What is a merchant of record?

Learn what a merchant of record is and how businesses can benefit from using this model of payment processing.

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August 10, 2023
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What is a merchant of record?

For any merchant, the essential daily tasks that encompass selling their goods and services to customers can make it hard to find time for the other, equally important aspects of running their business.

These tasks - like processing payments, managing refunds, and complying with regulations - are absolutely necessary, but they can be all-consuming for businesses with meager resources. 

That’s where a merchant of record comes in. These entities assume many of these professional responsibilities, freeing up merchants to focus on the things that got them excited about starting a business in the first place: building great products, investing in grand growth ambitions, and delivering great customer experiences. 

But what exactly is a Merchant of Record (MoR)? How does it work? What are the different types? And how can you become an MoR? Let’s find out. 

What is a merchant of record (MoR)?

A merchant of record (MoR) is a professional service that takes responsibility for selling goods or services to an end consumer on behalf of a merchant. They take on any legal liabilities related to the transaction, including compliance with relevant regulations, collecting sales taxes, managing currency exchange rates and dealing with refunds and chargebacks.

Many businesses act as their own MoR, but by using a third-party MoR, merchants could take advantage of the speed and simplicity of administration set-up which enables them to focus on the core aspects of running and growing their business. If merchants don’t have the local expertise or legal knowledge they may not want to handle the burden of professional services and also hand this over to an MoR.

How does the merchant of record model work?

An MoR is essentially an intermediary between a business and a customer that provides the business administration for the merchant’s goods and services. Customers will still use the merchant’s website to discover and make purchases, but it’s the MoR that receives the initial payment. They then pay the merchant the amount made from the sale minus any fees and taxes. 

One thing to be aware of is that it’s the MoR’s name that appears on the customer’s bank statement, not the merchant’s, and it is the MoR that has to deal with any customer disputes.

Here’s the process behind the merchant/MoR relationship in depth:

Payment processing

The MoR is responsible for overseeing business administration services, and regulatory requirements to maintain a secure and compliant payment processing environment. That includes setting up merchant accounts to accept payments in any country in which the merchant operates, integrating with payment service providers (PSPs), negotiating and managing payment processing fees, and handling the conversion of international payments into the national currency.

Compliance and legals

MoR’s take on all legal and compliance requirements for the merchant. That means complying with the local legal and entity requirements, as well as managing taxes. If they sell in the EU, they’ll also have to comply with General Data Protection Regulation (GDPR), which maintains strict standards for processing and maintaining customer data. 

Risk management & fraud

Online payment fraud continues to grow and evolve, with activity like friendly fraud, where a customer falsely disputes a charge, on the rise. While a PSP manages fraud risk for the merchant, to flag and block suspicious transactions, MoR’s may collaborate with the PSP to implement fraud prevention strategies.

Learn more: Card not present fraud

VAT & sales tax

MoRs are responsible for calculating, filing, and remitting any tax. In the US, the MoR collects sales tax, a percentage of the total cost of the goods or services sold. In the UK and EU, the MoR will collect value-added tax (VAT), which is added to a product or service at each stage of production and, ultimately, passed on to the consumer. 

Customer service, chargebacks, refunds, & returns

MoRs get involved in customer disputes, including the investigation into chargeback claims and representing the merchant’s interests. They may communicate with the customer about any issues, as well as managing related documentation, payment reconciliation, and processing refunds and returns. 

Benefits to using the merchant of record model

As you can see from the above, merchants of record are incredibly useful for businesses that might struggle with the daily burden of administrative tasks, routine responsibilities, and compliance obligations. They can also provide a quick, and secure way into new regions for merchants that want a easier path to expansion.

The benefits of the merchant of record model are:

  • Managing relationships - selling goods and services involves maintaining relationships and negotiating with many parties, including merchant banks and payment processors. With an MoR, the merchant is able to outsource the handling of these relationships to a more qualified entity
  • Handling regional differences - circumstances vary considerably from country to country. From paying the right tax and handling currency conversions to understanding regulations, expanding into new markets creates a multitude of potential potholes that can be costly and resource-intensive to avoid. With an MoR, the merchant offloads the dizzying task of juggling all these differences   
  • Cost-effective - MORs are a much more cost-effective option, taking a fee from each transaction processed and staying on top of regulations so the merchant doesn’t have to. They also often have local go-to legal teams or experts and possess the expertise to efficiently handle these tasks on a regular basis.
  • Supercharge growth - with an MoR, all the above operational headaches detailed above are taken care of. That allows the merchant to focus on building great products, marketing, and directing their time and attention toward their growth ambitions. This enables rapid expansion both domestically and internationally, where the legal, compliance and tax issues that can often hamper growth, are all handled for the merchant 

What is the difference between a merchant of record and a payment facilitator?

A merchant of record and a payment facilitator (PayFac) share many aspects. An MoR acts as a payment processing service that is essentially a reseller of the merchant’s goods or services, and a payfac assumes responsibility for establishing and managing the relationships that the merchant needs to start taking payments. The payfac has a more specific focus on the payment processing element. 

Types of merchant of record 

Payment facilitator merchant of record

The main focus of a payfac merchant of record is to act as an intermediary between sub-merchants and an acquiring bank. This means they establish merchant accounts and go through the underwriting process on behalf of their merchants. This streamlined process allows the sub-merchants to set up and start taking payments much more easily than if they built their payments infrastructure from scratch. Payfac MoRs also assume any legal risks and payment processing responsibilities. 

Marketplace merchant of record

A marketplace merchant of record is responsible for many of the same aspects of selling as any MoR. However, while in a conventional MoR relationship, the customer will use the merchant’s website, on a marketplace, the MoR represents itself as an intermediary in the process of goods or services being sold and uses its own name as the sales channel. It also handles the entire customer service, return process, and takes a fee from the transaction.

For example, Amazon acts as an MoR for many of its sellers. Customers purchase on the Amazon website, see Amazon on their bank statements, and receive Amazon-branded packaging. 

Read more: A guide to marketplace payments

What is a merchant of record vs. seller of record?

The key difference between a merchant of record (MoR) and a seller of record (SoR) is that, while an MoR is responsible for all payment processing and relevant liabilities, an SoR focuses more on the customer end of the process, including customer service and support, and delivery and fulfilment. Additionally, while the MoR is a third-party provider, an SoR usually owns the product and service that’s being sold. 

Merchant of record vs. payment service provider (PSP)

PSPs differ from MoRs because the former deals only with the payment processing part of the transaction and not with tax, fulfillment, compliance, and disputes. While PSPs manage just one element of the payments infrastructure, they can be extremely useful to merchants as they can handle relationships with acquiring banks and card networks. 

How to become a merchant of record

If you want to become an MoR, you need to be able to take on the responsibilities listed above for your merchants by establishing relationships with financial institutions and payment processors, and consulting with legal and financial advisors. There are many factors to consider, but primarily, an MoR needs to:

  • Set up a merchant account
  • Select and negotiate fees with a payment processor - they should shop around for competitive rates 
  • Ensure compliance with PCI-DSS and other regulations. This will require them to implement rigorous security measures such as encryption and firewalls 
  • Establish a clear refund and chargeback policy
  • Understand and prepare for tax obligations in whichever regions they operate in
  • Implement strong fraud-fighting capabilities to detect and block suspicious transactions 

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Checkout.com's platform offers everything businesses need to ensure smooth operations, including robust fraud detection, 3DS authentication, and support for more than 150 currencies and local payment methods. What’s more, our payments technology is compliant with PCI-DSS and SCA, and adapts to changing regulations automatically, so you can have peace of mind. 

And as a PSP and acquirer, we manage the full payment process end-to-end, giving you maximum control over your payment experience, while delivering high acceptance rates, and all for a competitive price.  

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August 10, 2023 13:00
August 10, 2023 13:00