A merchant of record (MoR) is an entity that is authorized, and held liable, by a financial institution to process consumer’s credit card and debit card transactions on your behalf. An MoR also ensures your compliance with tax laws (local and global) and maintains relationships with financial institutions.
Essentially, if you want to get money from your customers and ensure you are following all necessary regulations, you need a MoR. Simple enough, right? Well, there’s a little more to it than that. If you’re an accountant, these tasks probably sound manageable, but for our other business owners, let’s dig a little deeper and see what the day-to-day of a MoR really looks like:
If you sell your products online, a MoR allows you to accept debit and credit card payments. This is what everyone thinks of when talking about merchants of record. But let’s talk about what that payment process for digital businesses looks like:
- You sell a product online
- Your MoR calculates and applies the region-based tax and displays this amount for your customer during the checkout process
- While in the payment portal, a customer securely enters their credit/debit information
- The payment gateway then securely transfers customer information to the payment processor used by the merchant bank
In order for this process to run smoothly, the MoR must have a working relationship with merchant banks and payment processors. This relationship is called a merchant account.
While accepting and processing payments is super important, your customers are most concerned about security. They want to know that their personal information is safe. That’s why you want a good MoR—to ensure the entire payment process is compliant and secure.
MoR Administrative Responsibilities
There is a lot going on behind the scenes of the checkout process that most of us don’t think about. To create a seamless checkout process for your customers, this is what the MoR is responsible for:
- Maintain a merchant account and payment gateway
- Negotiate and manage ongoing credit card processing fees
- Ensure compliance with PCI-DSS standards for handling cardholder information
- Manage all tax calculation, collection, and remittance
- Manage and maintain relationships with merchant banks and payment processors
- Ensure compliance with country-specific payment laws and regulations
- Stay up-to-date with ever-changing card association regulations
- Manage refund requests and chargebacks
In-house or Outsource
Did you know that, by default, online businesses are obligated to act as their own MoR? If the previous checklist sounds like a day at Disneyland to you, then that’s probably great news. But for the rest of us, outsourcing the merchant of record to a reseller is probably a better option.
Besides determining if you want to add the above tasks to your to-do list, here are some other things to consider when deciding between an in-house or outsourced MoR:
Do you have the resources?
Acting as your own MoR isn’t easy. It requires a lot of time and resources—finance/accounting, web development, ongoing maintenance, etc. As a business owner, you have a lot of other things to worry about, so you’ll probably need a dedicated resource to manage your own MoR.
Do you want to process global transactions?
It’s a lot simpler to be your own MoR if you’re only selling domestically. For global ecommerce, you need international merchant accounts that allow regional payment methods, payment contracts with each currency, global tax calculation, etc. If you’re processing global payments, it’s safer to outsource.
If you want to simplify your day-to-day tasks or are selling internationally, outsource your MoR. Instead of having to work directly with customers and financial service providers, outsourcing allows you to communicate with just one entity—your MoR.
When you partner with FastSpring, you are partnering with a trusted MoR. As a full-service ecommerce solution, we cover everything from collecting and remitting taxes to managing refunds and chargebacks while maintaining compliance with country-specific payment laws and regulations. That means you can focus on making amazing products and services while FastSpring works behind the scenes to ensure you sell more, stay lean, and compete big.