What Is a Merchant of Record and Why Are They Important for Ecommerce Brands Selling Internationally?

In the world of ecommerce, expanding your business internationally can open up exciting opportunities for growth. But let's be real, selling across borders can get pretty complicated - especially when it comes to things like payments, handling disputes and paying international tax. That's where the Merchant of Record (MoR) comes in.

By teaming up with a MoR, you can focus on what you do best while they handle the behind-the-scenes payment processes that keep your international sales running smoothly. In today’s article, we’ll explore what exactly a Merchant of Record is, why Merchants of Record can be indispensable partners for ecommerce businesses selling overseas, and how to choose the right MoR for your own ecommerce brand. 

Let’s start with the basics:

What is a Merchant of Record (MoR)?

A Merchant of Record is a trusted third-party entity that assumes the responsibility of processing payments and managing transactions on behalf of ecommerce businesses like you. 

Essentially, the MoR acts as the legal seller of record for the goods or services being sold, taking on the financial and legal liabilities associated with each transaction. When you consider that failure to take care of legal issues costs UK SMEs £13.6 billion per year, having an MoR is a fantastic safety net!

Some examples of popular Merchant of Record companies are Paddle, Gumroad and Lemon Squeezy. It’s important to make the distinction between these MoRs - which will handle all your international tax calculations, disputes and compliance - and Payment Service Providers (PSPs) such as Stripe and Paypal, which handle payment processing only.

How does the Merchant of Record (MoR) model work?

The Merchant of Record (MoR) model operates by placing the MoR as the legal seller of record in a transaction between an ecommerce business and its customers. This means that it is the MoR's name that appears on the customer's credit card statement, and the MoR becomes the primary point of contact for any payment-related inquiries or disputes.

When a customer makes a purchase from an ecommerce brand utilising the services of a Merchant of Record, the transaction is processed through the MoR's payment infrastructure. The MoR securely collects the payment from the customer and manages the necessary payment processing steps, such as authorisation, settlement, and reconciliation. As an ecommerce brand, this means you’re free from the burden of setting up your own payment processing infrastructure in each country you expand into. 

Importantly, your MoR will also handle international tax for you in each of your new markets, saving your team hours of time and effort. 

In case of any payment-related issues or disputes, the customer takes these up with the MoR. This is because, from a legal standpoint, the MoR is considered the entity responsible for the sale. The MoR handles customer inquiries, refunds, chargebacks, and any other payment-related matters; making sure you and your international customers can enjoy a hassle-free shopping experience, even when the unexpected arises.

By assuming the role of the legal seller of record, the Merchant of Record ensures a higher level of transparency and accountability in international transactions. It offers peace-of-mind to both you and your international customers, as they have a clear point of contact and resolution in case of any payment-related concerns.

What are the benefits of using a Merchant of Record?

There are a number of advantages to using a Merchant of Record, especially when you’re an ecommerce brand selling goods overseas. Here are some of the most important:

1. They have global payment processing expertise

A top-tier Merchant of Record will have extensive knowledge of global payment regulations, currency conversions, and local payment preferences. They excel in handling a diverse range of payment methods, including credit cards, digital wallets, and region-specific payment options, ensuring seamless transactions across borders. 

By harnessing their expertise, you can boost your customer experience, reduce payment friction, and watch conversion rates go up.

2. They can provide compliance and legal support to international ecommerce businesses

Venturing into international markets demands compliance with a whole host of legal and regulatory frameworks. A Merchant of Record shoulders the responsibility of comprehending and adhering to these regulations, such as tax laws, data privacy regulations, and consumer protection measures. 

By relieving you of the burden of navigating complex compliance issues, a Merchant of Record minimises your risk of penalties and legal disputes, safeguarding your ecommerce brand's reputation.

3. They offer localisation capabilities

Tailoring payment processes and interfaces to suit local preferences and customs is vital for success when expanding internationally. A Merchant of Record possesses the tools and capabilities to adapt payment mechanisms and interfaces, providing localised payment options, handling international tax, displaying prices in local currencies, and complying with region-specific payment regulations. 

These localisation efforts enhance trust, credibility, and user experience, fostering customer loyalty in foreign markets.

4. They help with risk management and fraud prevention

Conducting cross-border transactions exposes ecommerce brands like you to a range of risks, including fraudulent activities, chargebacks, and payment disputes. A dependable Merchant of Record employs advanced risk management and fraud prevention tools to identify and mitigate potential threats. 

They have robust security measures in place, including data encryption, tokenisation, and compliance with Payment Card Industry Data Security Standards (PCI-DSS), safeguarding sensitive customer information and ensuring secure transactions.

How should ecommerce businesses choose a Merchant of Record to partner with?

Selecting the right Merchant of Record (MoR) is a crucial decision for any ecommerce business looking to expand their international presence. Here are some key factors to consider when choosing the right MoR partner for you:

1. Expertise and reputation

Look for a MoR with a proven track record of successfully processing international payments and managing cross-border transactions. Assess their experience, reputation, and industry standing. Research their client portfolio to ensure they have worked with businesses similar to yours and have experience in your target markets.

2. Global payment coverage

Make sure the MoR offers comprehensive payment coverage across the regions you intend to operate in. They should support a wide range of payment methods, including major credit cards, popular digital wallets, and region-specific payment options. Verify that their payment infrastructure is capable of handling the currencies and languages relevant to your target markets.

3. Compliance and legal considerations

International sales involve complying with various legal and regulatory frameworks. A reliable MoR should have a robust understanding of global compliance requirements, including tax laws, data privacy regulations, and consumer protection measures. Check that your potential new MoR adheres to industry standards and possesses the necessary certifications, such as Payment Card Industry Data Security Standard (PCI DSS) compliance.

4. Check whether your MoR has localisation features that cater to specific markets 

This includes supporting local languages, displaying prices in local currencies, and offering payment methods preferred by customers in each region. All of these localisation features boost the customer experience and help you build trust amongst international buyers.

5. Customer support and service level agreements

Evaluate the level of customer support provided by the MoR. Make sure they are responsive and can offer knowledge and support, including assistance with payment-related inquiries, dispute resolution, and technical issues. And don’t just take their word for it - look for clear Service Level Agreements (SLAs) that outline the MoR's commitment to uptime, transaction processing speed, and dispute resolution timeframes.

6. Pricing

Understand the MoR's pricing model and fee structure. Assess the transparency of their pricing and ensure that there are no hidden costs or unexpected charges, then consider their overall value in terms of payment processing capabilities, compliance support, and risk management.

7. Scalability and flexibility

Think about your long-term growth plans and evaluate whether the MoR can scale and adapt to your evolving business needs. You should also assess their ability to onboard new markets efficiently and integrate with your existing ecommerce platform and tech stack.

Final thoughts 

In summary, leveraging the expertise and infrastructure of a Merchant of Record is a great way to expand internationally with confidence. By outsourcing the complexities of payment processing, compliance, localisation, and risk management, you can allocate your resources more efficiently and keep your people focussed on growth. With the right MoR by your side, you can propel your ecommerce brand to new heights on the global stage. Good luck!