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What’s The Difference Between Merchant of Record, Seller of Record and Payment Service Provider?

Brands have many options when it comes to selling online. Many eCommerce functions can be outsourced to provide efficiency and peace of mind. Here are three common vendor arrangements and what you need to know to choose the one that's right for your brand.

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Merchant of Record. Seller of Record. Payment Service Provider. These are commonly seen terms in online retail, but there is some mystery in understanding their place in eCommerce. Simply put, each does its part in helping online businesses deal with sales transactions, payments and complex global eCommerce issues. While each of these payment partners can work separately, they are often combined depending on a company’s needs.

Still, the responsibilities of each run much deeper than this nutshell explanation. Let’s dive into each, discover how they work and how eCommerce businesses can choose which is right for them.

Merchant of Record (MoR)

A merchant of record is a legal entity that sells goods or services to end customers on behalf of a merchant. They are authorized and held liable by a financial institution to process a consumer’s credit and debit card transactions. The MoR is responsible for maintaining merchant accounts, processing all payments and managing credit card processing fees. They also ensure PCI-DSS compliance, stay current on transactions laws, handle chargebacks and are responsible for all legal demands.

An MoR works like an intermediary reseller. A business sells to the MoR, who resells to customers. The MoR receives payments from customers, pays the company for purchased products and ships them to the buyer. Because the MoR owns the merchant account in the backend, payments are processed in their name. A customer’s credit card statement will bear the name of the MoR.

Additionally, an MoR is responsible for detecting and preventing fraudulent activities and complying with all privacy and anti-fraud regulations within a territory. 

MoRs are ideal for businesses that are expanding internationally but have not established a localized presence. Partnering with an MoR relieves businesses from dealing with tax and compliance issues involved with international payments. MoRs are familiar with local and international jurisdictions’ financial and legal compliance rules. They also stay current on sales tax and tax calculation issues at the county, state and international levels. 

Partnering with a merchant of records is helpful for companies that want:

  • Global financial compliance: An MoR will help brands that sell to a global audience collect and remit taxes to comply with consumer protection regulations.
  • Borderless SaaS payments: An MoR can easily collect subscription/recurring and process payments.
  • Pro merchant accounting: An MoR is cheaper, safer and more efficient than traditional merchant accounts, setting up local offices and other infrastructures necessary for processing cross-regional payments.

Seller of Record (SoR)

A seller of record is similar to a merchant of record, and the two are often confused. An SoR is referred to as the seller of a product or service to end consumers. A brand gives an SoR the legal right to identify as the original seller and sell goods under their name. MoRs do not assume the identity of the business selling the product and identify themselves as a third party.

An SoR is responsible for coordinating all key financial elements of an online sale. They process and fulfill orders, collect and remit all payments and taxes and ensure full compliance with country-specific trade and tax laws. SoRs also standardize financial set-up processes and work with local entities to enable localized payment methods and credit card acquiring. The seller of record also handles all unsuccessful purchases by managing customer grievances.

SoRs are helpful for companies that want:

  • Reputation control: An SoR identifies the original seller to control the production brand through a seller contract.
  • Managed recourse: In an unsuccessful purchase, an SoR is responsible for customers’ legal rights that demand compensations or refunds.

Payment Service Provider (PSP)

Payment service providers help merchants securely accept all types of online payments, including credit cards, debit cards, cash cards and e-wallets. While traditional merchant accounts give merchants their own account, a PSP combines a variety of different merchants under a single umbrella. In this arrangement, PSPs take on the combined financial risk of all of their clients.

PSPs handle every stage of online payment transactions. They can connect with numerous card and payment networks and a wide range of acquiring banks. PSPs also provide payment gateways and cover all compliance issues. The result is a smooth and secure payment experience for merchants and customers. 

 

PSPs are helpful for companies looking to:

  • Reduce processing costs: Financial institutions cut processing costs for PSPs because they manage in bulk. 
  • Fast transactions: Since PSPs take on the combined risk of all their customers, the approval process is quick and straightforward.  
  • Affordability: Because of their versatile pricing structures, PSPs are an affordable option for new or smaller businesses.

Payment Service Provider vs. Merchant of Record

The biggest difference between a PSP and an MoR is that a PSP is a payment-only solution. Unlike MoRs, they do not take on any other financial responsibility or assume any financial risk of processing payments. The MoR is responsible for the entire order process, payment processing, financial risks, regulations, currency conversions and all liabilities. Additionally, MoRs do all local processing. They work with local acquirers, while PSPs work with acquirers in the merchant’s country. 

How Do eCommerce Brands Know Which Partner Is Right for Them?

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While merchants of record, sellers of record and payment service providers are often interchangeable, they each perform different functions for businesses. Depending on the nature of their business, brands may need one or a combination of these payment systems.

Businesses that only sell domestically can use a PSP and act as their own merchant and seller of record. The PSP solution is best suited for domestic businesses that only require a third-party entity to process payments. Maintaining a merchant account and standardizing processes for reporting, settlements, and reconciliations is easier within home country borders.

The actual value of outsourcing payment solutions comes when brands go global. In these cases, companies need international merchant accounts that allow payment methods in the local currencies of other countries. International merchant accounts also help companies accurately calculate local taxes and comply with international regulations.

Factors eCommerce brands should consider when choosing a payment partner include:

Security

A payment processing system must be secure. Before settling on any payment solution provider, it is crucial to confirm that their security is iron-clad and PCI compliant. An eCommerce company’s local financial regulators or central banks must verify that they permit the PSP. The payment provider must also use an SSL certificate to ensure that confidential information is encrypted to prevent data interception.

Easy integration

A payment solution must be easy to integrate. The best strategy is to select a payment system that doesn’t interfere with website UX or slow the payment process. A payment solution should also provide multiple payment options and be intuitive and user-friendly to avoid customer abandonment.

24/7 support

A payment solution provider must be instantly accessible through email, chat or phone. The partner must be available anytime, day or night, to immediately deal with any issues that may arise. Slow or undependable provider support can result in costly downtime, which could increase customer retention and bounce rate.

Dealing with payments, taxes and compliance is never easy, especially for brands looking to go global. That said, there are obvious benefits to outsourcing to eCommerce payment partners. Brands can focus on daily operations and growing their business by leaving the complexities to third-party entities. Partnering with MoRs, SoRs and PSPs is also an obvious solution for growing brands or those just diving into international markets.

Scalefast powers DTC eCommerce for global brands and can act as your merchant and seller of record. Our specialty store and international expansion expertise can help you sell global while looking local. Want to learn more? Talk to one of our eCommerce experts or schedule a demo today.

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