Minimizing Ecommerce Risk with Merchant of Record and Seller Services

By: Eric Christensen
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We all know that global ecommerce is complex. Handling payments, taxes, and compliance are some of the most challenging parts of selling online – and ever-changing international rules and regulations don’t make these tasks any easier. This is where trusted ecommerce partners with global expertise come to the rescue. But which kind of solution is the best fit for your brand?

The difference between a merchant of record, seller of record, and payment service provider

What exactly does it mean to be a merchant of record (MOR) or seller of record (SOR)? And how does this compare to a payment service provider (PSP)? The biggest difference lies in the amount of responsibility a platform handles on your behalf.

Merchant of record

A merchant of record is an entity that is authorized and held financially liable by an acquiring bank to process transactions. It’s important to note that a merchant of record doesn’t just accept payments on your behalf ̶ this entity is also responsible for reconciliation, managing refund requests and chargebacks, and currency conversion. Additionally, it’s the merchant of record’s responsibility to ensure compliance with PCI DSS standards, data privacy regulations, and other country-specific laws and regulations.

Brands can choose to act as their own merchant of record, but this requires more effort and risk liability. And if you’re selling globally, or anywhere outside of your home market, the complexity and risk grows exponentially. Even the most successful brands who are flush with resources choose to partner with experts to outsource these responsibilities. When an ecommerce partner assumes responsibility to accept payments on your behalf, your brand doesn’t have to worry about financial liability or maintaining banking relationships, merchant accounts, and payment gateways.

Seller of record

The seller of record indicates which legal entity is identified as selling a product to the end consumer. Brands have the option to act as their own seller of record or outsource these responsibilities. If you outsource seller of record responsibilities to a partner, they resell your products to end consumers using a flash title – momentarily acting as the seller at the time of purchase.

A seller of record is responsible for coordinating all key financial elements of an online sale, including processing and fulfilling orders, collecting and remitting all payments and taxes, and ensuring full compliance with country-specific trade and tax laws. Additionally, they standardize financial set-up processes and work with local entities to enable localized payment methods and localized credit card acquiring.

Payment service provider

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 mentioned above. Assuming this kind of liability 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 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. Furthermore, these providers may claim they offer local acquiring, but they require you to establish your own local entity in the country. It’s estimated that the time and cost of establishing a local entity can be over 2 years and up to $2M per market.

Which kind of 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 and seller of 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 your footprint into new geographies, it’s important to partner with a merchant and seller 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 and seller 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

We’re living in the age of the customer, which means consumer demands are at an all-time high. These shoppers expect seamless and secure experiences when purchasing products online no matter where they are in the world. And to deliver these kind of experiences, today’s top brands are partnering with vendors that have expertise across all touchpoints of the buyer’s journey.

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 and seller 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.

And reputation matters, too

Outsourcing merchant and seller of record responsibilities to a partner who has extensive knowledge and experience is important to guarantee your brand is shielded from all 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 remove the risks associated with going global.

By partnering with experts in this space, your brand benefits from the years of hard work and experience that someone else has established – which is especially useful when dealing with complex issues like tax and compliance laws. Often unclear, ever-changing and loaded with gray area, many companies who are not experts in these areas take huge risks by tackling these challenges alone.

Merchant and seller of record should be the core business

Acting as a merchant of record and seller of record is not a “hobby” or something that your typical partner or fulfiller can offer. There’s a lot of complex behind-the-scenes work that goes into offering these services – from staying up-to-date with changing fees, rules and regulations to maintaining relationships with banks and payment processors. Removing the risks for global online brands by acting as the merchant and seller of record should be at the core of their business model.

The benefits pay for the costs

At first glance, a merchant and seller of record solution can appear to be costlier than utilizing a payment service provider. However, if your brand chooses to assume financial liability for processing payments and selling globally, you’ll likely spend an immense amount of time and money to do it right. Taking on this liability becomes more challenging and expensive as your company grows and reaches more consumers in new locales.

Acting as your own merchant of record and seller of record isn’t easy. From complying with consumer protection regulations to collecting and remitting taxes, and everything in between, offloading the burden of risk to outside experts can deliver tremendous value to your ecommerce business and be cost-effective in the end.

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.