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Written by Dan Wilkinson Content Manager
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31 Jan 2019  |  Growth

What is Merchant of Record?

SaaS businesses frequently choose Merchant of Record to handle taxes and billing. See how Merchant of Record compares to a Payment Gateway model.

The rise of Merchant of Record (MoR) marks a significant shift in the way products are sold online, with $10bn worth of products sold through a MoR model in the last year alone. MoR has its roots in selling software online, but also within the founding of Paddle.

The seed for Paddle came from our CEO Christian Owen’s previous business, a software marketplace. The marketplace operated well, but after a while, Christian found that people were using the site more for the behind the scenes features- a reseller model dealing with tax and billing, than as a place to find new software. From this, Christian saw that a MoR reseller model was something he could create a business around. That’s when he decided to found Paddle, which is centered around handling the baggage of billing and tax for software businesses.

You may be wondering what was so exciting about the MoR model that Christian had to form a business around it- well, in this post we clear up its definition, the advantages of having one, as well as how you can tell it apart from a payment gateway.

Defining MoR

The traditional definition of the MoR is of an organization authorized by a financial institution to process debit/credit card transactions and invoices through bank transfer, though when people talk about MoR, they’re now describing more of a reseller relationship. This outlines the responsibilities the business is handing over to the MoR when a transaction is completed.

The MoR model

How does the model work practically? Well, the MoR acts as a reseller of the product which is bought through the website- but the transaction goes through the MoR service. This means that two transactions occur during the sale, one between the customer and the MoR and another between the MoR and the company.


When the amount goes through the MoR the necessary taxes and fees are deducted, leaving the business with a net amount and no further financial admin needed. This is one of the key values which a MoR solution provides.

What MoR handles

We’ve explained the model but have only touched upon what a MoR is legally responsible for. Foremost the MoR takes payments via payment service providers/ credit card providers to complete purchases for its business and delivering the product to its customers.

As well as the delivery of the product, refunds and chargebacks are also the responsibility of the MoR. Merchant of Record services honor the customer’s right to a refund on the businesses behalf and help maintain a low chargeback percentage by implementing a system of fraud prevention. Though not legally responsible many MoRs can also aid with the after-sales of customer queries and complaints.

A MoR also ensures that the user card data it possesses is Payment Card Industry (PCI) compliant, as well as tax compliant of all the territories its businesses allow people to buy from. This is full of constantly changing rates, updated security policies and new regulations, so requires experts in the field to oversee.

Merchant of Record vs Payment Gateway

Where comparing a MoR and Payment Gateway, you realize that the latter only offers help for a portion of the transaction- that of getting the money from the customer’s bank to the business. Payment Gateways are not responsible for the financial liability and the admin of the transaction, as its input is rather limited, this means the business has to handle a large part of the logistics of the transaction themselves.


Using a Payment Gateway you’d employ a separate solution to work out how much tax you’d need to pay; then tax agents would need to be hired to pay this tax in the particular region. When selling globally, this problem multiplies because some countries demand that tax documents are in their local language, which requires translators and most ultimately lost revenue.

All the financial data you collect would also need to be accessible for six years after purchase and would be subject to changing data privacy laws. This means more space has to be used keeping the records, creating even more work for the business.

Without a MoR the business would also be responsible for creating an infrastructure for product delivery, subscription services and for dealing with expired cards. This is a lot of responsibilities to juggle whilst still providing a smooth customer experience and focussing on business needs.

A common misconception for MoRs is that it may appear to be more expensive than a payment solution, but it’s ultimately more cost-effective because of the strain placed in handling the management of these multiple tasks and the people needed to complete just one area of the payment process.

The advantages of MoR

Considering the number of responsibilities the MoR handles, there is a major plus in utilizing it as a service. These advantages include:

Solves multiple problems

The cost of an all-in-one solution that allows you to solve multiple problems- saving effort with a single platform that offers multiple currencies, payment methods, languages, as well as giving you transparency in the fees you’re paying for.

Spot business trends

By utilizing this all-in-one solution, you have access to more unified data which can reflect trends in your business and show you where expansion efforts could be focussed on. With a MoR you can then actively implement the features we’ve listed above catering to entirely new audiences and optimizing your checkout to maximize conversions.

Takes care of day-to-day issues

There is also the customer experience of having a service that efficiently handles the day-to-day logistical issues each business faces, so the relationship to the customer is not lost by the business only the admin-heavy tasks of product-delivery and dealing with product delivery inquiries.

Helps you to stay compliant

Having a service that is compliant and aware of the latest financial laws and guidelines is a major plus. There is also the task of being GDPR compliant when sending communications to customers, and knowing a MoR has already taken care of this for you is an undeniable relief to any business. Ultimately, a Merchant of Record model is about recognizing that there's a ton of problems that you don't have to handle when selling online.

Considering a Merchant of Record model?

At Paddle, we’re experts in tax and billing, so you don’t have to lose hours and money on what we do best. Our MoR model handles the tax, billing and even optimization to your checkout. We’re here to take the stress out of selling online, helping you put your focus back into expanding your business and product.

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