What Is a Merchant of Record (MoR)? Everything You Need To Know

A Merchant of Record (MoR) is the entity that legally sells your products or services to customers. It handles payment processing, tax remittance, chargeback management, and regulatory compliance. This model is popular among digital businesses and global SaaS providers that want a simple and compliant way to accept payments in different regions. As online shopping continues to grow, card-not-present (CNP) transactions recently made up about 32% of all U.S. debit card payments recently. This shows how much commerce has shifted online and how exposed merchants are to fraud. Many companies now rely on MoRs to handle security, compliance, and dispute management in one place. For businesses that operate internationally or in regulated industries, working with a Merchant of Record can make payment operations easier and reduce transaction risks. This guide explains what an MoR is, how it works, when it’s a good fit, and how it compares to other payment models.

What a Merchant of Record Does and Why It Matters

At its core, a Merchant of Record (MoR) acts as both a shield and an enabler for your business. It assumes the legal and financial obligations associated with payment transactions, enabling your company to operate efficiently without the need to manage the complex systems that drive each sale. Understanding what sets the MoR model apart from other payment setups can help you decide which structure best fits your growth goals, a common consideration for businesses in the pet supplies market or when looking at a global operation like international merchant accounts.This evaluation is critical to ensure you avoid credit card processing issues that can arise from mismanaged legal or technical setups

The Key Difference Between an MoR and a Payment Processor

A payment processor provides the infrastructure to route transactions between customers, banks, and card networks. However, the responsibility for compliance, taxes, and disputes remains with your business. In contrast, an MoR not only processes the payment but also becomes the official seller. This means the MoR’s name appears on receipts, and they handle all regulatory, tax, and refund obligations.

How an MoR Differs from a Payment Service Provider (PSP)

A Payment Service Provider acts as a technical layer that connects your business to multiple payment methods. While a PSP simplifies access to payment gateways, it does not assume legal ownership of the transaction. The MoR, on the other hand, does. This distinction defines who bears responsibility in the event of disputes or audits.

Comparing an MoR to a Payment Facilitator (PayFac)

A Payment Facilitator allows sub-merchants to process transactions under its umbrella. This model is well-suited for platforms that onboard a large number of sellers, such as marketplaces. However, PayFac typically does not assume full responsibility for taxes and compliance for each merchant. The MoR model centralizes that responsibility, offering a cleaner structure for businesses that want a single accountable entity handling the entire transaction lifecycle. Visa’s materials describe the PayFac model as a way to aggregate and sponsor sub-merchants, which is structurally different from a seller-of-record arrangement.

Why the Difference Matters

These distinctions influence how risk, compliance, and financial operations are managed. If your business aims to reduce administrative load, minimize exposure, and ensure every sale complies with global regulatory standards, the MoR model offers the necessary coverage. It’s especially valuable for companies expanding into new markets where the cost of non-compliance can be steep. To make these differences clearer, here’s a simple comparison table.

Model Type	Legal Seller	Handles Tax & Compliance	Manages Chargebacks	Provides Payment Infrastructure	Best For
Merchant of Record	Yes	Yes	Yes	Yes	Businesses seeking end-to-end compliance and liability coverage
Payment Processor	No	No	No	Yes	Businesses wanting direct control of payments
Payment Service Provider (PSP)	No	Partial	No	Yes	Businesses needing access to multiple gateways
Payment Facilitator (PayFac)	No	Partial	Partial	Yes	Platforms or marketplaces are onboarding many merchants

Is it possible to switch from a Payment Processor to a Merchant of Record later on?

Yes. Many businesses start with a payment processor and later transition to an MoR model as they expand into new markets or require more robust compliance support. The transition usually involves reassigning legal ownership of transactions and adjusting tax registration and reporting systems.  

The Problem a Merchant of Record Solves for Growing Businesses

Expanding a business across markets sounds exciting, but it also brings layers of complexity that can slow you down. Payment compliance, regional tax rules, and liability management can easily turn into full-time work. This is where a Merchant of Record, or MoR, steps in to remove those barriers and keep your operations smooth. This is essential for highly regulated financial services. To ensure compliance while scaling, merchants must follow legal and compliance tips for high-risk merchants A U.S. Government Accountability Office review found that after the Wayfair decision, all 45 states with a statewide sales tax and the District of Columbia adopted remote-seller rules, often with differing thresholds and marketplace provisions. This created a complex patchwork for businesses.

Navigating Complex Tax Regulations

Each region you sell in has its own tax laws, filing requirements, and enforcement procedures. Managing those obligations internally can drain resources and increase the risk of penalties. An MoR automatically manages these requirements, ensuring taxes are collected and remitted correctly, regardless of your customers’ location.

Reducing Risk Exposure

Every transaction carries potential risks, from chargebacks to regulatory audits. Handling disputes across multiple jurisdictions can be challenging and costly. The MoR assumes liability, acting as the responsible entity with which customers and regulators interact. This shifts financial and legal exposure away from your business.

Streamlining Compliance and Reporting

For many growing businesses, maintaining PCI compliance and secure payment practices takes significant time and investment. A qualified MoR maintains these compliance standards on your behalf. They provide accurate records, transaction logs, and tax documentation that keep your business audit-ready at all times.

Freeing Your Team to Focus on Growth

By freeing up your internal resources from reconciliations, chargeback disputes, and tax filings, your team can focus on expansion, marketing, and customer experience. The MoR essentially handles the back-office burden that comes with scaling transactions globally.

Can a Merchant of Record help businesses that only sell domestically?

Yes. Even if your sales are limited to one country, an MoR can simplify compliance, manage chargebacks, and ensure that tax filings are handled correctly. This allows small and midsize businesses to operate with the same level of compliance and professionalism as global enterprises.

How the Merchant of Record Process Operates

A Merchant of Record (MoR) serves as the bridge between your business, the customer, and all the financial systems involved in a sale. To understand its function, it helps to see how a transaction flows when an MoR is in place and what happens at each step.

Step 1: Customer Makes a Purchase

When a customer completes a transaction, their payment goes to the Merchant of Record, not directly to your business. The MoR is listed as the seller on the receipt and appears as the entity that processed the payment on the customer’s bank or card statement.

Step 2: Payment Processing and Authorization

The MoR routes the payment through its network of processors and acquirers. During this stage, it runs fraud checks, verifies payment authorization, and ensures that all data transfers meet security standards such as PCI DSS. This is backed by the PCI Security Standards Council’s current standard, PCI DSS v4.0.1, which sets detailed requirements for securing cardholder data.

Step 3: Compliance and Tax Handling

As the official seller, the MoR calculates and collects the correct amount of sales tax or VAT, depending on where the buyer is located. It then files and remits those taxes to the proper authorities, taking complete accountability for accuracy and timing.

Step 4: Managing Refunds and Disputes

If a refund or chargeback arises, the MoR handles it directly with the customer and their financial institution. Your team stays informed without needing to manage the dispute process or provide extensive documentation.

Step 5: Settlement and Reporting

After deducting applicable fees, the MoR transfers the net proceeds to your account. They also provide detailed reports covering transaction summaries, tax filings, and chargeback activity, giving your finance team complete visibility into performance without the administrative workload.

The End Result

With this model, your customers enjoy a seamless payment experience, while your business remains protected from compliance missteps and cross-border tax issues. Everything from the initial transaction to post-sale obligations runs through a single accountable entity. This level of protection and efficiency is vital for high-risk, high-volume sectors like escrow services and travel agency operations. This operational efficiency is one of the top benefits of credit card processing for small businesses

Does using a Merchant of Record affect how customers perceive my brand?

Not necessarily. Even though the MoR appears on the payment statement, your customers still interact with your website, product, and customer service. The purchasing experience remains branded to your business while the MoR operates quietly in the background to ensure payments are handled properly.

Core Responsibilities You Offload to a Merchant of Record

Working with a Merchant of Record (MoR) means transferring a wide range of operational, financial, and regulatory tasks to an entity designed to manage them efficiently. Each responsibility plays a specific role in reducing complexity while ensuring that every transaction follows legal and financial standards.

Managing Tax Collection and Remittance

One of the most critical duties handled by an MoR is managing sales tax or value-added tax (VAT). They register where necessary, calculate applicable rates for every transaction, and file returns on time. This prevents underpayment or overpayment errors that can lead to costly penalties or audits.

Overseeing Payment Compliance and Security

The MoR ensures every transaction meets strict security standards, including PCI DSS compliance. They handle secure storage of card data, maintain encryption protocols, and conduct regular audits to reduce the risk of data breaches.

Handling Chargebacks and Dispute Resolution

When disputes arise, the MoR manages the process from start to finish. This includes communicating with banks, reviewing evidence, and issuing refunds if required. Because the MoR is the legal seller, the financial liability for these disputes rests with them, not your business. In Europe, industry reporting shows payment fraud in the EEA totaled 4.3 billion euros in 2022, underscoring the importance of strong dispute processes.

Maintaining Regulatory and Legal Compliance

Each market has unique consumer protection laws and payment regulations. An MoR stays current with these requirements, whether it involves Know Your Customer (KYC) standards, anti-money laundering (AML) protocols, or cross-border transaction rules. Their ongoing monitoring shields your company from unintentional violations.

Managing Reporting and Reconciliation

All financial reporting, reconciliation, and transaction summaries are maintained and shared with you regularly. This provides your finance team with clear insight into performance, eliminating the need to compile data from multiple systems or regions.

Supporting Multi-Currency and Local Payment Options

An MoR can process transactions in various currencies and payment methods preferred by customers in each market. They convert funds, settle payments efficiently, and provide localized payment experiences that build customer trust. This is essential for businesses with diverse global clientele, such as insurance brokerage or high-volume home services. Together, these responsibilities form a complete framework that keeps your business compliant, reduces overhead, and allows you to operate globally with confidence.

Who is responsible for data security when using a Merchant of Record?

The MoR assumes responsibility for securing all customer payment data. They are required to meet PCI DSS standards, implement encryption, and maintain strong internal controls. Your business benefits from these protections without maintaining its full-scale compliance infrastructure.

When Choosing a Merchant of Record Makes Sense

At a certain stage of growth, handling every part of payment management in-house starts to drain more time than it’s worth. Expanding into new markets, meeting regional tax laws, and managing chargebacks can overwhelm even experienced teams. That’s when a Merchant of Record (MoR) becomes a practical and strategic choice.

• Identify Business Complexity: Assess the number of markets you operate in and the payment systems you manage. If operations span multiple regions or currencies, a Merchant of Record (MoR) can centralize compliance, taxes, and transaction management.
• Assess Product Type and Sales Model: Digital products, SaaS, and subscriptions often cross borders and require recurring billing. An MoR ensures these sales meet international tax and consumer protection standards while keeping renewals seamless.
• Review Compliance and Risk Exposure: Consider the effort spent on chargebacks, disputes, and tax filings. When regulatory tasks outweigh growth activities, transferring liability to an MoR reduces financial risk and simplifies reporting.
• Evaluate Internal Resources: Small or lean teams without full-time compliance or finance departments benefit most from MoR support. Delegating tax, filing, and regulatory duties frees staff to focus on product development and customer acquisition.
• Plan Timing Strategically: Transition before entering new markets or scaling transaction volume. Early adoption prevents compliance gaps, failed filings, or sudden dispute surges, ensuring smoother growth and operational stability.

Is a Merchant of Record suitable for small businesses or startups?

Yes. Small businesses and startups can greatly benefit from using an MoR, as it eliminates the administrative and financial risks associated with internal compliance management. It’s beneficial for early-stage companies planning to sell internationally or accept digital payments from multiple regions.

When a Full-Service Processor Is the Better Fit

While a Merchant of Record (MoR) can simplify compliance and global operations, some businesses prefer to maintain direct control over their payment flow. In those cases, a full-service payment processor may be the smarter option. This model keeps your business as the legal seller of record, allowing more flexibility in how you manage costs, integrations, and customer experience.

Greater Control Over Brand and Customer Experience

With a processor, your business name appears on customer receipts and statements. This keeps your branding consistent throughout the entire purchase journey. You also manage refund policies, chargeback communications, and customer support directly, which can strengthen trust and loyalty.

Customization and Cost Optimization

A full-service processor provides more room for customization. You can negotiate rates, tailor risk management strategies, and optimize interchange costs over time. This is especially useful for businesses with high transaction volumes or those that want to fine-tune payment efficiency.

Flexibility With Technical Integrations

If your payment system is built on a custom platform or you operate across multiple sales channels, a processor provides the flexibility to tailor integrations to your specific needs. This approach works well for businesses with in-house developers who want to maintain control of the technology stack.

Suitable for Regulated or Specialized Industries

Businesses in industries with unique underwriting or compliance requirements—such as travel, finance, or adult content—often benefit from a processor that offers dedicated support for high-risk categories. These processors specialize in balancing risk tolerance with reliable payment continuity.

When This Model Makes the Most Sense

A full-service processor is ideal when your business:

• Wants to keep complete control of payment branding and flow
• Has the resources to manage tax compliance and chargebacks internally
• Requires custom pricing or technical configurations
• Operates in a niche or high-risk industry needing specialized support

This model offers flexibility and ownership, but it also requires diligence. Your business will need to maintain compliance, manage disputes, and handle taxes directly. For companies ready to take on that responsibility, the payoff is more control and potentially lower long-term costs.

Can I combine a full-service processor with a Merchant of Record model?

Yes. Some businesses use a hybrid setup where specific product lines or regions operate under an MoR, while others use a direct processor. This combination allows flexibility in managing costs and compliance while ensuring smooth global coverage.

Comparing Costs: Merchant of Record vs. Payment Processor

Before choosing between a Merchant of Record (MoR) or a direct payment processor, it’s essential to understand how each model handles fees. The structure varies depending on who manages risk, compliance, and infrastructure. Indeed, independent studies show that for every $1 lost to fraud, U.S. merchants incur around $4.61 in total costs (including detection, recovery, and indirect expenses). This figure helps explain why some businesses favor MoRs to absorb and manage dispute risk. Analyzing these costs early helps you plan for profitability and avoid unexpected charges later.

How a Merchant of Record Charges

An MoR typically operates on an all-inclusive pricing model. You pay a fixed percentage per transaction that covers processing, compliance, taxes, and chargeback management. Because the MoR assumes financial liability, its rates tend to be slightly higher than those of a processor. The simplicity of this model appeals to businesses that prefer predictable costs without hidden obligations. Standard inclusions in MoR pricing:

• Transaction processing fees
• Sales tax or VAT collection and remittance
• Refund and chargeback handling
• Regulatory and compliance management
• Reporting and reconciliation services

While you may pay more upfront, you save on accounting resources, legal oversight, and compliance tools that would otherwise need to be purchased separately.

How Payment Processors Structure Their Fees

A processor’s fee model is usually more flexible but can include multiple moving parts. You might encounter interchange fees, assessment fees, and markup rates that vary by card type or transaction volume. Processors can offer competitive rates, but your business is responsible for the added costs of chargebacks, tax filings, and compliance audits. Common processor fee elements:

• Interchange and assessment fees (set by card networks)
• Processor markup or transaction percentage
• Chargeback fees and penalties
• Monthly gateway or statement fees
• Optional fraud or compliance add-ons

Comparing the Two Models

Feature	Merchant of Record	Payment Processor
Pricing Type	Bundled per transaction	Variable by fee type
Compliance Coverage	Included	Managed by the merchant
Tax Handling	MoR collects and remits	Merchant responsible
Chargeback Liability	MoR assumes responsibility	Merchant handles disputes
Transparency	Simple and predictable	Detailed but complex

Choosing the right fee model depends on your business structure. If your team values simplicity and compliance assurance, an MoR’s inclusive approach offers peace of mind. If cost control and customization are your priorities, a processor’s granular model better suit your needs.

How Compliance and Risk Management Work Under MoR

Every business that accepts payments carries significant regulatory and financial responsibilities. A Merchant of Record (MoR) steps in to manage these obligations, covering areas that could otherwise expose your company to penalties, disputes, or compliance failures. Understanding how this protection works helps you make more informed decisions about your payment strategy.

Sales Tax and VAT Obligations

Accurate tax handling is one of the most essential duties an MoR manages. It collects, files, and remits the proper sales tax or VAT based on each customer’s location. Detailed documentation is maintained to ensure compliance with both local and international tax authorities. This structure minimizes the chance of missed filings or incorrect remittances that could trigger costly audits.

Payment Security and PCI Compliance

Handling sensitive customer payment data requires strict oversight. Every transaction processed through an MoR passes through PCI DSS–certified systems with strong encryption and layered security controls. These measures safeguard customer data and protect your business from potential breaches and the reputational harm that follows.

Chargeback Management and Dispute Resolution

Disputes and chargebacks are part of the payment landscape, but their management determines how much impact they have on your bottom line. Instead of leaving your team to handle them, the MoR monitors and responds to each case, gathers required documentation, and works directly with financial institutions to resolve issues quickly. This proactive approach helps maintain lower dispute ratios and reduces financial risk, a crucial factor for timeshare companies and high-value services like jewelry and precious metals.

Adherence to Global Regulations

Cross-border commerce introduces complex regulations like Know Your Customer (KYC), Anti-Money Laundering (AML), and varying consumer protection laws. An experienced MoR keeps pace with these evolving requirements by maintaining updated verification processes and compliance documentation across all active markets.

Data Privacy and Residency Requirements

Data privacy laws differ by country, and some require customer data to remain within their borders. MoRs manage these requirements by processing and storing payment information in compliant regions while meeting global privacy frameworks such as GDPR. This ensures customer information remains secure and handled lawfully, regardless of where transactions originate.

Expand Your Business with the Right Payment Partner

Selecting the right payment structure is more than just a financial decision. It shapes how your business operates, scales, and builds trust with customers. A Merchant of Record takes care of the complex parts of doing business, managing taxes, handling chargebacks, and staying compliant with local and international regulations, so your team can focus on what truly drives growth. With a Merchant of Record, you gain a partner that protects your business from regulatory risks, simplifies cross-border transactions, and provides a consistent customer experience no matter where sales come from. This model helps you expand into new markets faster, reduce administrative work, and maintain accurate reporting without adding to your team’s workload. If your goal is to grow globally, strengthen compliance, and create smoother payment experiences, now is the time to make the switch. Visit 2Accept to connect with a payment expert who can help you find the best MoR solution for your business and build a strong, scalable foundation for long-term success.

Frequently Asked Questions

Does a Merchant of Record work with all types of payment methods?

Yes. Most MoRs support a wide range of payment methods, including credit and debit cards, digital wallets, ACH transfers, and local options, depending on the market. This flexibility allows customers to pay in their preferred way while maintaining smooth transaction processing.

How long does it take for payments to settle when using a Merchant of Record?

Settlement times depend on the MoR’s internal processes and your payout schedule. Generally, funds are released within a few business days after the transaction clears and any chargeback Can a Merchant of Record handle subscription billing or recurring payments? Absolutely. MoRs are commonly used for subscription-based models such as SaaS, memberships, or digital services. They manage recurring billing, automatic renewals, and failed payment retries to keep revenue flowing consistently.

What kind of reporting and analytics do Merchants of Record provide?

Most MoRs offer detailed dashboards and downloadable reports that include transaction data, chargebacks, tax summaries, and settlement breakdowns. This makes reconciliation and financial forecasting much easier for your team.

How do Merchants of Record ensure smooth global transactions?

An MoR maintains relationships with multiple acquiring banks and payment networks worldwide. They manage currency conversions, local payment preferences, and regional compliance requirements, making international transactions seamless for both you and your customers.