
Currency conversion: handling the conversion of payments made in foreign currencies by international customers
Payment failure rates: integrating & maintaining multiple payment processors or payment service providers to facilitate payment routing and cascading, to mitigate the chance of payments being mistakenly declined as fraudulent, causing lost revenue
Payment processor fees : negotiating and managing all credit and debit card fees
Fraud offenses : creating logic to flag fraudulent orders, and then manually reviewing those suspicious orders, refining your custom rules
Disputes and refunds : handling payment reconciliation, refunds, and chargebacks
Sales tax: calculating, filing, and remitting software sales tax in the locations where your customers are
Setting up and maintaining the infrastructure and admin needed here can quickly amount to hiring several teams.
What’s the difference between a merchant of record and a payment service provider (PSP)
The main difference between an MoR and a PSP is that a merchant of record handles your entire order process, which includes taking on the related liabilities, whereas a payment service provider only handles the transaction process – the part where money leaves your customer’s bank account and arrives in yours.
A PSP, like Stripe , doesn’t take on any of the financial or taxation responsibilities of the transactions you make through their gateway. An MoR takes care of all of them. Payment service providers are also only one part of your wider payments infrastructure; you’ll need to manage and integrate other (often costly) tools to build a sufficient billing stack.
The difference between a merchant of record and a revenue delivery platform (RDP)
Where a Merchant of Record owns the compliant exchange of funds and product, a Revenue Delivery Platform uses this model of operation to provide something much broader. This kind of platform provides resources, support, and functionality to improve how revenue is delivered from the customer to a business across the entire customer lifecycle. As well as handling all the pieces of an MoR, it also includes:
Payment routing optimization
Identifying upsell opportunities
Scalable invoicing, and more.
In short, a Revenue Delivery Platform covers the global journey of your earned revenue – from the point of customer acquisition, through retention, and any increases in customer spend – making sure that journey is both fully compliant and as optimized as possible, so you don’t lose any money along the way.
Is Paddle a merchant of record?
Paddle is an all-in-one revenue delivery platform for SaaS businesses, which includes acting as the merchant of record for thousands of software companies around the world.
We handle all payments, taxes, currencies, and financial compliance, like other MoRs, but as a revenue delivery platform , Paddle supports the complete end-to-end delivery of your revenue – structurally and strategically.
In addition to the benefits of an MoR, Paddle provides hybrid billing solutions, innovative payment routing, and subscription management technologies. Our sellers also receive 24/7 support from our Customer Success team and strategic guidance from our experienced revenue delivery advisors – specialists in SaaS growth.
We equip SaaS companies with the ability to experiment and respond quickly to new growth opportunities across customer acquisition, retention, and expansion, without the administrative and engineering burdens or revenue leaks created by a DIY infrastructure.