What is a Merchant of Record? Your essential guide to understanding it

There is a big difference between a regular merchant and a Merchant of Record - and the two terms are easily confused. In this blog we will define what is a merchant of record, and why you might need to use one as part of your payments infrastructure.

A Merchant of Record is the behind-the-scenes payment powerhouse for many online retailers looking to expand globally.

Vital tasks like payment authorisation, tax compliance, and risk mitigation are all swiftly dealt with, allowing eCommerce business owners to accept payments and focus on more important activities such as customer acquisition and product development.

Partnering with a third-party Merchant of Record can help keep checkout processes smooth, ensure customer satisfaction, and remove unnecessary obstacles from business operations.

Let's look at why a Merchant of Record might be a great ally and especially important part of payment processing services used by merchants specializing in eCommerce, SaaS and digital goods.

What does 'Merchant of Record' mean?

A Merchant of Record (MoR) is a legal entity authorized to accept online payments for products or services and process credit and debit card transactions on behalf of another merchant.

The Merchant of Record assumes financial liability for transactions, handling end-to-end payment processing, accepting payments, refunds, sales tax compliance, and local financial regulations across different regions and countries.

The name of the Merchant of Record is visible to the end customer as it appears on their credit or debit card statement each time an eCommerce transaction is made through them.

Businesses can choose to take on the role of their Merchant of Record by setting up their own payments infrastructure or outsource the role to an experienced third-party MoR service provider.

Merchant of Record vs payment service provider

A Payment Service Provider (PSP) is a platform that bridges the gap between sellers and the back-end networks needed to process global payments. These can include payment gateways, payment processors, and merchant accounts.

Their role is limited to facilitating payment processing. It doesn't handle any additional tasks involved, such as calculating Value-Added Tax (VAT), sales taxes or dealing with payment disputes.

A Merchant of Record, however, handles the entire spectrum of responsibilities. Acting as the Seller of Record (SoR), the merchant of record shoulders the burden of navigating the different credit and debit card rules, geographic regulations, consumption taxes, and overall risk and liability.

Unlike a PSP, partnering with a Merchant of Record means you pass on these obligations to your MoR provider.

Example of a Merchant of Record

Companies operating in industries including eCommerce, SaaS, and digital goods are increasingly relying on MoRs.

A good example of an MoR scenario is Airbnb. It manages the full payment process for hosts, charging guests and deducting fees before transferring payment to the host. In addition, Airbnb supports various local payment methods to cater to the preferences of guests from different regions.

In a Merchant of Record marketplace, the marketplace assumes the role of purchasing goods from sellers and taking responsibility for selling them to end customers.

What is a Merchant of Record marketplace?

A Merchant of Record (MoR) marketplace is an online platform where the marketplace itself acts as the legal seller of record for goods or services. This means that the marketplace is responsible for processing payments, managing transactions, and handling any liabilities associated with the sale.

Significance of a Merchant of Record in eCommerce & sales tax compliance

If you are looking to offload legal liabilities and complexities associated with payment processing within your business, then check out the services of an external Merchant of Record service provider. But why is an MOR so important?

Adhering to compliance

With the rapid changes and updates to payment regulation and compliance, it can be difficult for a business to navigate all the global tax regulations and international financial laws, such as PCI DSS and GDPR.

Not keeping up with these means your business could face significant consequences, including hefty fines, legal action, reputational damage, potential loss of business and restrictions on payment processing capabilities.

Additionally, non-compliance can lead to increased payment processing fees due to higher risk assessments by financial institutions.

Chargeback management

Managing payment processing responsibilities, including handling disputes and chargebacks, can be time-consuming and costly.

An external MoR can relieve businesses from these responsibilities, working with the payment processor to protect them from potential losses and allowing them to focus on their core offerings.

Reasons to use a Merchant of Record

There are several important reasons why a business would use a Merchant of Record.

Legal responsibility

A Merchant of Record (MoR) simplifies payment processing by handling the legal responsibility for transactions, including payment processing, tax calculation, and remittance. This significantly reduces the administrative burden for businesses operating internationally.

International market expansion

Utilizing an MoR enables businesses to expand into international markets without the complexities of global tax compliance and local payment method offerings.

Streamlining operations

By outsourcing sales tax, VAT, and compliance responsibilities to an MoR, companies can streamline their operations and minimize the stresses of managing tax obligations across multiple countries.

MoR services ensure that all aspects of payment processing and compliance are managed efficiently, reducing the administrative burden on businesses.

Strategic advantage

A merchant of record can provide a strategic advantage by protecting customer data and minimizing legal liability in transactions, making it particularly beneficial for businesses in regulated industries.

Dedicated customer support

Businesses with limited resources for customer support, tax management, or fraud prevention may find an MoR to be a cost-effective solution to support their global sales efforts.

How does a Merchant of Record work?

Step 1

An eCommerce transaction is initiated, and the MoR’s name appears on the customer's bank statement, indicating they are the liable party processing the payment.

Step 2

The MoR is then responsible for dealing with chargebacks, managing refunds, and ensuring sales tax compliance within the regions they operate.

Step 3

Sellers may choose to be their own MoR or outsource this responsibility to third-party services to simplify payment processing and legal compliance, particularly when selling internationally.

Payment processing and merchant accounts

Payment processing is a key component of the Merchant of Record model. As a Merchant of Record, you will be responsible for processing payments on behalf of your merchants. You will need to facilitate merchant accounts as part of this step.

To process payments, you will need to establish relationships with payment processors and financial institutions. This will enable you to accept multiple payment methods, including credit cards, debit cards, and digital wallets. You will also need to ensure that your payment processing system is secure and compliant with industry standards.

In addition to payment processing, you will also need to manage sales tax compliance. This includes calculating, collecting, and remitting sales taxes on behalf of your merchants.

You will need to understand the sales tax laws and regulations in each state or country where your merchants operate and ensure that you comply with these laws.

How do MoR services streamline global payments?

An MoR simplifies the complexities associated with international transactions by managing sales tax compliance through calculating, collecting, payment reconciliation and remittance of appropriate taxes on behalf of clients. MoRs ensure 100% sales tax compliance across varying jurisdictions.

MoR services are particularly beneficial for businesses selling to cross-state or international customer bases, as they alleviate the administrative burden related to payment processing and legal compliance. The Merchant of Record model also simplifies the process of accepting online payments, ensuring that businesses can manage transactions efficiently across different regions.

How does MoR services ensure compliance & simplify financial operations?

Merchant of Record (MoR) services help businesses ensure compliance with industry regulations, particularly in highly regulated sectors such as financial services, healthcare, and telecommunications, keeping on top and implementing the latest changes.

Entry into global markets is made simpler by MoR services managing currency conversion and foreign compliance, allowing businesses to expand without the complexities of international sales.

Utilizing an MoR allows businesses to outsource the administrative burden of tax management and compliance, which is essential for addressing extensive challenges in global transactions.

Which kind of businesses could benefit from MoR?

Any business that wants to simplify the complexities of building and maintaining a payment infrastructure can benefit from merchants of record (MoR) services. However, there are particular businesses that it is most suitable for.

eCommerce

Commerce or direct-to-consumer businesses can use an MoR to facilitate selling across borders without the need for a local office or bank account.

Software as a Service (SaaS)

Companies that have a global customer base, such as Software as a Service (SaaS) businesses, can leverage an MoR to manage international payments and compliance.

Digital goods

Businesses selling digital goods online must collect and remit sales taxes and VAT, making an MoR valuable for ensuring compliance with these requirements.  

Companies that provide gated content or digital downloads can rely on an MoR to ensure a seamless transaction process for their global customer base.

Requirements & process

The process of becoming a merchant of record typically involves the following steps:

1. Research and establish partnerships with payment processors and financial institutions.
2. Consult with financial and legal advisors to ensure compliance with all relevant laws and regulations.
3. Prepare for tax obligations, including sales tax, VAT, and other applicable taxes in various jurisdictions.
4. Establish a payment processing system that is secure and compliant with industry standards.
5. Test and launch your payment processing system.

How does Nuvei support MoR solutions in this scenario?

Nuvei can act as a Merchant of Record (MoR) for businesses, accepting payments and handling the payment processing and customer details on behalf of merchants, particularly when operating in complex international markets.

As part of this arrangement, Nuvei offers diverse payment methods, including credit and debit cards, PayPal, bank transfers, and regional methods such as cash vouchers and local e-wallets, catering to customers’ payment preferences globally.

Tax-related and compliance concerns are taken care of allowing companies to focus on their core business.

By partnering with Nuvei, companies gain access to an infrastructure that alleviates the complexities of global payment processing, enabling them to easily enter and expand in international markets.

Frequently asked questions on MoR

Is PayPal the Merchant of Record?

No, PayPal typically does not serve as the Merchant of Record. Rather, it functions as a payment service provider (PSP), facilitating transactions on behalf of the actual merchant. In most cases, the business using PayPal remains the Merchant of Record, with its name appearing on the customer’s statement and assuming responsibility for taxes, chargebacks and overall transaction liability.

What is an MoR in financial institutions?

In finance, a Merchant of Record is the official entity recognized as the seller in a transaction. It handles payment authorization and settlement, compliance with local goods and services tax rules, and manages fraud risks and chargebacks. Crucially, the Merchant of Record’s name appears on the customer’s bank statement, making it legally responsible for overseeing the financial and regulatory aspects of each sale.

Is Amazon a Merchant of Record?

Yes, in most cases, Amazon does act as the Merchant of Record, especially for purchases made directly through its platform (including third-party marketplace transactions). However, specific details can vary depending on the exact arrangement Amazon has with individual sellers on its marketplace.

Conclusion

Partnering with a Merchant of Record service provider streamlines payment processing, tax management and regulatory compliance, freeing up your team to concentrate on growth-driven initiatives like product development and marketing.

By offloading complexities such as sales tax calculations, risk management, and global payment handling, you can deliver a seamless customer experience across multiple markets.

While traditional payment service providers may still suit some needs, relying on an MoR service can simplify expansion into new territories and bolster customer trust.

When selecting an MoR partner, be sure to evaluate pricing, payment capabilities, compliance expertise, and the quality of customer support to find a solution that aligns perfectly with your business goals.