What is a Merchant of Record?

The vast potential of international selling presents businesses with unprecedented growth opportunities, as cross-border ecommerce surged by a remarkable 344% since 2016, culminating in a staggering $1.2 trillion in 2022. Yet, capitalizing on this potential remains a daunting task. When venturing across borders, the complexities and liabilities grow exponentially with each new geography: from navigating evolving duties, taxes, government and banking regulations specific to each market. This intricate landscape often results in global expansion becoming a slow and costly endeavor, leading brands to forego potential revenue and miss out on valuable growth prospects.

However, there is an alternative for ecommerce brands seeking international expansion – the Merchant of Record. This specialized model offers a transformative remedy to the overwhelming operational challenges that business owners encounter when tapping into overseas markets.

Let’s dive into the Merchant of Record concept and explore the benefits it can offer your business.

What is a Merchant of Record? 

A merchant of record (MoR) is the company that sells products or services to the final customer, and the legal entity those customers pay when making a purchase. The MoR takes on the financial responsibility and liability of payments, billing, sales, taxes, refunds and chargebacks, and more.

In the traditional business model, many brands unknowingly act as their own MoR. They independently handle all aspects of their sales, taxes, and refunds. However, as a business owner seeking expansion, you have the option to continue operating as your own MoR. Yet, each new market you enter will introduce a fresh set of financial and legal complexities that might impede your business’s growth.

When selling globally, in order to achieve the highest approval rates , lowest fees, and best customer experience, processing locally is the way to go (local acquiring vs. crossborder. In order for a company to process locally, they must set up local operations, a bank account, and a legal entity. The cost and complexity of setting up a foreign subsidiary is typically too large for most companies to overcome.

Alternatively, a third-party solution can act as an MoR on your behalf.

What is a 3rd Party Merchant of Record?

Many businesses operate as their own Merchant of Record, organizing the payment infrastructure and undertaking all the liability and processes involved in receiving or refunding a payment. This is standard for companies selling into their domestic market where they have a local establishment set up, existing relationships with local banks and understand the rules and regulations. But for international markets, businesses are starting to utilize the 3rd party Merchant of Record Model.

3rd party Merchant of Record services acts as an intermediary between a business and its customers, taking responsibility for the payment processes and liabilities on behalf of the business. Ultimately they function as a commercial agent, with the customer paying the Merchant of Record during their purchase and the merchant of record then paying the business.

Put simply, a 3rd Party MoR handles how you, the merchant, get paid for your services/products when selling globally. Its roles include (but aren’t limited to):

• Handling international payments
• Maintaining merchant accounts
• Being liable for transactions
• Collecting and remitting sales taxes (including local taxes, if applicable)
• Providing customer support for questions on the payment

Using a third-party MoR allows you to focus on other parts of your business, like creating great products and developing marketing to drive awareness to overseas customers.

How does 3rd Party Merchant of Record work with Reach? 

Partnering with a 3rd party Merchant of Record doesn’t change much as far as your customers are concerned. They still visit your website to buy the goods and process their payment as usual. However, Reach will dynamically present the pricing in the local currency and allow the buyers to pay with their preferred payment methods based on their location.

Transactions are routed through our vast global payments infrastructure already built and maintained by Reach. Reach takes on the liability for all payments and sales tax compliance associated with those transactions. Reach then pays the amount due to you once the fee have been deducted.

What are the benefits of utilizing Reach to be the Merchant of Record?

• Increase conversion by offering customers the ability to pay in local currency and preferred payment method
• Reduce processing fees by utilizing Reach’s global payment infrastructure, unlocking local processing power.
• Offload all compliance and liability for Tax, PCI, & local regulations
• Easily Expand quickly to new markets with confidence
• No requirement to set up a legal entity outside of your domestic market.
• Reduce complexity – Manage currency, payment methods, tax, & compliance all through a single partner.

Want to learn more about how Reach can operate as your Merchant of Record? Check out our offerings for your specific business, or get in touch with our team!