Your options and obligations as a seller of online goods and services
You’ve probably seen the term Merchant of Record (or “MoR,” for short) thrown around quite a bit. And while it may seem like a rather commonplace concept in the already acronym-filled e-commerce space, the truth is, very few people truly understand what a MoR really is and why it’s such a critical component to get right when running an online business.
In this article, we’ll provide a brief overview of what a MoR is, the two primary MoR operating models businesses can adopt, and the relative pros and cons of each model.
WHAT IS A MERCHANT OF RECORD?
For starters, here’s an all-encompassing Merchant of Record definition:
A Merchant of Record (MoR) can be an entity that operates a webstore or platform to manage interactions with its customers, sellers (sub-merchants) or suppliers, providing due diligence and oversight over all commercial activity that happens on that platform, including:
- Maintaining financial liability for the goods sold
- Overseeing payment compliance while mitigating risk
- Managing transactions, refunds, cancellations, and disputes
- Handling chargebacks and fraud resolution
- Responsible for sales & import taxes
- Adhering to customer data compliance
- Avoiding the sale of illegal, prohibited, or counterfeit products or services
- Maintaining a direct relationship with payment service providers
- Providing billing-related customer support
Let’s look at a quick example to put it into context at a high level.
Say your business sells software online. After shoppers have filled their shopping cart, it’s time to start the checkout process. This is where local or region-based taxes will be displayed in addition to the base price of the purchase. The MoR calculates, applies, collects, and remits these taxes on your business’s behalf.
This all takes place seamlessly within your business’s over-arching customer experience; there’s no distinction whatsoever between your brand and the MoR managing the transaction.
Now, it’s time to pay. Your customers input their credit or debit card information to get this underway. This is where a payment gateway will securely transfer that information over to the payment processor used by the merchant bank (both entities are part of your MoR merchant account relationship) for authorization. Once authorized, the payment amount, less any taxes or payment processor transaction fees, will be sent to your account. You’ve now been paid—and your customers can enjoy their software!
If any billing-related issues arise or if a customer decides to request a refund or process a chargeback/dispute, the MoR is typically the first point of contact for customer support. This is because it’s the MoR’s name that shoppers see on their credit card statements or payment confirmations.
PRIMARY RESPONSIBILITIES OF A MERCHANT OF RECORD
Even though this example above paints a fairly simple picture of how an MoR operates behind the scenes, it also begins to highlight the important role MoRs play in maintaining full financial liability over the products and services sold. This translates into the following day-to-day duties:
- Maintaining a merchant account and a payment gateway on your e-commerce site for processing payments.
- Negotiating, managing, and submitting credit card processing fees.
- Ensuring strict compliance with PCI-DSS standards for protecting cardholder information and adhering to all local, regional, and global data security regulations.
- Managing full tax liability including tax calculation, collection, and remittance (varies by country and region).
- Building strong relationships with merchant banks and payment processors, including managing contracts with global payment service providers.
- Staying compliant with country-specific payment laws and regulations.
- Remaining up-to-date and compliant with ever-changing card association regulations.
- Handling refund requests, chargebacks, and fraud resolution.
TWO WAYS TO OPERATE AS A MERCHANT OF RECORD
There are two primary MoR operating models used by businesses today. To help you figure out which model is the best fit for your business, we’ve broken down the basics for you:
- Be your own Merchant of Record
As an online business, you are legally obligated to act as your own MoR by default. This means you are required to tackle all of the administrative tasks mentioned above on your own.
The first thought you may have is that this all sounds like a big headache. It can be, especially if you don’t know your way around the global payment processing ecosystem. However, there still may be times when you’re still better off operating as your own MoR:
- If you only sell domestically and accept simple card payments in your local currency.
- If you have the accounting resources to open a merchant account on your own.
- If you have access to development resources to install a payment gateway on your site.
- If you are willing to manage ongoing payments maintenance and compliance measures:
- Ensuring the security of customer information and payment data, in accordance with local data, security, and privacy regulations.
- Collecting and remitting tax to the proper authorities.
- Fielding billing inquiries and refund requests.
- Handling chargebacks and taking all necessary steps to reduce fraud.
The long story short: if you’ve got the right resources in house—and have a limited sales footprint and sell in a single currency only—being your own MoR is doable. It’s just not always easy navigating the complex payment, tax, and regulation landscape on your own. This is oftentimes the reason why many online businesses opt for option number two.
2. Partner with a reseller as your Merchant of Record
If you weren’t able to say “yes” to any of the bullet points above, then you are most definitely in need of a partner who can manage all aspects of being a MoR on behalf of your online business.
This is especially true if you plan to sell across borders, as MoR responsibilities grow exponentially with every additional currency, country, or region you transact in. In fact, as your business expands globally, this is what your MoR responsibilities will be:
- Managing relationships with acquiring banks (aka, acquirers), each with their own payment processing rates for different currencies.
- Opening international merchant accounts to accommodate regional payment methods, including country-specific credit cards like Carte Bancaire, Carte Bleue, Maestro UK, Visa Debit, MasterCard Debit, and the list goes on.
- Negotiating and managing payment contracts for each currency you transact in.
- Staying on top of global sales tax calculation—which can vary significantly by state, county, and city in the United States or can face constantly changing regulations, as is the case for VAT in the European Union—collection, and remittance, latter of which involves filing taxes for each jurisdiction you transact in.
The reason why many global online businesses look to resellers to operate as their MoR is because they don’t want to deal with the hassle of all of these compliance measures at the local, regional, and global levels on their own.
Not only are resellers experts at dealing with all of these minute details, but they can also help mitigate your business’s sales liabilities and risks. For this reason, resellers are oftentimes seen as cost-, time-, and resource-effective ways to grow and scale your online business, fast.
If you’re still convinced that you can do it on your own, here are a few additional benefits that resellers bring to the table in operating as your MoR:
- Collecting payments from your customers and transferring those funds to your business, less taxes and fees; what ends up in your bank account is the net amount, meaning you will not have any additional administrative obligations related to sales tax or payment processing to deal with.
- Securing reduced rates with global payment processors; because resellers operate at a higher transaction volume, they have more room to negotiate.
- Keeping strict compliance with PCI-DSS standards, global taxation requirements, country-specific payment legislation, and other data security regulations.
TRUST NEXWAY TO BE YOUR MERCHANT OF RECORD
The good news for you is that Nexway has years of experience serving as the MoR for online businesses of all sizes. We provide an all-in-one solution that saves you time, money, and effort— and keeps your business compliant with all local and global regulations—as you scale and grow your business to operate in multiple currencies, languages, and payment methods. And we do this by providing 100% transparency around the fees you pay for.
Another perk of our platform: it gives you a better, more unified way to access relevant sales data all in one place, helping you monitor your business’s health, anticipate new trends, identify the success of your expansion efforts, capture new audiences, and maximize conversions (by optimizing your checkout process), all in real-time.
Our goal is also to help you create the best customer experience possible by equipping your business with top-tier, localized customer support in multiple languages.All in all, we are here to help you manage your entire payment journey—from accepting payments to preventing fraud to maintaining security and data compliance to adhering to local sales tax regulations.
Nexway can help your business thrive and grow. Contact us today to learn how.
The Nexway Team