How the Merchant of Record Model Works for Online Payments in 2025
The Merchant of Record (MoR) model is a popular solution for online businesses, simplifying payment processing, compliance, and global expansion. Here’s how it works and why it’s valuable for startups and enterprises in 2025.
What is a Merchant of Record?
A Merchant of Record is a third-party entity that acts as the legal seller in an online transaction. The MoR handles payment processing, tax compliance, and customer support, allowing businesses to focus on product development and marketing.
How the MoR Model Works
Customer Purchase: A customer buys a product or service on your website or platform.
MoR Processes Payment: The MoR, integrated via API (e.g., Pay Sagi, 2Checkout), processes the payment, supporting methods like cards, digital wallets, or BNPL.
Compliance and Taxes: The MoR calculates, collects, and remits sales taxes (VAT, GST) based on the customer’s location, ensuring compliance with local regulations.
Funds Transfer: After deducting fees, the MoR transfers net revenue to your business account.
Customer Support: The MoR manages refunds, chargebacks, and payment disputes, reducing your operational burden.
Key Benefits
Global Expansion: MoRs handle multi-currency payments and local tax laws, enabling sales in 100+ countries without local entities.
Simplified Compliance: MoRs ensure adherence to GDPR, PCI-DSS, and regional tax regulations, minimizing legal risks.
Cost Efficiency: No need for in-house payment infrastructure or tax experts.
Scalability: MoRs support high transaction volumes and diverse payment methods, ideal for growing startups.
Fraud Protection: Advanced fraud detection tools reduce chargeback risks.
Challenges
Fees: MoRs charge higher fees (2-5% per transaction) than traditional payment processors.
Less Control: Businesses rely on the MoR for customer payment experience and data.
Integration: Requires technical setup to align with your platform.
Use Cases
SaaS Startups: Platforms like Paddle streamline subscription billing and tax compliance.
E-commerce: MoRs like 2Checkout support global marketplaces with diverse payment options.
Digital Goods: Ideal for selling software, games, or content across borders.
Choosing an MoR
Look for providers with robust integrations (Shopify, WooCommerce), transparent pricing, and strong support for your target markets. Popular MoRs in 2025 include Pay Sagi, 2Checkout, and FastSpring.
The Merchant of Record model is a game-changer for online businesses, offering a hassle-free way to manage payments, taxes, and compliance while scaling globally.