Payments are a crucial aspect of running an online business in e-commerce. If you're developing or managing an e-commerce platform, one concept you'll encounter is Merchant of Record (MoR). Merchant of Record is the entity responsible for processing customer payments, handling refunds, and ensuring compliance with local tax laws. It is the legal entity that makes the sale. It is the statement descriptor that appears on the bank statements. Not only does this role affect payments, but also compliance, tax handling, and liability.
The role of the MoR in e-commerce can be handled in two ways. A first approach is to serve as your own MoR. As a second option, you can use a third-party legal entity that acts as your MoR.
Whenever a business acts as its own MoR, it handles all aspects of the transaction. Among these are the processing of payments, the management of taxes and financial regulations, as well as the handling of disputes and chargebacks from customers. Typically, larger e-commerce retailers act as their own MoR, maintaining full control over their brand, data, and business.
In contrast, many smaller businesses employ a third-party MoR, outsourcing all the legal and compliance requirements at the expense of less control (and high management fees). Some examples include popular marketplaces and internationalization services.
In the end, the decision between becoming your own MoR or using a third-party service comes down to several factors, such as business size, market reach, operational capabilities, and brand strategy. Regardless of which approach you choose, you should understand how the two approaches differ. Behind a single website, there are often many MoRs that can be switched behind the scenes, depending on the country, the vendor, or other conditions.
Consider Amazon, for example. It is possible for the same product to be sold by Amazon or directly by the vendor, making it the MoR. You can find out who the merchant of record is by reading the terms and conditions. A good exercise to gain a better understanding of how brands are organized and the many business models that are generally transparent to the end customer.