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Mastering Merchant of Record: A Comprehensive Business Guide

Mastering Merchant of Record: A Comprehensive Business Guide

Explore the advantages and disadvantages of using a Merchant of Record for your business. Learn how it impacts payment processing, compliance, and more.

The merchant of record (MoR) offers businesses an alternative payment system. The MoR is responsible for all the legal liabilities of a transaction when a customer buys a product. These payment processing services are perfect for some companies, particularly those expanding globally. 

Understanding the term "merchant of record" is crucial for those who want to have a successful business venture. This term is commonly used in conversations about payment processing, sales transactions, regulatory compliance, and other related areas. 

It has significant implications for businesses and stakeholders involved in commercial activities, affecting various operations and financial management aspects.

What Is a Merchant of Record?

A merchant of record is a professional service that acts on behalf of a merchant and sells goods or services to an end consumer. The MoR assumes all legal liabilities for the transaction. This includes:

  • collecting sales taxes
  • following regulations
  • handling refunds and chargebacks
  • managing currency exchange rates

Businesses can act as their own MoR, but using a third-party MoR can help merchants save time and simplify the administration setup process, allowing them to focus on their core business aspects. 

Also, merchants lacking local expertise or legal knowledge may struggle to manage services. They could benefit from delegating this duty to a reliable MoR.

In a nutshell, the business functions as an intermediary between the customer and the merchant of record. When a customer buys something, they pay the merchant of record, who in turn pays the business.

Examples of MoR


Gumroad is a well-known platform that enables creators to market their digital products directly to their audience. It provides easy-to-use tools for creating online stores, handling payments, and delivering digital products to customers. With Gumroad's user-friendly interface, creators can quickly begin selling their products online.


Paddle is an all-in-one platform for digital product sellers to manage various aspects of their business. It simplifies payment processing, subscription management, tax compliance, and more so companies can focus on creating and selling their products without getting bogged down by revenue management's complexities.


LemonSqueezy is a user-friendly platform designed to help creators and entrepreneurs sell their digital products online. It offers various features, such as customizable checkout pages, subscription management, and revenue analytics, that make it easy for sellers to monetize their content effectively.


FastSpring is an expert in e-commerce. The company focuses on solutions for software companies and digital product sellers. Its platform offers many features. These include global payment processing, subscription management, and compliance with international tax rules. FastSpring aims to help businesses increase revenue and simplify online sales processes.

How Does the MoR Model Work?

Customers can still visit your website and access products if you use MoR to sell. However, when MoR acts as a reseller, two transactions happen during the sale:

  1. Between the MoR and the end customer
  2. Between the MoR and you

After the transaction is completed, the MoR’s name appears on the customer’s credit card statement. This means that the merchant is responsible for any disputes that may arise from the sale. As the merchant of record technically makes the sale with the end customer, they become the liable party.

When a customer purchases through a merchant of record, the funds are held temporarily in a secure online bank account called a merchant account. After the payment gateway approves the payment, the funds are held in the merchant account for a period, usually 2 to 7 days, before being transferred to the business's actual bank account.

Types of Merchant of Record

Marketplace Merchant of Record

An MoR in a marketplace setting is an intermediary between the customer and the seller. It conducts transactions under its own name. It also manages customer service and returns and takes a fee from each transaction. This differs from a typical MoR setup where the customer interacts directly with the merchant's website.

For instance, Amazon serves as an MoR for various sellers. Customers buy products on the Amazon platform, see Amazon listed on their bank statements, and receive packages branded with Amazon's logo.

Payment Facilitator Merchant of Record

Payfac merchants of record act as middlemen between sub-merchants and acquiring banks. They facilitate the establishment of merchant accounts and handle the underwriting process on behalf of the merchants. 

This process is fast and efficient, allowing sub-merchants to quickly obtain payment capabilities without the hassle of building their own payment infrastructure. Also, payfac MoRs assume these transactions' legal risks and payment processing responsibilities.

What Features Should an MoR Platform Provide?

When picking a merchant of record platform, choose one with many features. These features will help you simplify payments, handle taxes well, and follow regulations. Some of the crucial features to look for include:

  • Tax management: Automated sales tax calculation, collection, and remittance across different jurisdictions.
  • Chargeback management: Assistance with handling disputes to minimize revenue loss.
  • Payment processing: Support for various payment methods and multiple currencies to facilitate global transactions.
  • Integration capabilities: Seamless integration with popular platforms and third-party tools.
  • Compliance: Robust measures to ensure compliance with local financial regulations, including KYC and AML requirements.
  • Reporting and analytics: Comprehensive tools for monitoring transactions, revenue, and taxes.
  • Security: Strong measures to protect customer data and payment information.
  • Global expansion support: Features to facilitate business expansion into new markets.
  • Fraud prevention: Advanced tools to minimize chargebacks and protect against unauthorized transactions.
  • Customer support: Responsive assistance for payment, tax, and compliance issues.

Which Types of Businesses Need a Merchant of Record?

Outsourcing the task of building and maintaining a payments infrastructure and handling sales tax compliance can benefit any business. The merchant of record (MoR) model is particularly useful for companies that sell their products or services to customers across different states or countries where the company doesn't have a local presence. 

Selling across borders involves a lot of financial and legal paperwork, which can overwhelm businesses. However, the MoR model can relieve a company from worrying about that. Industries that can benefit from this model include:

E-Commerce & D2C

Many online retailers and D2C businesses can sell their products or services across state lines or internationally, even without having a physical presence, such as local offices or bank accounts.


When you sell software as a service, your customer base spans the globe, and anyone can sign up. However, this can lead to complications with payments, billing, taxes, and compliance, making it challenging to manage.

Digital Downloads

Global customers can be attracted by businesses that offer downloadable products like eBooks, games, or academic papers.

How to Become a Merchant of Record

You now know all of the responsibilities of an MoR. So, if you want to become one, be up for the task. Establish partnerships with payment processors and financial institutions. Also, consult with financial and legal advisors. Primarily, a merchant of record has to:

  • Have a merchant account. This is a necessary step for merchants to securely accept credit/debit card payments as a merchant of record.
  • Choose and negotiate fees with a payment processor. Choose the appropriate payment processor to ensure effective transaction processing. By negotiating fees, businesses can ensure payment processing costs align with their financial objectives.
  • Have a clear chargeback and refund policy. Transparent policies help resolve disputes effectively and maintain customer trust.
  • Have PCI-DSS compliance and establish other regulations, too. Complying with PCI-DSS protects sensitive payment data. In addition, adherence to other relevant regulations ensures legal compliance and minimizes risks.
  • Have strong fraud-fighting capabilities to discover and block suspicious transactions. These measures protect against fraudulent activities and minimize financial losses.

Prepare for tax obligations. Understand and prepare for tax obligations, including sales tax, VAT, and other applicable taxes in various jurisdictions, to comply with and avoid potential penalties.

Benefits of Having a Merchant of Record

You now understand the importance of merchants of record for businesses that face difficulties in managing their day-to-day administrative tasks, routine responsibilities, and compliance obligations. 

Merchants of record can be a valuable asset for merchants who need a simple and secure way to expand into new regions quickly. The merchant of record model provides numerous benefits for businesses.


An MoR takes a fee from every transaction and keeps up with regulations so the merchant doesn’t have to. They have a local go-to legal team that can take care of everything regularly. 

Compliance and Regulation Management

Merchant of record ensures retailers comply with important industry standards and financial regulations, such as GDPR, PCI-DSS, and KYC. This helps retailers avoid fines, penalties, and risks associated with non-compliance. 

Managing Relationships

Selling goods and services requires managing relationships and negotiating with merchant banks and payment processors. Merchants can outsource these responsibilities to a more qualified entity with an MoR.

Fraud Prevention and Security

MoRs typically have strong fraud detection systems to protect retailers and their customers. MoRs can create a safe shopping environment. They can do this and reduce chargeback risk by using high-security measures and closely watching transactions.

Global Expansion

MoRs help retailers expand their businesses into new markets. A merchant of record supports many languages, currencies, and local payment methods. This allows retailers to serve customers in different regions.

Streamlined Operations

Retailers can focus on their main activities: product development, marketing, and customer service. They can do this by handing off payment processing, compliance, and tax duties to an MoR.

Simplified Payment Processing

MoRs allow retailers to accept many payment methods, like digital wallets, credit cards, and debit cards. This improves customer experience and increases conversion rates. 

Extended Customer Support

MoRs offer dedicated customer support for payment issues. This helps retailers cut the time and effort spent on customers' questions and disputes.

Risks of Having a Merchant of Record

Although using a merchant of record can provide several advantages, certain risks come with this type of arrangement. Some of the potential hazards of having an MoR are:

Limited Flexibility

Businesses may face limitations regarding customization, scalability, and integration with existing systems when using an MoR. That’s mainly the case when the merchant of record doesn’t closely align with the company’s needs. 

Third-Party Dependency

A business relies on a third-party MoR for payment processing and compliance. Any problems or disruptions in their services could harm the business's operations and reputation.

Possible Disputes

Disputes could disrupt payment processing or lead to legal issues. They could arise from disagreements between the MoR and the business about fees, compliance, or service levels.

Brand Identity Loss

Transactions go through an MoR, so the MoR's name or branding may appear on customer statements and communications. This could dilute a business's brand and customer recognition.

Payment Gateway Risks

Businesses should also consider the risks MoRs face related to payment gateway operations. Payment gateways have risks, including delays in processing transactions, security flaws, and potential data breaches. These risks can greatly harm a business's operations and reputation. 

The Merchant of Record and Your Customer Relationships

An MoR has specific obligations toward the end buyer in a transaction, including calculating and remitting sales tax. However, the MoR's relationship with the buyer begins and ends with the transaction itself. 

As a seller, you retain control over how you present your product and maintain your ongoing relationship with the customer. You may continue interacting with them as you typically would regarding product support and marketing. Additionally, you can execute separate terms and conditions that pertain to the product's use.

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