What is a Merchant of Record (MoR) + Why Your SaaS Needs It?

A Merchant of Record takes away all the frustrations with global payments while restoring the freedom to focus completely on what matters most: your business.

With over 11,000 sales tax jurisdictions in the US alone, the operational work associated with selling products online is a heavy burden, easily capable of affecting your business performance and balance. 

So instead of settling for fragmented growth made up of so many financial elements, why not consider alternatives to creating and handling your own payment stack?  One powerful solution to consider is a Merchant of Record model. Here’s a rundown of everything we’ll be discussing in this article:

• What is a Merchant of Record (MoR)?
• How Does the Merchant of Record Model Work?
• The Benefits of Using an MoR
• The Price of Choosing the Wrong Merchant of Record 
• Who Can and Should be Using Merchant Of Record, and Who Shouldn’t?
• How to Choose the Right Merchant of Record for Your Business?
• Is PayPro Global a Merchant of Record?
• Final Thoughts 
• Merchant of Record FAQs

What is a Merchant of Record (MoR)?

The Merchant of Record is a third-party legal entity taking full responsibility for the entire processing of online transactions made between the end customer and the software companies selling the goods and services. This also includes declined transactions, refunds, fraud attempts, as well as any other complications associated with selling your products into international markets.

Simply put, Merchants of Record are more than financial service providers. The MoR offers a complete service to eCommerce brands that sell software, covering complex areas like invoicing, billing, payment processing, global tax handling, ensuring proper PCI data compliance, and payment-related support for your customer base. Partnerships with a solution of this kind allow SaaS, software, and digital goods developers to transfer the operational burden of growing internationally and focus on building amazing products.

How Does the Merchant of Record Model Work? 

Before we get into the step-by-step details, it is very important to clarify one point that causes some confusion among business owners. When selling your products globally with the Merchant of Record as your reseller, please keep in mind that your customers will still visit your business website to acquire your products. Behind the scenes, though, two transactions are taking place during the actual sale:

1. Between the MoR and your end customer - this is the reason why the name of the Merchant of Record you are collaborating with will appear on the customer’s credit card statement together with the transaction recorded. 
2. Between the MoR and you.

The Benefits of Using an MoR

Aside from the opportunity of tapping into a convenient, hands-free transaction processing infrastructure, a comprehensive payment solution like the Merchant of Record brings forward a slew of other essential benefits.

1. Handling Sales Tax Compliance and Liabilities

The SaaS and software industry is growing at a speed no physical product can reach. Not only is SaaS essential to business growth, but it has the potential to go global from the moment it’s officially released. Although this sounds amazing, the reality of local taxes and other legal issues will soon make you wonder if you have all your bases covered. 

While, in theory, you could sell your products anywhere in the world, to do so successfully would mean handling a colossal number of tax regulations, all subject to changes at any point in time. Staying on top of tax compliance for a growing SaaS company can get messy. It can cost you valuable time, burying you in documents and deadlines and preventing you from focusing on your business. Not to mention that tax liability related fines could cripple your business, putting a hold on your investments. 

Fortunately, a Merchant of Record can easily come to your rescue and calculate, file, and remit taxes, and most importantly, always follow the rules and regulations specific to the markets where customers are located. 

By swiftly shifting all the tax liability to the MoR and allowing it to handle legal obligations, SaaS and software vendors are protected against hefty fines, simplifying what is an otherwise complex, tedious, and, above all else, costly process.

2. Achieving Payment Compliance

Just like international taxes, compliance rules are country-specific and also constantly changing. While from a security point of view, this is an effective approach, from an operational perspective, it’s a living hell. And this is mostly because compliance takes on so many different forms, confusing to everyone without experience in these matters. 

To start with, you have PCI compliance to figure out and different changes in regulations from Visa, Mastercard, AMEX, and many other regional mandates to follow. Then, you have data privacy regulations like GDPR that need to be handled adequately. For the sake of your business, you need to successfully manage chargebacks and refunds. And finally, you need to have strong fraud detection and prevention systems to manage transactions securely.

Selling globally means having to adhere to numerous regulations, requiring you to have an in-house legal team to ensure you are compliant from all the aforementioned perspectives. 

Clearly, the Merchant of Record is your ticket to global success because this business model has all the required tools needed to handle compliance regulations, many of which you might not even be aware of, whereas the MoR payment system allows SaaS and software developers to process payments anywhere in the world.  Better yet, you can be assured this is done by ensuring PCI-DSS compliance and adhering to other security regulations, implementing adjustments regarding what products, business models, and working formats are required by law. 

Additionally, this solution handles the time-consuming tasks of chargeback dispute management, protecting the reputation of your business and keeping your customers satisfied. Equally important is the effective use of fraud prevention algorithms used by a reputable MoR, which will significantly reduce the number of scams typical in the eCommerce industry.

3. Enjoying a Cost-Effective And Convenient Solution 

Selling worldwide is a common goal for businesses move when developing SaaS products, but mind you, it's not the simplest one. Not by a long shot. Taking financial responsibility for your international payments requires investing time, effort, and money into successfully handling any requirements or issues that might arise. 

Just to give an idea of what you might be exposing yourself and your staff to, consider that selling globally means establishing local business entities in the market you want to enter. This can be a highly resource-consuming and complicated process because legal business entities must facilitate tax registration, a merchant account, and other essential payment-related operations. 

Unfortunately, many people start their businesses to create awesome products and, instead, are forced to handle a massive volume of highly-specific operational workload. Fortunately, an MoR solution can remove that burden. 

The Merchant of Record already has local entities in different jurisdictions, allowing you to bypass this step and start selling immediately. Additionally, to ensure payment localization, this solution takes on the responsibility of setting up merchant accounts in the countries your customers are in, improving acceptance rates and decreasing the number of failed transactions. MoRs are cost-effective solutions to selling products worldwide, saving time and money, and giving developers the freedom to return to what matters most to them: their business.

4. Regaining your Business Focus 

Because SaaS and software products are global in nature, numerous developers feel that they can act as their own Merchant of Record, which is, of course, possible. Even if, at a glance, this option seems like the right one, we don’t believe it is. Whatever you may think you are gaining, know that you are, in fact, losing time and precious resources. A DIY solution is constantly generating engineering hardships or various revenue leaks, which can take a severe toll on the profitability and efficiency of the company. Basically, you might end up buried in operational tasks and completely disregarding the essence of your business: your product. 

A good Merchant of Record solution has a robust infrastructure designed to streamline global payment processing and everything it entails, from payment gateways to merchant banks. By establishing strong partnerships with MoR providers, you are able to market your products effectively in different countries. You can then focus on the improvements or enhancements your product requires to gain customer satisfaction. 

No longer bothered by financial tasks or responsibilities, you can quickly capitalize on growth opportunities across relevant areas like customer acquisition, retention, and expansion. You can free your staff from the burdens not necessarily connected to their areas of expertise and let them focus on other priorities

5. Going Global Immediately 

As ironic as it sounds, going global is very much a local project. From the legal implications of selling SaaS internationally and handling compliance business regulations to managing relationships with local banks and payment processors, these struggles must be handled professionally. Without all of these mechanisms in place, achieving the ultimate goal, that of significantly boosting sales, is virtually impossible. 

Then there is the customer issue - an essential part of any successful worldwide expansion. Localizing payments on your checkout page is necessary for achieving the end goal. However, personalizing checkout experiences based on customer location can be a real challenge for SaaS developers and can take years to complete. 

Because the Merchant of Record has everything set up, once you sign up, the solution will immediately begin to take care of all the entanglements of selling online, including multi-currency support and the customization of your checkout experiences for your shoppers. Additionally, since MoRs work closely with local banks, you will benefit from increased approval rates and reduced exposure to currency conversions, leading to a significant rise in revenue and customer satisfaction.

6. One Effective Solution for Payment Processing and Optimization 

Multiple complexities come with payment processing, from managing global taxes to handling chargebacks. Due to the nature of the business, as your customer count grows, so do your payment issues. Losing track of these operations can result in significant revenue leaks, affecting the business' cash flow. 

The biggest challenge arises when having to ensure payment security. Mass fraud detection systems that don't fully understand the product or the business model mistakenly flag legitimate transactions as scams. As you can imagine, this leads to substantial revenue losses and unhappy shoppers. 

A Merchant of Record solution will help you overcome these hurdles while streamlining and optimizing all processes. By performing advanced security verifications, keeping systems up-to-date, and contacting customers to verify suspicious activity, you can recover lost sales and win buyer loyalty. 

To ensure the best possible results, implementing custom rules that are constantly changing based on a 24/7 order flow might be required. Imagine how costly and time-consuming this process would be, should you have to manage it on a case-by-case basis internally, with no external assistance. Furthermore, trustworthy MoRs will offer customers payment-related support via multiple channels to quickly solve queries and misunderstandings for their buyers.

The Price of Choosing the Wrong Merchant of Record

Because billing your global shoppers is a time-consuming and complex operation, it is only a given that there are some downsides to collaborating with a Merchant of Record. However, whatever the cons might be, one thing is certain - choosing your MoR wisely will help you overcome these hurdles and avoid running into frustrating difficulties that threaten your success.

1. System Flexibility

Merchants of Record are elaborate payment solutions designed to deal with a multitude of complex operations and ever-changing tax and compliance landscapes. On the other hand, large enterprises with strict payment requirements expect extensive customization capabilities to meet their needs. 

This is not to say that the MoRs do not offer any personalization options. They do, but in most cases, these are somewhat limited. So, if your business requires customizations, you should orient yourself towards those few MoR options that can facilitate you with a solution that fits your needs. For example, PayPro Global understands the importance of personalized shopping experiences, offering SaaS businesses many customization options like branded checkout pages, multiple payment flows, or customized emails.

2. Additional Fees

Merchants of Records are widely perceived as the premium players among payment solutions. Anyone comparing fees will likely reach the same conclusion. But are these higher fees justifiable? Yes, they are. Prices reflect value, and through MoR partnerships, you gain access to many essential services that enable you to quickly sell around the world. They take on full liability for global payment, be it credit or debit card transactions, as well as others, handle the entire tax and compliance process, constantly follow local regulations, manage chargebacks, and ensure payment security. 

Being your own MoR, while possible, represents a huge headache for any business, regardless of size. You would have to create a stable payment infrastructure, maintain it, employ a team of accountants and lawyers, have a highly experienced support team operating 24/7, and undergo audits, risk analysis, and verifications. And that’s just to start off with. Imagine the workload, stress, time, and, above all, the revenue losses you would face. 

After doing the math, anyone would realize that working with a Merchant of Record is not an expensive decision but a valuable and strategic step toward succeeding.

3. Control Over Third-Party Errors

Third-party systems are complex infrastructures, and Merchants of Record are no different. Collaborating with third parties means potentially exposing your business to errors you cannot control, which can impact your cash flow and business profitability. To keep your business operations running smoothly and eliminate the risk of facing system failures, avoid working with self-proclaimed, young, or otherwise, inexperienced MoRs.

Being new to the market, these providers have not been able to perform rigorous platform testing on the wide range of scenarios that exist. Their lack of experience and industry knowledge is responsible for diverse system errors that seriously impact businesses when using these solutions. 

On top of system errors, some situations are impossible to control, like bank or PayPal declines and Visa and MasterCard regulations. When this happens, an experienced MoR with an excellent track record will know how to react in favor of the client, advising them on multiple scenarios and guiding them to the next steps.

4. Integration Process 

Merchants of Record are often labeled as difficult to integrate, but this is not entirely because of the complexity of the system itself. Yes, the MoR infrastructure is elaborate, as it tackles numerous undertakings connected to global selling. The real issue, however, is the onboarding process, which in most situations is not user-friendly and completely lacks the payment provider's assistance, making it time-consuming and very difficult to manage, especially if system customizations are required. 

There are, however, some MoR partners constantly working to streamline their onboarding and offer their users a flawless experience. PayPro Global, for example, has an entire team dedicated to helping the client throughout the integration process, allowing them to start selling immediately. Benefiting from an assisted onboarding experience, clients can focus on their product while we handle the integration and system customization operations.

Who Can and Should be Using the Merchant of Record, and Who Shouldn’t?

You’ve probably read that MoRs are expensive, unfit for low-volume transaction businesses, or that they impose regulations you might find difficult to comply with, becoming a no-go option for high-risk companies. We are here to tell you that, apart from one category, anyone can work with a Merchant of Record and do so successfully. Let’s take them one by one to see exactly why MoRs are a solid option for the role of growth partners.

Who Can and Should Use MoR Solutions?

1. International businesses 

>Companies with complex payment structures already selling internationally or wishing to expand their business globally and start accepting transactions in new currencies would benefit greatly from Merchant of Record solutions. An MoR can significantly simplify global selling by handling many otherwise complex operations. From compliance and fraud to complete tax management, MoRs help this type of business easily connect with shoppers. Indeed, partnering with a Merchant of Record instantly connects you with its payments infrastructure worldwide, which you would otherwise not be able to do, or would not be economically efficient to try.

2. Subscription-based businesses

SaaS and software developers choosing subscriptions as their revenue model greatly benefit from MoR partnerships. Merchants of Record offer comprehensive functionality for subscription and billing management, automating recurring charges and greatly improving shopper experiences. From connecting with your product and shopper portal, to the ability to achieve one-click purchases and upgrades for existing customers, as well as on the fly modifying subscriptions, all are done in a native and user-friendly model.

3. Complex/Large enterprises

High-volume transaction businesses are great candidates for Merchants of Record, specifically due to their complex processing needs. In these cases, MoRs have the expertise and resources to allow these businesses to continue their expansion. 

As a large business with complex processing requirements, you should absolutely consider Merchant of Record as a solution for many reasons, but firstly because it can accommodate all your needs through strong customization capabilities. Customer flows, B2B payment methods, manual as well as automatic subscriptions, the ability to connect through API and webhooks with internal systems, and accounting and financial operations all are provided and greatly simplified.

4. Startups and small businesses

It is a common misconception that businesses operating in a single market with simple payment structures, a low transaction volume, and no immediate global growth plans are not a good fit for Merchants of Record. However, we emphatically disagree. Merchants of Record offer a simplified way of handling payments, which includes everything from ensuring compliance to lowering fraud and chargebacks. This helps small businesses focus more on their products instead of worrying about solving payment and shopper-related challenges. 

Additionally, with MoRs, SaaS and software startups can offer multiple payment methods and access innovative built-in tools. These matter greatly in both domestic and international transactions.

All startups want to grow, and MoRs offer the infrastructure facilitating expansion. There is no sweeter spot to integrate with an MoR than in your start-up phase, as later on in the process you won’t have to deal with complicated migrations or high churn rates. Being compliant and payment-ready to sell anywhere worldwide from the moment you start doing business will allow you to enter a different growth stage faster.

5. High-risk businesses

This is a controversial topic because high-risk businesses get labeled as such due to many factors, which include the number of chargebacks and refunds. It is true that there are high-risk niches, but because of the manner in which orders are processed, even SaaS businesses could easily be perceived as high-risk. In other words, in most cases, it’s the eCommerce partner’s fault that these businesses are placed in this category unless you have a natively, highly prone to fraud product. 

In reality, a Merchant of Record, having increased risk and compliance management capabilities, can help businesses in this category significantly improve their chargeback rate and reputation and, ultimately, boost revenue and continue to thrive.

Who Shouldn’t be Using MoR Solutions? 

Non-Compliant Businesses

Because Merchants of Records resell your products to shoppers worldwide, taking full liability for all transactions, they find it difficult to collaborate with businesses that market non-compliant products. When working with non-compliant products, MoRs could expose themselves to legal, reputational, or financial risk. 

For this reason, most Merchants of Record will analyze each potential partnership and consider the associated risks before moving forward and processing payments, performing their own through KYC process. Additionally, some MoRs may impose stricter regulations and higher fees to navigate the connected risks when collaborating with businesses of this type to mitigate their own financial liability.

How to Choose the Right Merchant of Record for Your Business?

We sometimes wrongfully think of payments as the plumbing to a successful business, but payments are more than that. With the software market revenue projected to reach $813.4 billion by 2028, global sales are the plumbing, wiring, and pillars of your SaaS home. They are the mission-critical elements that can either fast-track or slow down your global growth. 

Working with a Merchant of Record is a highly strategic business decision. The problem is that not all solutions of this kind are created equal. So, to be able to really reap the benefits of an MoR partnership, we’ve put together a list of things to consider when choosing the right partner for your business. Considering the following points will help you find a scalable and flexible partner ready to assist you in successfully expanding into new markets.

A Wide Variety of Payment Channels & Currencies 

A strong Merchant of Record solution should be able to offer you multiple currencies and preferred payment methods like:

The customer is king, so it's highly relevant to be able to cater to their payment wishes. The more you can do through a wide portfolio of payment channels and currencies, the higher your online sales volume will be. 

However, while generally speaking, more is better, there is a tipping point you need to be mindful of. The golden rule is to ensure you obtain all relevant local methods worldwide from your MoR to accept payments.

Global Reach 

This business model offers the huge benefit of selling your products worldwide. Your MoR partner will bring the global infrastructure you need to the table, facilitating and sustaining your company's growth.

Giving SaaS and software developers access to such an elaborate infrastructure, you can enter new and emerging markets with the speed of light.

All local compliance and tax complications are also adequately handled, thus eliminating any hurdles that might slow your business down. Additionally, testing new markets and understanding whether or not your product might be a good fit before is significantly streamlined.

Localized Payment Processing 

Localized processing is a highly desired method in increasing payment authorizations because it ensures the highest amount of revenue generated by your traffic, being thus able to actually complete the orders placed by your customers regardless of their country through local payment methods, currencies, processing, and front-end language. 

When transactions are processed locally, the risk of errors or delays caused by either currency conversions or international regulations is significantly reduced. This will also boost customer satisfaction and minimize the number of disputes to deal with after the purchase. 

Specific data protection laws and regulations must be respected when processing transactions locally. Proving that you can do so will increase security and compliance.

PCI-DSS Level One Partner 

Digital payments continue to be a target for cyberattacks, with fraudsters becoming increasingly creative in their attempts. Making sure your Merchant of Record partner follows the industry's most stringent security and compliance standards is more important now than ever. 

PCI-DSS Level 1 is the highest level of payment security and compliance standards merchants must comply with to ensure secure transaction processing, credit card data storage, and transmission through key features like encryption, tokenization, and fraud management tools. 

Having a PCI DSS Level 1 certified partner, like PayPro Global, can greatly benefit your businesses, enabling you to enhance your payment security, considerably reducing the number of cyber threats and gaining your customers' trust, ultimately leading to larger sales volumes and protecting your reputation.

Simple Pricing Scheme 

When choosing the right Merchant of Record for your business, it is important to consider pricing since this factor can significantly affect your company's profitability and sustainability. 

Consider comparing pricing from multiple perspectives and not just the cost. Some MoRs have complex fee structures that could end up eating into profits, making it very difficult to manage your cash flow. For instance, PayPro Global practices commission-based pricing on your successful transactions. This means that you are not required to pay for lost sales. 

Additionally, be mindful of hidden expenses. For example, since customization demands are often required, some providers charge them separately once the integration process has been completed.

They might charge you for extra premium functionalities, and choosing not to have them could directly impact your revenue. As you can imagine, this can directly impact your bottom line. So, focus on identifying a provider that practices fair pricing with a simple fee structure.

Fast and Seamless Integration 

As mentioned before, the MoR integration process can be very complicated. Combining a complex system with a complete lack of onboarding support, you can find yourself in the middle of a technical disaster. To avoid this situation and the frustrations and stress that come with them, be mindful of this factor when comparing options. 

Choose to partner with Merchants of Record that have invested time and resources into streamlining the onboarding process, have a team dedicated to assisting new customers throughout the integration process and customizations, and can provide clients with helpful resources and guides they might find helpful. 

Vendor support is also an important part of creating a good experience because it ensures that any errors or issues you might encounter both during and after the onboarding process are promptly handled. Dedicated multi-channel (Slack, Skype, WeChat, etc.) vendor support also helps you maintain smooth operations and rewarding customer experiences.

Multi-language 24/7 Customer Support 

Before you commit, you need to consider the typical issues that come up in payment-related customer support. Cardholder restrictions, insufficient funds, and incorrect payment details are some reasons a payment fails. It’s inevitable your business will experience at least one of these situations, so knowing you can reach someone easily is very important.

Your payment partner must be capable of resolving these issues quickly and professionally through dedicated customer support so you can keep your business moving forward. Unanswered payment queries can turn into chargebacks, ultimately affecting your relationships with your international customers and damaging your brand's reputation. 

Put some focus on identifying MoRs offering multi-language 24/7 customer support to ensure your shoppers are cared for.

Chargeback and Dispute Management

Unfortunately, completely avoiding chargebacks is impossible. But there are several ways to ensure that chargebacks don't eat into your profits. 

Through payment-related customer support and by addressing the core issue of the chargeback in the first place ( the causes could vary from the licensing model or the product itself to the target market and the geo-distribution of your customers), you are able to sort out misunderstandings and prevent them from becoming chargebacks. Your MoR needs to have the right tools and resources to adequately address the root causes of chargebacks. Otherwise, they will continue affecting your business. 

Additionally, you need to fight the disputes to get your money if they turn into chargebacks. Ignoring them won't make them go away. In fact, they will be automatically settled in favor of the cardholder, and you might even have to pay additional non-response fees.

Remember, fighting chargebacks is regulated, so you must play by the rules if you wish to win. It can be a time-consuming, stressful, and complicated process, especially if you have no experience. 

So, to save time and money, finding a reputable Merchant of Record, preferably one that can provide you with the needed support, knowledge, and experience to handle these operations in your favor, will go a long way in ensuring the success of your business.

Dynamic Customer Flows

Whether you are selling SaaS or video games, offering one-time purchases or subscriptions, optimizing your checkout page is an absolute must.

Consider working with a business model of this kind, having the technical means and experience to help turn your checkout page into your secret weapon for boosting digital sales.

Holistic Fraud Prevention & Protection 

The benefits and necessity of detecting and preventing fraud boil down to one thing: more profit. If you choose to close your eyes to fraud and do nothing, you will inevitably lose money. If you prioritize security, you can boost sales, diminish your losses, and ultimately grow your business. 

An MoR worth its salt will offer you a customized strategy based on your business and specific products. At PayPro Global, we consider each vendor as an individual and choose an approach that meets their needs instead of going for a one size fits all tactic that could lead to wrongfully declined transactions, revenue, and customer loss.

Comprehensive Tax Management 

When shopping around for merchants of record, pay especially close attention to their experience with sales tax management. How are the providers you are considering handling global taxes, and where? Tax management remains one of the biggest challenges, with thousands of regulations prone to change. 

You need to be certain that the MoR you partner with understands all jurisdictions relevant to your business.

Is PayPro Global a Merchant of Record?

Yes, PayPro Global offers a unique Merchant of Record model specifically created to aid SaaS, software, video gaming, and digital goods businesses to scale worldwide. With many years of experience in the payment industry, you can count on the platform to cover all of your needs and the team to be there for you with any further questions or concerns. 

What makes PayPro Global the option of choice for thousands of software companies around the globe?

Find out moreabout how our Merchant of Record can strategically help your business grow in global markets, or book a demo and let our specialists tell you all about it.