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What Is a Merchant of Record? Your Guide to Ecommerce Partner Options and Reducing Global Risk

By: Ted Rogers
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Cross-border ecommerce is so incredibly complex that it’s nearly impossible to do it alone. That’s why brands lean on partners with proven expertise to handle things like payment processing, tax collection, compliance with local and international regulations, and fraud mitigation.

But what if you could get all of those services and more from a single vendor? Enter: merchant of record.

Merchant of record (MoR) service providers are used by brands big and small to simplify global ecommerce and accelerate their ability to reach new markets. This model can provide incredible value in terms of cost savings, operational efficiency, and risk reduction.

Still, many brands don’t understand what a merchant of record really does. So, let’s take a deep dive into the MoR model and how it can help your business accomplish its strategic goals and simplify the way you sell globally.

What is a Merchant of Record?

In the most basic sense, a MoR is an entity that is authorized and held financially liable by an acquiring bank to process transactions. This means they are the entity responsible for collecting and processing all payments, taking title to inventory at or before the sale, maintaining merchant accounts and collecting and remitting taxes to local governments. An end customer would see the MoR’s merchant ID on their credit card statement, and the MoR is required to provide recourse to customers should issues arise.

Brands can choose to act as their own merchant of record, but this requires much more effort and risk liability. Using a third-party MoR to sell into global markets allows brands to move more quickly with less risk because they don’t have to build out new systems and processes. It enables a personalized approach and localized checkout experience for each new market you enter so your brand can look and feel as local as possible. Using a third-party MoR to handle back-office operations on your behalf allows internal teams to focus on delivering outstanding customer experiences when selling into new global markets.

What is a Merchant of Record Responsible For?

The value of the MoR model is that it removes complex back-office responsibilities from the shoulders of brands. These responsibilities can generally be divided into two categories: financial and legal.

Financial responsibilities

Delivering localized checkout experiences and reconciling international sales can be very complex and burdensome. A single checkout integration that localizes payment experiences to maximize conversions can be provided by a MoR to simplify these responsibilities:

  • Payment processing
  • Financial reconciliation
  • Returns, chargebacks and reversals
  • Fraud protection
  • PCI and SOC compliance
  • Currency conversion

Legal responsibilities

From data privacy laws and export rules to tax compliance, no two countries are the same and the rules are constantly changing. A MoR reduces the need to expand your operations to stay compliant with new regulations and local tax management by taking on the heavy lifting:

  • Local entity establishment
  • Tax registration
  • Tax collection and remittance
  • Compliance with local regulations

Benefits of the Merchant of Record Model

The benefits of working with a MoR service provider extend throughout your business in a number of ways. A MoR simplifies and accelerates a brand’s ability to reach new markets. They increase conversion rates through localized payment methods and currencies and optimize revenue using payment processing expertise. Importantly, a MoR minimizes legal risk by ensuring regulatory and tax compliance in all locales – even as rules and regulations change constantly. It’s the MoR’s responsibility to keep up.

When a MoR takes on these complexities of selling globally, your brand can focus on its core competencies without worrying about the financial and legal responsibilities. And if your brand utilizes a single third-party integration, costs and time to market are greatly reduced.

The Difference Between a Merchant of Record and Payment Service Provider

How does this merchant of record model compare with an alternative option like a payment service provider (PSP)? The biggest difference lies in the amount of responsibility, or lack thereof, a platform assumes on your behalf.

A payment service provider refers to a partner that securely processes payments on your behalf but doesn’t take on any financial risk or handle the other complex tasks that a merchant of record will. Assuming this kind of liability on their own requires an immense amount of time and effort and makes it challenging for brands to keep up with ever-changing issues and regulations when selling globally.

Some payment partners act as the merchant on your behalf but not the seller, so while they have the relationship with financial institutions, your brand is still responsible for remitting local taxes and complying with country-specific laws.

Which Kind of Ecommerce Partner is Right for Your Brand?

If your brand only sells domestically and has the right resources in place, it’s feasible to act as your own merchant record. Maintaining a merchant account and standardizing processes for reporting, settlements, and reconciliations is simpler within your home country borders.

The value of outsourcing these responsibilities comes into play when brands want to go global. To sell globally, you need international merchant accounts that enable local payment methods, calculate accurate taxes, and comply with international regulations.

Growing brands need global partners

Ecommerce is growing at rapid rates around the world and brands are doing their best to try to keep up. If your brand is expanding into new geographies, it’s important to partner with a merchant of record that can remove the risks associated with going global and maintain your store security to the highest standards. An experienced global partner makes it possible to expand with ease and without interruption, especially with access to local entities and global infrastructure right out of the box.

When your business expands into new markets, it will face an explosion of variables and complexities related to every aspect of operations. Think about the evolving cultural attitudes, unfamiliar country-specific policies, varying data privacy regulations, language barriers, currency variations and preferred payment methods. Without expertise and a formalized presence in these global markets, companies face liability issues that can pose serious risk to their business.

Outsourcing risk

If you outsource the responsibilities mentioned above, your company can avoid the costly and time-consuming efforts of establishing your own merchant accounts and ensuring compliance with PCI-DSS standards. Details unique to different global online markets are all sorted out by the merchant of record. This results in an offload of complexity and risk to your company, as well as access to a team of experts who know the ins and outs of the countries in which your company is doing business.

Modularity matters

When choosing an ecommerce partner that can shield your brand from risk, it’s important to consider the modularity of their platform and how it can work with other vendors to create a best-of-breed solution.

Agile, API-driven solutions are crucial in today’s ecommerce market. Selecting a merchant of record that is flexible enough to plug into other industry-leading solutions will benefit your brand by ensuring that as technology continues to evolve, your ecommerce business will be able to keep up and stay compliant.

Reputation matters, too

Outsourcing merchant of record responsibilities to a partner who has extensive knowledge and experience is important to guarantee your brand is shielded from risk in both the short- and long-term. The more experienced your partner is in helping growing brands expand across borders, the more critical mass they have to improve authorization rates and mitigate the risks associated with going global.

The Benefits of Merchant of Record Services Pay for the Costs

Oftentimes brands find themselves comparing merchant of record service providers to payment service providers incorrectly. A payment service provider refers to a partner that processes payments on your behalf but doesn’t take on any financial risk or other complex legal tasks.

So, while using this kind of service provider could seem less costly upfront, this is misguided as it doesn’t account for the offsetting costs and the other benefits a MoR can provide.

Consider these points on how Digital River’s merchant of record service enables brands to reduce operating costs by 20-30% with one single integration:

  1. Your organization is likely already paying for services such as payment processing, compliance and legal support, and more. By partnering with a third-party MoR, you are applying those costs to a single vendor rather than many.
  2. Managing multiple vendors is time-consuming and costly. Partnering with a MoR can help you achieve greater operational efficiency, which yields cost savings for your brand. With Digital River, you can enter new markets in as little as six weeks instead of years down the road.
  3. The cost of problems and inefficiencies in any of the areas a MoR covers can be catastrophic. Penalties for regulatory violations can run in the millions of dollars. Being proactive in working with experts in these areas can be extremely cost-effective in the long run.

Contact us to learn more about how Digital River can help take the risk and complexities out of global ecommerce so your brand can focus on delivering superior experiences to your customers around the world.