What’s the Difference Between a Merchant of Record and a Payments-Only Solution?

Mike Smith

Estimated read time: 2 minutes, 18 seconds

The handling of payment, billing and taxes is often one of the most challenging and complex parts of running an online store. Whether you are a brand-new company, or a slowly expanding one, the issue of payment processing is something that must always be addressed. Instead of going through the hassle yourself, it can often be more simple and cost-effective to use an ecommerce platform.

But what type of platform is best for your organization? How much responsibility does a platform handle on your behalf? Today we’ll be taking a brief overview of a “Merchant of Record” system and how one can solve your ecommerce needs in one swoop.

But what exactly is a Merchant of Record? Why would your organization need one? In short, a Merchant of Record is the platform that is held financially responsible by the bank in your target market. For your business, this means that the Merchant of Record will assume all financial liability so you don’t have to. This includes declines, chargebacks initiated by your customers, and many other common issues that might come up.  Regardless of location (which can even include global markets!), Merchants of Record can even handle VAT, tax, and compliance with local laws.

At a glance, a Merchant of Record may appear to be costlier than a Payment Only platform. The latter refers to a provider which will ensure secure payments to your chosen bank, but relies on your organization to shoulder financial liability and handle complex administrative tasks. However, after taking a second look, the Merchant of Record system may be more cost-effective than it might first seem.

When your organization assumes financial liability for payments, it must expend immense amount of time and effort when payment issues and new opportunities inevitably open up. The larger your audience and the further you wish to reach, the more problems will develop. The financial and opportunity cost of liability is not something to be underestimated. Before choosing your provider, consider these costs for each platform.

FastSpring as a Merchant of Record

  • As a Merchant of Record, FastSpring takes care of the collection of taxes on all purchases, and you do not have to do anything relating to sales tax or VAT (value added tax) or Japanese Consumption Tax.
  • We follow all laws and regulations as if the sale were made in California in the United States. For most sales of digital products, we do not have to collect or pay taxes on your behalf.
  • We charge all applicable tax from the customer, and we report and pay that tax to the respective government. You do not need details of this reporting. The only thing that you need to do is record the payments we make to you as wholesale sales.
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