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What does merchant of record mean?

Sunday, January 19, 2014

Is one right for my business?

Building a business isn’t for the faint of heart. It takes a lot of drive, dedication and hard work to build a successful business. And savvy small business owners like you know that sometimes, it’s best to outsource things to others in order to focus on your business. One solution is to use a merchant of record (MoR) for your business. So in this article, we’ll look at what exactly a merchant of record is, how it works, and how it may be able to help your small business. Let’s start with learning more about a merchant of record.

What is a merchant of record?

When a consumer buys a product or service from a business, they make a payment to a company. The company in question is the merchant of record – the legal entity that sells the goods or services. While some businesses are their own merchant of record, others rely on entities that sell goods and services for their business. In the MoR model, the MoR assumes financial liability for the transaction, which includes payment processing, collecting sales tax, ensuring payment card industry (PCI) compliance, and honoring refunds and chargebacks. Essentially, the MoR is the entity that deals with the end users or buyers. If your business isn’t the MoR, you’d only be selling your goods and services to the merchant of record. Then, the MoR becomes the reseller of these goods. You’d get a singular invoice – from the MoR. On the other hand, the customer’s credit card statement would bear the name of the MoR.

To better illustrate this, let’s talk about an example. Your business, Matt’s Hats, makes and sells hats. But instead of wanting to deal with all of the end customers, you’d rather outsource that. Therefore, you work with a merchant of record provider. They essentially become the only customer of Matt’s Hats. Then, they resell your products to the end customers. They deal with the entire checkout experience, including credit card transactions, handling payments, sales tax, cardholder/customer service issues, and compliance regulations. Therefore, if your business is not the MoR, the MoR serves as an intermediary between your business and the end product user. Now that we’ve spelled out MoRs, let’s see how they can help businesses like yours.

How can an MoR help my business?

A merchant of record can help you streamline your business in various ways. By utilizing one, they take on many of the tedious responsibilities of collecting payments, including:

  • International merchant accounts: Sets up multiple merchant bank accounts and merchant accounts in the countries where you have customers, with the ability to accept payments in those countries.
  • Payment and data compliance: Manages your entire payment card security, including PCI-DSS standards and compliance.
  • Local entity creation: Establishes local entities to facilitate merchant accounts, tax compliance, accounting and more.
  • Currency conversion: Handles payment conversion when international customers pay with foreign currency.
  • Payment processing fees: Negotiates and manages all credit and debit card fees, including mitigating risk when processing payments.
  • Fraud offenses: Develops a system to flag fraudulent orders and review suspicious orders.
  • Disputes and refunds: Handles credit card payments and reconciliation, refunds, chargebacks, cancellations and any other friction points.
  • Sales tax: Calculates, files and remits sales tax in accordance with applicable laws and regulations in the jurisdiction.

As you can see, business owners who may not want to spend the time dealing with these pieces of their business may find it worth it to hire a merchant of record. Now, let’s look at some of the industries that could benefit most from a merchant of record.

What businesses could benefit most from an MoR?

While any business could benefit from the merchant of record model, it’s quite useful if your company sells across state lines or to international customers. When you sell across borders, there are a lot of legal and financial administrative tasks that have to be done. As a small business owner, these tasks can add up, taking you away from operating the core business. That’s why an MoR can be so useful, as it can free your company from worrying about all of these tasks.

However, some business categories benefit more than others. These can include:

  • Software as a service (SaaS): Companies that utilize SaaS are innately in global markets, since almost anyone can sign up. That can be a real headache for you when collecting online payments, billing, taxes and dealing with compliance.
  • E-commerce & direct-to-consumer (D2C): If you’re an online retailer or a direct-to-consumer business, chances are you sell across borders. Therefore, utilizing the infrastructure of an MoR could be a beneficial payment solution.
  • Digital downloads and sales: Companies specializing in downloadable items such as ebooks or games can benefit from an MoR, as their customer base could be worldwide.

What’s the difference between a merchant of record and a payment service provider?

You may wonder if there’s a difference between an MoR and a payment service provider (PSP). There is, and the difference is really about the liabilities. A merchant of record handles the entire ordering process, while a payment service provider handles the transaction process in the order ecosystem.

In other words, a PSP doesn’t take on any of the financial or tax responsibilities of the transactions your company makes through their infrastructure. In contrast, a merchant of record takes care of all of these responsibilities. Think of it this way: a PSP is one part of the payments infrastructure at your business.

As you can see, choosing to be your own merchant of record or outsourcing these services comes down to what’s best for your company. For those small business owners who want to be hands-on in all aspects of their business, retaining the ability to be your own merchant of record is probably the best course of action. However, for those who don’t have time or interest in many of the financial and administrative aspects of running a business, look to merchant of record services to help you keep your business moving forward.


Ready to work with a payment processor who can help your small business?

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us.