What Is A Merchant Of Record: How Does MoR Cut eCommerce Risk?

If you sell SaaS online, you’ll likely end up marketing your products across national and global markets.  

However, there is a  significant challenge in handling complex transactions, especially when a SaaS business goes global. That's what building a solid SaaS revenue infrastructure means. You suddenly must process credit card payments, billing, tax, and legal compliance. And all this while at the mercy of an industry full of ever-changing rules and regulations. 

The good news is that using a Merchant of Record (MoR) model can make your job a lot easier, simplifying sales tax scaling and overall business operations while minimizing risk.

Merchant of Record (MoR)

What Is a Merchant of Record?

An MoR is a legal entity or organization that acts as a reseller between two parties in an eCommerce transaction. The MoR takes responsibility for reselling its vendor’s products to their customers worldwide, providing you with the tools needed to manage your overall business operations. If you sell video games online, working with an MoR means having the freedom to focus on your product instead of tax-related paperwork. 

What is a Merchant Of Record Responsible For?

The MoR is responsible for the entire customer interaction, from the moment the buyer initiates the purchase process until the customer receives their product. Even then, the MoR is still working away in the background throughout the entire customer lifecycle, taking responsibility for subscription management, support, reconciliation, managing refunds and chargebacks, maintaining international tax compliance, and taking care of currency conversion. 

The MoR is also responsible for ensuring compliance with the Payment Card Industry Data Security Standards (PCI DSS), data privacy regulations, and other rules and regulations specific to the countries and regions they operate in. 

The MoR is essentially the seller of the product, taking care of all the complex responsibilities that come with it. This means there’s no need to assume financial liability or maintain banking relationships, merchant accounts, and payment gateways.

How the Merchant of Record Model Works (In 5 Steps)

Does My Business Require a Merchant of Record Services?

One of the main benefits SaaS businesses with global reach gain when working with an MoR is the all-inclusive nature of the model. Besides vendor & shopper support, marketing tools, CRM & BI capabilities, lead management, and a large number of languages, currencies, and payment methods, the MoR also takes care of all financial, legal, and administrative work, including payments, billing, taxes, and compliance.

SaaS and Software companies that sell locally may be able to act as their own seller or MoR as it’s more feasible to manage transactions within your own country. However, working with an MoR solution is still beneficial as even local taxes can get complicated. Case in point, look at the 14,000 + tax jurisdictions in the U.S.

The Top 7 Risks Facing eCommerce Businesses

Like many other businesses, eCommerce providers face various risks that can affect growth and damage customer trust.

So what is the best way to minimize or even remove these eCommerce risks? Work with a Merchant of Record eCommerce solution with a track record for success.

How an MoR Model Reduces eCommerce Risk (6 Benefits for SaaS Businesses)

1. Your Financial Operations Simplified

Managing your eCommerce business becomes incredibly complex when selling online to customers all over the country, increasing as you grow your business globally.  These financial operations are simplified significantly for SaaS businesses that partner with an MoR.

So let’s take a closer look at what’s involved:

Merchant Accounts and Payment Gateways

If you don’t use a Merchant of Record model to manage your eCommerce business, you’ll have to set up more than one merchant account in every country in which you have customers. This is so you can accept payments in other currencies, which is critical for localization services. An MoR solution will already have these connections in place, ready to instantly deliver maximum performance from your payments.

Payments, Billing, and Payment Processing Fees

An MoR solution should offer all the preferred payment methods your customers use and manage processing payments from start to finish. For example, the MoR handles the recurring billing process after purchase and for the remainder of the customer subscription, as well as all the needs in between.

From an accounting perspective,  managing all worldwide payment processing fees surrounding debit and credit card acceptance is greatly simplified when partnering with an MoR solution. This is because they have the experience and knowledge to ensure complete compliance.

Disputes, Refunds, and Chargebacks

No matter how good your product or service is, sometimes the customer won’t be happy with their purchase, quickly becoming an administrative nightmare. Some customers may request a refund or dispute a charge they claim not to recognize, which can be incredibly time-consuming to resolve but would thankfully now be managed entirely by your MoR partner. Remember, as resellers, they handle all liability for payments, including disputes, refunds, and chargebacks.

Fraud

MoR solutions typically have the most innovative and robust fraud detection and prevention mechanism in place,  set up to flag fraudulent activity and review those online orders on your behalf. 

Any good MoR model will also have an entire team handling these risk and fraud systems, keeping software up to date to prevent further fraud, carrying out advanced security checks, and contacting customers to verify suspicious activity. 

This process would otherwise have to be managed internally by you on a case-by-case basis, which can be as costly as it is time-consuming.

Relationships with Merchant Banks and Payment Processors

If you don’t partner with an MoR solution, you would be required to act as your own merchant account, making it necessary to create and maintain relationships with Payment Processors. These can be different depending on location and can be time-consuming and logistically challenging, making the process of obtaining a merchant account on your own difficult. Besides, if you need multiple merchant accounts, you'll have to look for merchant management software or deal with managing payments across different dashboards manually.

PCI-DSS and Other Payment/Data Laws

PCI-DSS is an information security standard that ensures companies handle credit card data securely, laying out operational and technical requirements to protect cardholder data. It requires those in the payments industry to set up a secure environment for handling payments using firewalls, encryptions, anti-virus software, unique IDs, and more. These are audited annually, and understandably, can be complicated to manage.

On top of the PCI-DSS, there are often other geographically specific data regulations in the countries your customers are based.

Currency Conversions

If you’re not working with an MoR solution, you’ll need to handle all currency conversions on foreign currency payments. If your business has a large global reach, this can get very complicated and cause increased revenue loss.

Taxes

Sales tax is an incredibly complex issue for any eCommerce SaaS company attempting to scale. There are thousands of different SaaS tax jurisdictions in the U.S. alone and many more across the world. Remaining tax compliant is a near-impossible task for global eCommerce businesses with a broad reach. 

An MoR solution leaves all tax collecting and remitting up to the experts, who know all the ins and outs of tax requirements in different countries and jurisdictions.

Consumer & Data Protection Regulations

Consumer & Data protection regulations exist to prevent unethical and harmful business practices. Each country has its own consumer protection legislation with different rules, regulations, and technicalities.

Staying on top of all the legislation is tricky and can be costly if done incorrectly. Once again, an MoR setup can ensure that your business ticks all the right boxes and that you’re compliant at all times.

2. Financial Responsibility Is Transferred

When you partner with an MoR, you can outsource and delegate all financial transactions and related concerns. As a result, you’re no longer held liable for legal issues relating to transactions. You’re also not responsible for collecting and remitting taxes, and you don’t need to worry about maintaining relationships with banks. 

Assuming financial liability for collecting payments across the globe can take a lot of time, money, and resources to set up correctly and maintain. In addition, if things go wrong, you could be spending vast amounts of time and money resolving financial and legal problems. By using an MoR solution, this is all taken off your hands.

3. A Cost-Effective Solution

While contracting a comprehensive service like an MoR solution may seem an expensive step to take, in reality, the benefits easily outweigh the costs. 

You’ll no longer need to pay a lawyer, accountant, and a specialist in international taxes. These professionals would usually work out the tax and business regulations of all the different places you do business, and the fees for these services can add up. You would also have to hire someone to customize your platform for each country you sell and pay for translation services. 

An MoR solution, on the other hand, already has this knowledge and capabilities. They take all the complicated admin off your hands, leaving you to focus on your business growth.

4. A Merchant of Record Allows You To Go Global Immediately

One of the biggest headaches for expanding eCommerce businesses is localizing your platform and adapting to the currency and checkout process required in each country, which can be a long, costly, and complicated process.

With an MoR model set up, as soon as you sign up, the payment experience will be customized for your shoppers wherever they may be, locally or globally.

5. A Merchant of Record Helps You Stay Compliant

It should be clear by now that each country has its own sales and tax regulations, which can be very hard to navigate. In addition, these regulations are constantly changing — a recipe for disaster if you don’t manage to keep abreast of all the changes. 

A Merchant of Record will track the changes for you and ensure you comply with all the relevant rules and regulations.

6. A Merchant of Record Streamlines Communication

Instead of dealing with every customer, financial institution, and payment service provider, you will primarily work through the MoR partnership, which provides the tools and human resources to manage your business. This drastically simplifies and streamlines workflows and communication.

Although it may seem difficult to see the direct correlation between all the benefits of an MoR and reducing risk for your business, each aspect of your business management will be handled by experienced professionals, reducing the risk to you while increasing growth.  An effective MoR eCommerce solution can save you valuable time and resources, allowing you the time to focus on the bottom line -  growing your business!

Selecting the Right Merchant of Record for Your Business in 4 Steps

When selecting an MoR, a few factors are essential: