Brands can make their work simpler by outsourcing many of their eCommerce operations to a merchant of record.
A merchant of record (MoR) is responsible and liable for processing secure online payments. eCommerce brands can manage their own merchant account, or they can give this responsibility to a third party. When brands hire another company to act as their merchant of record, they hand over tasks such as maintaining the merchant account, managing the payment gateway, negotiating credit card fees, handling chargebacks and staying compliant with all relevant standards.
Growing brands already have a lot to manage — creating incredible products, boosting sales and building the brand’s reputation. By outsourcing their MoR responsibilities, brands lighten their load so they can focus on their core competencies.
Below are five crucial elements of growth that a merchant of record can own.
1. Merchants of Record Keep Your Brand PCI-Compliant
All eCommerce brands must comply with credit card security regulations and local payment laws.
The PCI DSS (Payment Card Industry Data Security Standard) is a collection of standards created by the five biggest credit card companies — Visa, MasterCard, American Express, Discover and JCB — that many businesses must adhere to. They are designed to ensure that all companies that process and store credit card information perform these tasks securely.
“Many of our clients think that PCI does not apply to them because they are too small,” writes Daniel Cid, Founder of Sucuri. “This is a very common misconception. PCI applies to any business that processes, stores or transmits credit card data.”
In fact, smaller businesses need to be especially careful to uphold security standards because they are most likely to be targeted by hackers. If they experience a security breach, they endanger their customers and their brands.
That latter concern is crucial to keep in mind. A breach of consumer trust can be devastating for a brand. “19% of consumers would completely stop shopping at a retailer after a breach, and 33% would take a break from shopping there for an extended period,” Dennis Green and Mary Hanbury write at Business Insider.
Further, eCommerce brands face hefty fines if they are not PCI-compliant. Ben Dwyer, Founder of CardFellow, writes that PCI non-compliance fees vary, but can reach up to $100 a month. These fees are preventable if eCommerce brands prove they are compliant. But not all eCommerce managers know how to stay compliant or have the resources to hire employees with this expertise. An outside merchant of record already has experience with PCI standards and local laws. There is no need to reinvent the wheel — an MoR can reduce your security risks and eliminate those non-compliance fees.
2. Merchants of Record Manage Fraudulent Purchases
Merchants of record are experts in all things payment processing — including how to spot and prevent fraudulent transactions. Fraudulent purchases are an unfortunately common nuisance for brands. With fraud comes higher costs in the form of increased chargebacks and payment processing fees.
“Chargebacks occur when a retailer refunds fraudulent transactions charged to consumers’ payment cards,” writes Katie Evans at Digital Commerce 360. “Chargebacks not only involve the merchant’s direct loss, they also come with interchange fees that merchants pay to credit card issuers.” An MoR’s tools can reduce instances of chargebacks — and fight chargebacks if they do arise. This helps keep those costs low.
There is an additional benefit to outsourcing fraud protection. When brands feel especially sensitive to the threat of fraud, they can take overly cautious safety measures, which risks creating friction for actual customers. “Online retailers are surrounded with customers and criminals, facing one dilemma: Who do you say yes to? Who do you decline and how many sales will you lose if you decline a good transaction?” asks Ryan Wilk, VP of Customer Success at NuData Security.
A merchant of record knows how to answer these questions. That frees eCommerce managers to focus their attention on growing their brands, not trying to spot fraudulent activity.
3. Merchants of Record Manage Refunds
Customers expect to be able to refund products they buy online, just as they can return products from a store. eCommerce brands must have the systems in place to manage shipping fees, to restock items and to securely return customer payments.
Like chargebacks, product returns and refunds get expensive. Peter Keller, Founder and CEO of FringeSport, notes how reshipping and restocking prices can add up quickly. Passing those costs along to customers won’t pay off long term, either. It takes time for brands to figure out what return policies will give customers a great experience, but also mitigate the risk of return abuse.
Companies can choose to forge their own paths with returns, or they can partner with MoRs that have experience with customer returns — and have the systems in place to handle those operations smoothly.
4. Merchants of Record Handle Tax Collection and Remittances
Sales tax laws are complicated and continually evolving. Following those changes is a lot to ask of a brand’s eCommerce team.
“Sales tax calculation, collection, and remittances remain a challenge for eCommerce businesses,” says Shane Ratigan, Senior Tax Manager at Clark Nuber PS. “The 45 states plus Washington D.C. with a retail sales tax are all eager to obligate eCommerce merchants on sales made to resident consumers.”
Collecting taxes and remitting money gets even more complicated as brands begin to sell across borders. It requires trustworthy, knowledgeable people to manage all applicable taxes correctly. At that point, onboarding that knowledge becomes a hiring question: Should you hire several tax specialists, or should you partner with a merchant of record that already understands the regulations in your markets?
5. Merchants of Record Help Brands Scale With Less Stress
Online commerce is more connected than ever. “A company no longer needs to be big to be global,” explain Kate Gutmann and Amgad Shehata at UPS. “We know that the internet allows for even micro-enterprises to sell products and services to consumers across borders. However, their full potential is unrealized if they can’t tap new global markets.”
Accessing those new markets can be extremely challenging for companies that don’t have experienced partners who can walk alongside them in the process. Merchants of record are those partners. They specialize in the local laws, currencies and transaction protocols of hundreds of different countries.
Further, your merchant of record will carry the responsibility of staying up-to-date on the ever-evolving laws governing digital trade. This helps ensure brands are compliant with regulations, collecting the taxes they’re supposed to, remitting money properly and protecting the data of customers worldwide.
How to Find the Right Merchant of Record
Because the right partners are so crucial in the growth of a company, eCommerce managers must do their due diligence when looking for the right merchant of record for their brands. When you are comparing different MoRs, consider the following questions.
What Type of Service Do You Expect From Your MoR?
Some MoRs are standalone services. They offer the merchant account and all the traditional services previously mentioned. Others are all-in-one eCommerce platforms that serve as your POS, infrastructure and MoR. Platforms that serve as your MoR streamline all steps from marketing to delivery.
That’s exactly what Pico-Interactive was looking for when they launched their virtual reality hardware to an international audience. A concern for Pico-Interactive was international taxes and regulations. Scalefast was not only able to be their full infrastructure support (strong platform, back-office support and fulfillment support) but was able to take on their MoR responsibilities so Pico-Interactive could focus on what it does best: Developing great products.
What Is Your Brand’s Vision for Growth?
Consider the vision and goals of your company. Perhaps it only operates in limited regions now, but with plans to expand internationally in a few years. You will need an experienced MoR with experience working in those target regions. Scalefast serves consumers in more than 240 countries and territories.
What Is the MoR’s Record of Success?
It is necessary to see what other clients your MoR has worked with and to learn what their experiences were. The case studies a merchant of record publishes make for a great starting point. Those documents will show you whom the MoR has worked with in the past and what they did for those brands.
What Type of Relationship Do You Want to Have With Your MoR
Research what type of customer service your potential MoR offers. Your merchant of record is in charge of protecting your customers and your brand. You should expect them to be committed to your success, and you should be able to communicate with them at any time.
Natural supplements brand Puori chose Scalefast because of its team-as-a-service model, which allowed Puori’s teams to focus on creating amazing products while they trusted Scalefast to handle the responsibilities of running an online store.
Digital commerce is ubiquitous these days. That can make a rookie eCommerce manager feel overly confident about the challenges of eCommerce. In reality, though, selling products online is complicated, especially at scale. A merchant of record simplifies that work. They reduce the brand’s operations and compliance burdens so the brands can focus on the also-complicated task of growth.
Images by: rawpixel©123RF.com, Ryan Born, Katarzyna Białasiewicz/©123RF.com