Is the Merchant of Record (MoR) model right for your business?

If you’re in SaaS, digital goods, or e-commerce, you’re thinking globally from day one. On one hand, that opens up new revenue streams; on the other, it introduces a whole new set of challenges:

• Global payments setup
• Regional tax laws
• Global compliance
• Fraud management

The pressure to grow fast while avoiding operational burnout is real. And getting global payments right isn’t something you can just throw together with a quick API integration.

So, what do you do if you need to scale fast?

This is where the Merchant of Record (MoR) model comes into play. It provides a shortcut to global growth by eliminating the operational and legal hurdles that come with international payments and compliance. 

But is the MoR model right for your business? Let’s break down what it is, how it works, the associated costs, when to use it, and when not.

What is a Merchant of Record (MoR)?

A Merchant of Record is a third-party provider that takes on full legal responsibility for handling payments, tax compliance, and fraud management on behalf of a business. In short, the MoR assumes the risks and responsibilities that come with processing payments, allowing you to focus on growing your business.

When you work with an MoR, you hand over the complexity of global payments. They deal with the back-office tasks that most businesses would find financially and operationally demanding, like global processing, tax filings, compliance monitoring, and fraud protection.

This solves two problems at once: you speed up your time to market while freeing up resources to focus on scaling your product and customer base.

How does the Merchant of Record model work?

The MoR model operates in a straightforward, functional way:

1. Merchant: You provide the product or service and integrate with the MoR to handle payments.

2. MoR provider: The MoR becomes the legal seller of your goods and services, and the transaction is handled through them. It collects payments, processes tax compliance, handles fraud prevention, and manages chargebacks.

3. Payment processor & acquirer: The MoR works with payment processors and acquirers to securely handle the transaction and route it properly.

4. Global compliance: The MoR ensures your business complies with local tax laws, data protection regulations, and fraud prevention standards.

5. Payout: After deducting taxes, fees, and charges, the MoR transfers the remaining funds to you, typically on a weekly or monthly payout cycle.

Why does Merchant of Record take off your plate?

The answer is simple: when scaling requires all the speed and resources you can get. Scaling across multiple regions means dealing with multiple tax systems, payment gateways, and local regulations:

• Setting up a local entity or managing its local complexities can take months, forcing you to pause growth and refocus.
• Staying compliant with VAT/GST, PCI-DSS, and local fraud regulations across multiple regions is no small task. For most businesses, the risk of non-compliance is far too high to ignore. Getting it wrong could result in fines, delays, and damage to your reputation.
• Operating in multiple countries means dealing with high chargeback rates and fraud risks. While actual support for chargeback prevention or representment is usually limited, they do absorb the financial liability of chargebacks. Managing this yourself takes significant time and resources, and can directly affect cash flow.
• And, of course, the cost of building a global payment infrastructure from scratch is huge – especially if you need to set up local entities, deal with cross-border taxation, and hire compliance experts in each region.

An MoR provides exactly that in exchange for a flat fee, allowing you to trade margin for focus.

When does the Merchant of Record model make sense for businesses?

The MoR model makes a lot of sense for specific cases:

Early-stage growth and global expansion

If getting to market quickly is your priority, an MoR is a good option.

Example: A digital subscription business with growing international traffic needs to sell globally but doesn’t have the resources to set up operations in every region. With an MoR, they can start accepting payments across Europe, the U.S., and Asia almost immediately, bypassing the time-consuming setup of local entities.

Businesses with significant international traffic but no local presence

For businesses with high international traffic but no local operations in certain regions, the MoR model offers a practical solution to access local payment infrastructures without having to set up entities in every market.

Example: A Solidgate client, a lifestyle subscription business with infrastructure only in Europe, faced a dilemma: over half of their traffic came from the U.S., but they lacked U.S. merchant IDs (MIDs), leading to a ~$1 million loss annually. The client didn’t want to open operations in the U.S. due to resource constraints. Even though they could pay taxes on that revenue, they were still losing money.

We offered the merchant to set up an MoR in the U.S. and transfer the revenue to Europe as usual. By taking on the MoR role, we managed payments, tax filings, and compliance in the U.S., while the client’s operations in Europe remained intact. 

With this setup, the client saved over $1 million, allowing them to keep the business running smoothly without additional overhead or local setup costs.

Business with moderate complexity in payment needs

If your business has simple checkout flows or processes standard transactions, an MoR can handle it all. Payment orchestration and advanced payment optimization might not be necessary yet. At this stage, it’s about speed, simplicity, and reducing the operational burden.

Example: A B2C subscription service with simple billing logic and predictable payment flows needs to handle cross-border tax and fraud issues. The MoR takes care of these, letting the company scale and launch in multiple markets without having to manage the intricacies of payments themselves.

When Merchant of Record isn’t enough

While the MoR model is excellent for many businesses, it might not always be the best fit for a particular stage, goals, or payment needs:

When you need specific local payment methods

If your target region relies on specific local payment methods (e.g., Alipay in China, Klarna in Europe, or PIX in Brazil), an MoR might not provide the level of payment method coverage you need. MoRs tend to offer standardized payment methods, which might not meet the diverse preferences of your target audience.

In this case, payment orchestration might be a better choice as it allows you to connect dozens of local payment methods and providers through a single integration. You can use a Universal Checkout to tailor your checkout flows to local preferences in different regions with zero code – the level of customization you can’t achieve with a pure MoR model.

You need to have control over payment cost and acceptance rates 

When you reach a certain MRR threshold – usually, around $200 000+ MRR – even a marginal 2-3% improvement in payment conversions or transactional costs becomes glaringly visible on your balance sheets. 

While the MoR model is great for handling payments in the early stages, as your business grows and the complexity of payments increases, you’ll likely need more control over payments.

It includes:

• Having control over payment routing to direct transactions to the best-performing or most cost-efficient acquirer or payment method.
• Being able to reduce declines by automatically switching between multiple acquirers or payment methods when one fails.
• Having the fallback systems in place ensures continuous service and reduces the chances of transaction failures.

Example of smart routing in Solidgate HUB

MoRs don’t provide the granular control needed to implement these payment optimizations and maximize payment success rates, and minimize processing fees.

Whether you’re exploring the MoR model or looking to optimize your payment strategy, our team at Solidgate is here to help you make the right choice. Contact us to discuss how we can support your global growth, simplify your payments, and reduce the operational burden.

Your payment optimization needs go beyond basic processing

While the MoR model excels at handling payments, tax compliance, and fraud risk, the range of specialized payment services can be limited. These can include advanced chargeback prevention, FX management, network tokenization, dynamic cascading, and more.

For businesses that require more precision, flexibility, and control over their payment processes, these tools are often critical to maximizing revenue and minimizing risk. 

The question then becomes: When does the marginal benefit of owning payments outweigh the cash burn and complexity of managing payments yourself?

Blending MoR and orchestration: A strategic approach to payments

MoRs are fantastic for helping you get up and running quickly. But as your transaction volume grows, and even a marginal difference in your payment performance can result in $ millions saved, payment orchestration becomes a natural next step.

A payment orchestration platform is a more advanced system that gives you full control over your payment flows. On average, you can:

• Achieve 3-5% higher approval rates on average (in some cases, even higher)
• Instantly connect dozens of local APMs like PIX, BLIK, CashApp, AliPay, iDEAL, and more via one integration
• Reduce processing costs
• Manage fraud risk more effectively across multiple payment providers 

This is the strategic step-up needed when you need to move from basic payment processing to a system that allows for real-time optimization of payments.

At Solidgate, we know that no single model fits every need. MoR and payment orchestration each have their own strengths. In some cases, it makes sense to blend both models to leverage the best of both worlds – especially as your business grows.

This blended approach allows businesses to scale efficiently and adjust their payment strategy as they grow without getting locked into a rigid model from the start.

Need help scaling your payments infrastructure? Contact us to discuss how we can support your global growth, optimize your payments, and reduce the operational burden.

FAQ

1. What are the key benefits of using a Merchant of Record model for global expansion?

The MoR model takes care of the heavy lifting – payments, taxes, and compliance – so you can focus on growing your business. It streamlines global expansion by handling all the regulatory and operational complexity, meaning you can enter new markets faster and without worrying about legal headaches.

2. How do Merchant of Record responsibilities differ across countries?

It all comes down to local laws. In some countries, like the U.S., it’s mostly about sales tax, while in places like the EU, it’s all about VAT. The MoR customizes its services to make sure you’re compliant with the specific tax rules and regulations in every market you enter.

3. Can a Merchant of Record handle all types of global payments?

MoRs can handle most mainstream payment methods, like credit cards and PayPal, but if you’re looking for more niche options like Alipay in China or PIX in Brazil, you might run into limitations. It’s good for the basics, but it may not cover every local payment preference.

4. When should I consider switching from an MoR to a different payment model?

Once you start hitting higher volumes, or if you need more customization – like smarter payment routing or better fraud detection – that’s when you start thinking about switching. When you’re looking for more control and want to optimize payments or minimize processing costs, orchestration or a PayFac model might make more sense.