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What is Merchant of Record? An Intro for Ecommerce Brands

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 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 your global direct-to-consumer channel.

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 instead of the risks that come with selling into new global markets.

Digital River and Docmation recently held a digital fireside chat to dive deeper into the value of the merchant of record model. Click here to watch a recording of the event.

What is a Merchant of Record Responsible For?

The value of the MoR model is that it removes complex back-end 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 are able to 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 is able to 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 Cost of Merchant of Record Services

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 enables brands to reduce operating costs by 20-30% with one solution:

  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 simply transferring those costs to a single vendor, not adding new costs.
  2. Managing multiple vendors is time-consuming and costly. Partnering with a single 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. So, being proactive in working with experts in these areas can be extremely cost-effective in the long run.

The most important thing when weighing the cost of MoR services is to take a holistic view and consider all of the vendors and processes that could be replaced by a single MoR integration.

The Value of Expert Support

Cross-border commerce requires a completely different set of competencies compared to selling in your native country. That’s why brands of all sizes use the MoR model to simplify the complexity of global ecommerce so they can focus on what they do best. By partnering with an experienced MoR brands can mitigate risk, streamline operations, and get products into market faster while gaining the expert support needed to sustain long-term ecommerce success.

Interested in learning more about merchant of record services? Connect with Digital River today to learn more about how our MoR business model and Global Seller Services can simplify global commerce and reduce risk for your business.