Merchant of Record: Everything a Business Needs to Know

15 January 2025

Written by Libby James

Libby James is co-founder, director and an expert in all things merchant services. Libby is the go-to specialist for business with more complex requirements or businesses that are struggling to find a provider that will accept them. Libby is regularly cited in trade, national and international media.

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What Is a Merchant of Record (MoR)?

A Merchant of Record (MoR) is a specialised service that assumes responsibility for selling goods or services directly to consumers on behalf of a business. This includes managing all legal liabilities associated with the transaction, such as regulatory compliance, sales tax collection, currency conversion, and handling refunds or chargebacks.

While some businesses choose to act as their own MoR, partnering with a third-party provider offers significant advantages. It streamlines administrative processes, enabling businesses to focus on their core operations, such as product development and growth. For companies lacking local expertise or legal resources, outsourcing these responsibilities to an MoR alleviates the burden of navigating complex compliance and operational requirements.

How Does the Merchant of Record Model Work?

The MoR model functions as a bridge between your business and customers. While customers interact with your website for purchases, the MoR manages the financial and administrative side of the transaction. Here’s how it works:

Customer Purchase: The customer makes a purchase on your site.
Payment Processing: The MoR processes the payment, ensuring compliance with security standards and converting currencies if needed.
Revenue Distribution: After deducting taxes and fees, the MoR transfers the remaining revenue to your business.

It’s important to note that the MoR’s name appears on the customer’s bank statement, and they handle any disputes or chargebacks.

Who Benefits from the Merchant of Record Model?

The MoR model is particularly beneficial for businesses operating across borders or in industries with complex compliance needs. Common sectors include:

SaaS: Global software services often deal with diverse compliance and tax regulations. An MoR simplifies this process.
E-commerce & D2C: Online retailers selling internationally can avoid the hassle of setting up local entities.
Digital Products: Sellers of eBooks, software, and other digital goods gain seamless payment and tax management.
Mobile Apps: Developers can use an MoR for app sales made outside traditional platforms like Google Play or the App Store.

Benefits of Becoming a Merchant of Record (MoR) for Your Business

Becoming a Merchant of Record (MoR) offers businesses a comprehensive way to streamline operations, manage compliance, and position themselves for growth. As an MoR, your business takes on the legal and financial responsibilities of processing transactions, which brings several strategic advantages:

Control Over Revenue Streams: By managing transactions directly, your business retains full visibility and control over revenue without relying on third-party providers.
Cost Efficiency: Acting as an MoR eliminates the need for external payment processors or MoR services, reducing costs tied to transaction fees and administrative outsourcing.
Global Market Access: Establishing your business as an MoR allows you to enter new international markets confidently, managing regional compliance, tax obligations, and payment preferences in-house.
Customised Payment Solutions: You have the flexibility to design tailored payment experiences that suit your business model and customers’ preferences, enhancing customer satisfaction and loyalty.
Enhanced Compliance: As an MoR, you directly oversee adherence to local and international regulations, such as PCI-DSS and GDPR, which ensures greater operational control and mitigates compliance risks.
Improved Risk Management: By developing fraud prevention strategies and managing chargebacks internally, your business reduces the risk of relying on third-party providers who may not prioritise your interests.
Brand Consistency: Transactions and customer interactions remain under your company’s name, enhancing brand visibility and trust without external entities mediating the payment process.

Benefits for Your Customers

Becoming an MoR not only benefits your business but also creates a smoother and more reliable experience for your customers:

Simplified Transactions: With you managing the payment process directly, customers experience seamless and secure transactions without third-party involvement.
Streamlined Support: Customers can approach your business directly for any payment-related queries, ensuring faster resolution times and a more personalised service.
Clear Branding: Seeing your business name on their statements reassures customers and enhances trust in your brand.
Localised Experiences: As an MoR, you can offer payment options and currencies tailored to your customers’ locations, making purchases more convenient.
Transparent Pricing: With full control over payment handling, you can ensure transparency in pricing and fees, further building customer confidence.

By becoming a Merchant of Record, your business not only gains operational and financial advantages but also enhances the overall experience for your customers, fostering trust and loyalty while enabling sustainable growth.

What is the Difference Between a Merchant of Record and a Payment Facilitator?

A Merchant of Record (MoR) and a Payment Facilitator (PayFac) share similarities but serve distinct roles. An MoR acts as a payment processing service and takes on the legal and financial responsibilities of selling goods or services, essentially operating as a reseller on behalf of the merchant. In contrast, a PayFac focuses specifically on facilitating payment processing by managing the relationships required for merchants to begin accepting payments.

Types of Merchant of Record

Payment Facilitator Merchant of Record
A Payment Facilitator (PayFac) Merchant of Record serves as an intermediary between sub-merchants and acquiring banks. They establish merchant accounts and manage the underwriting process on behalf of their sub-merchants. This streamlined approach allows businesses to start processing payments much faster than if they were to build their own payment infrastructure. A PayFac MoR also takes on the legal risks and payment processing responsibilities for its sub-merchants.

Marketplace Merchant of Record
A Marketplace Merchant of Record oversees similar responsibilities to other MoRs, but with a key difference. In a marketplace model, the MoR represents itself as an intermediary in the sales process and uses its own branding as the sales channel. The MoR manages the entire process, from customer service to returns, and takes a fee from each transaction.

For instance, Amazon acts as a Marketplace MoR for many sellers. Customers purchase products through Amazon, see "Amazon" on their bank statements, and receive Amazon-branded packaging.

Merchant of Record vs. Seller of Record

While a Merchant of Record (MoR) is responsible for payment processing, compliance, and liabilities, a Seller of Record (SoR) focuses more on the customer-facing aspects of the sales process. An SoR typically manages customer service, fulfilment, and delivery. Additionally, while an MoR is often a third-party provider, an SoR usually owns the product or service being sold.

Merchant of Record vs. Payment Service Provider (PSP)

Payment Service Providers (PSPs) and MoRs differ in scope. A PSP handles only the payment processing component of a transaction, leaving compliance, tax management, and dispute resolution to the merchant. While PSPs provide valuable services like managing relationships with acquiring banks and card networks, they do not assume the broader responsibilities that an MoR does.

By understanding these distinctions, businesses can determine which solution best fits their needs, whether they prioritise full-service support or specific payment processing functionalities.

How to Become a Merchant of Record

Becoming an MoR involves taking on several legal and operational responsibilities, including:

Setting Up Merchant Accounts: Create accounts in regions where your business operates.
Payment Processing: Select payment processors and negotiate fees.
Compliance: Implement security measures to meet PCI-DSS and data protection standards.
Tax Management: Ensure accurate collection, filing, and remittance of taxes.
Fraud Prevention: Develop robust strategies to flag and prevent fraudulent transactions.

Is Becoming a Merchant of Record Right for Your Business?

Becoming a Merchant of Record is a significant step that offers both challenges and rewards. It provides your business with full control over payment processing, compliance, and customer interactions, enabling you to streamline operations and expand into new markets with confidence. While the responsibilities of an MoR require a strong commitment to managing compliance, taxes, and fraud prevention, the long-term benefits of increased revenue control, cost savings, and enhanced customer experience can outweigh the initial investment. If your business is ready to take on this role, investing in the right infrastructure and expertise will be key to ensuring a smooth and successful transition.

FAQs

What is a Merchant of Record (MoR)?

A Merchant of Record (MoR) is a legal entity responsible for managing transactions, compliance, taxes, and liabilities when selling goods or services to customers.

What are the main responsibilities of a Merchant of Record?

An MoR handles payment processing, tax collection and remittance, compliance with local regulations, fraud prevention, chargebacks, refunds, and currency conversions.

What are the benefits of becoming a Merchant of Record?

Becoming an MoR gives your business control over transactions, reduces reliance on third-party providers, allows for cost efficiency, enhances compliance, and supports global expansion with tailored payment solutions.

How does being an MoR improve the customer experience?

Customers benefit from simplified transactions, faster support, localised payment options, clear branding on statements, and transparent pricing.

What challenges might a business face when becoming an MoR?

Challenges include navigating complex compliance requirements, managing international taxes, setting up robust fraud prevention measures, and maintaining secure payment infrastructure.

Can small businesses become their own Merchant of Record?

Yes, small businesses can become their own MoR, but it requires significant investment in resources, compliance expertise, and payment infrastructure. For many, outsourcing to an MoR provider may be more practical.

How does an MoR differ from a Payment Facilitator (PayFac)?

An MoR handles all aspects of a transaction, including compliance and taxes, whereas a PayFac focuses solely on payment processing and facilitating merchant accounts.

Is becoming an MoR cost-effective for global expansion?

Yes, becoming an MoR can be cost-effective in the long term as it eliminates dependency on third-party providers and streamlines operations. However, initial setup costs and resource investment can be substantial.