What Is a Merchant of Record?

Merchant account

07.10.2022

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What is a merchant of record?

A merchant of record is a legal entity that actually sells services or goods to the end customer. This is the entity that receives payments from the end customers. The merchant of record takes care of payment processing and responsibility associated with each transaction. MoR is responsible for sales tax, chargebacks, refunds, PCI DSS compliance, and so on. Businesses can be their own merchants of record and set up processes and infrastructure to manage payments and payment obligations. There are also MoR service providers that greatly facilitate operations for those who prefer to spend resources on their development rather than processing payments.

How the MoR model works

If you choose this approach, your customers will still visit your website to explore the available products and services. But since MoR is actually a record seller, when a customer decides to buy, two transactions occur: one transaction is between the customer and MoR, and the second transaction is the MoR’s payment transferred to you. 

Upon completion of the transaction, the customer will see the merchant of record’s name on the credit card statement, and in case of any problems, the buyer should contact them. Technically, MoR is the one who sells your product to the end customer and becomes the responsible party.

For which businesses is the MoR model most beneficial? 

In fact, any business can definitely benefit from transferring the hassle of processing payments to another reliable company. However, in the first place, the MoR model is beneficial for companies that sell goods to customers from different countries. International trade is associated with a large number of legal and financial nuances. MoR allows you to save your business from such hassle.

First of all, the MoR model will be beneficial for such industries:

• Ecommerce and D2C. Many Internet marketplaces and companies that sell goods directly to customers using the D2C model sell their products abroad without having accounts in local banks and offices.
• SaaS. If you offer software as a service, your clients are, by default, located in different countries of the world – anyone can register and pay for a tariff plan. This makes accepting payments, invoicing, and calculating taxes much more difficult.
• Digital downloads. If you sell e-books, music, digital art, and more, your audience is also likely global.

What are the benefits of MoR?

As we wrote above, MoR allows you to shift a large number of complex processes to another legal entity. Here are some questions and responsibilities you can outsource:

• Trading accounts. Opening merchant accounts in various countries where you have many clients to accept payments in local currencies.
• Payment and security compliance. Managing payment acceptance security and PCI DSS compliance.
• Opening a local legal entity. This is necessary to facilitate the maintenance of merchant accounts in different jurisdictions, tax calculations, and so on. Setting up each local office can cost companies up to $2 million per market and take about 2 years to complete.
• Currency conversion. Processing payments made in foreign currencies.
• Reducing the number of declined payments. Integration of payment routing and cascading systems to reduce the likelihood of payment decline.
• Fight against fraud. Creation of tools and logic for flagging fraudulent orders for further verification.
• Sales taxes. Calculating, registering, and paying tax on sales of goods or services in the markets where your customers are located.

MoR helps with all these issues and many others. You do not need to worry about all these details, as the merchant of record takes care of them and is fully responsible to the end buyer, including chargeback obligations and sales taxes. However, the obligations of the merchant of record do not go beyond transactions. You manage the presentation of your product and the relationship with the client.