In this article, we will touch on what a Merchant of Record is, how it works, what makes it different from other models, and why it's crucial that you choose the right one while running your business.
0
min read
Running an online business might seem really easy; customers click buttons, enter their credit card details, and voila: a purchase is made and a package arrives at the customer's door a few days later. What many don't know is that behind that click of the button and credit card form, there is a network of legal and financial steps making sure that the money moves safely to its desired destination without any hiccups. One of the fundamental pillars in this network is the Merchant of Record, referred to as MoR for short. MoRs are much more important than many people might realise.
In this article, we will touch on what a Merchant of Record is, how it works, what makes it different from other models, and why it's crucial that you choose the right one while running your business.
A Merchant of Record (MoR) is the legal entity that takes responsibility for processing customer payments. When a customer buys something online, the MoR is the party officially selling the product or service. This means they are responsible for handling. payments, managing taxres dealing with chargebacks, and navigating an entire labyrinth of financial regulation. Merchant of Record services are most common in e-commerce, where businesses sell digital or physical products online and need help managing things like taxes and compliance. Dealing with cross-border business is also tricky, and a good MoR helps to hedge this risk. Most companies will outsource merchant of record payment processing. This setup lets them focus on sales and growth while the MoR handles the financial and legal side of every purchase.
The Merchant of Record is basically the official seller of record for every transaction. Even if your business owns the product, the MoR acts as the seller in the payment process.
For example, let’s say you run a small software business in the UK and sell subscriptions worldwide. When a customer in Germany buys your software, the payment goes through an MoR such as Paddle or Xsolla. That company handles all the tax and legal details for you. They also ensure compliance with EU laws, so you don’t have to register in every country you sell to. In e-commerce, this setup helps smaller companies scale faster because they don’t need to handle international tax or compliance directly.
If you’ve ever noticed a charge on your bank statement that lists a company name you don’t recognise, like “Processed by Paddle” or “Charged by Xsolla”, that’s the Merchant of Record. In fact, when people buy products online that might be deemed "embarrassing", many times there will be a Merchant of Record with a completely different name, which skews what exactly the purchaser bought.
{{iwoca-pay-cta="/components"}}
The Merchant of Record model makes e-commerce significantly easier as it handles the transaction on your behalf. Payments can be a nightmare to deal with for management that wants to focus on the actual value of the company, not the minutiae of logistics and payments. Thus, the Merchant of Record model is extremely efficient for companies.
This approach saves time for businesses that sell internationally or through multiple platforms. Instead of registering for tax in dozens of countries, you let the MoR take care of it.
For example, a UK-based SaaS company using Stripe’s Merchant of Record solution can sell to clients in the U.S., France, and Japan, and the MoR makes sure each sale complies with local laws.
Here’s what that process looks like in action:
No, a Merchant of Record and a payment facilitator are distinctly different, though they sometimes work together. A payment facilitator (PayFac) like Stripe or Square helps businesses accept payments but doesn’t take legal responsibility for the transaction. The Merchant of Record, on the other hand, does take that responsibility.
You could put it this way: PayFac is the plumber that moves the money through pipes, while the MoR is the landlord who owns the building and takes legal responsibility for it. They are most definitely differnet entities but have an almost symbiotic relationship.
Here’s how they differ:
Merchant of Record and Seller of Record sound very similar, but they are indeed very different. The Seller of Record (SoR) is the business that owns the product or service. The Merchant of Record is the entity that sells it on paper, handling the payment and legal aspects. For instance, let's say you create a digital art app. You’re the Seller of Record because it’s your product. But when a customer buys your app through Paddle, Paddle becomes the Merchant of Record, collecting the payment, managing VAT, and ensuring compliance.
More importantly, however, is the legal liability. If you are the seller of record as well as the merchant of record, and something happens to the payment, whether it be financial or legal, then you are held responsible. It's the same concept behind an LLC; many people form an LLC as it's "limited liability", rather than doing business through their own name. The same is true for an MoR; they absolve a seller from liability should something happen with payment..
Choosing between acting as your own Seller of Record or working with a Merchant of Record usually depends on how big your reach is and how much admin you can handle. If you sell in just one country, managing payments yourself might be fine. But once you start selling internationally, or offering digital goods to customers in multiple currencies, an MoR can save time, reduce risk, and help you stay compliant without extra paperwork.
You might want to use an MoR when:
At the end of the day, the MoR model fits best for SaaS companies, gaming platforms, crypto-related things, and digital marketplaces looking to expand globally without extra legal complexity.
A Merchant of Record can be a major advantage for small and mid-sized businesses selling online. It combines payment processing with legal and tax management, letting companies reach global customers without getting lost in red tape. Here’s how that plays out in real terms.
An MoR automatically applies the right tax rates for every sale, no matter where the customer lives. For example, a U.S. company selling digital courses to buyers in Germany or Australia doesn’t need to figure out VAT or GST rules on its own. The MoR calculates and pays those taxes correctly, which prevents mistakes and saves hours of accounting time.
Running an online business means dealing with invoices, refunds, chargebacks, and compliance paperwork. Merchant of record services from platforms like Paddle, Xsolla, or Adyen handle all of that behind the scenes. That allows small teams to stay focused on marketing and product growth instead of paperwork.
People feel safer paying through familiar names like Stripe or PayPal. If a shopper in France sees PayPal listed at checkout, they’re far more likely to complete the purchase. Customers also know refunds and disputes are handled fairly, which builds credibility over time.
An MoR makes it possible for even small businesses to sell internationally right away. A game developer in the UK can start selling to players in Japan or Canada without setting up new legal entities or hiring local accountants. The MoR takes care of those details.
Merchant of record payment processing opens doors to regional payment methods like Klarna, SEPA, or local credit cards. A shopper in Sweden might prefer Klarna’s pay-later feature, while someone in the U.S. sticks with Visa or PayPal. Offering these choices can significantly lift conversion rates.
{{find-out-iwocapay-cta="/components"}}
It's really important to emphasise once again the limited liability advantage of a Merchant of Record. Above all else, the importance of having some sort of hedge against liability, anywhere in business but especially in payments, can't be stressed enough. Using a good Merchant of Record becomes most useful once your business starts selling across borders or offering digital products that need consistent tax and payment handling.
If you mostly operate within one country and already manage payments and taxes internally, you can usually wait before bringing in an MoR. But as soon as you start dealing with customers abroad or want to simplify compliance, it can become a smart investment.
To put this in context, some industries rely on Merchant of Record models more than others. SaaS companies and gaming platforms are often early adopters because they sell digital products globally and need help managing taxes and compliance. The chart below shows an illustrative breakdown of how common MoR use tends to be across different business types.
