Merchant of Record vs. Independent Sales Organization for Software, SaaS & Video Games

Merchant of Record Model

MoR takes on full legal and financial responsibility for transactions.

Independent Sales Organization

ISO provides payment facilitation services, but the merchant remains the responsible party for legal, tax, and compliance matters.

Feature 

Merchant of Record 

ISO

What does it mean for you?

Role 

As the authorized Merchant of Record, it assumes complete responsibility for compliance across all relevant regulations. This entity acts as the direct reseller to the end customer, managing the entire transaction from a legal and contractual standpoint.

An ISO is the middleman who helps merchants create accounts with payment processors without taking on any financial or legal responsibility. Although it does not manage transactions from beginning to end, it allows businesses to accept payments.

With an MoR: An MoR relieves you of financial, legal, and compliance obligations. In contrast, an ISO helps you set up payment acceptance, but you are still responsible for risk and compliance.

Liability 

The Merchant of Record carries full liability, including the accurate calculation, collection, and remittance of applicable taxes. It ensures adherence to all relevant legal and regulatory frameworks and bears the responsibility for managing and mitigating fraudulent activities. Additionally, it provides PCI DSS compliance coverage, handles consumer protection regulations, and manages chargebacks and refund liabilities according to local laws.

ISO does not assume responsibility or liability for fraud, sales taxes, and regulatory compliance. The vendor is still solely liable.

With an MoR: A MoR shields the company against legal and tax risks. With an ISO, the company is still liable for all liabilities and exposed.

Subscription Management 

The MoR model typically offers comprehensive features for managing subscriptions, including recurring billing, plan modifications, upgrades, downgrades, and cancellation processes.

ISO usually they usually don’t have direct tech platform / gateway.

With an MoR:
Through an MoR partnership, companies gain access to turnkey subscription-based systems. 

Global Reach 

The Merchant of Record enables extensive global market access by supporting various international payment methods and currencies. Importantly, it removes the necessity for the original merchant to establish and maintain local legal entities in each target market.

Limited global expansion capabilities. ISOs are region-specific and cannot enable full compliance or legal selling in other countries without further infrastructure.

With an MoR:
Business can quickly expand worldwide, as MoR provides the required infrastructure to achieve compliance.

Customer Service 

The Merchant of Record directly manages customer service inquiries pertaining to all payment-related aspects of the transaction, such as billing inquiries, refund processing, and payment dispute resolution.

Merchants are responsible for handling all customer care internally; ISO does not offer direct customer support.

With an MoR:  Businesses are awarded with complete handling of payment-related queries, ensuring no additional resources need to be invested in this direction. 

Feature 

Merchant of Record

ISO

What does it mean for the user? 

Sales Tax/VAT Collection

✅ Handles all tax calculations with guaranteed accuracy and compliance across all jurisdictions.

❌ Does not handle tax calculations or compliance; this remains the merchant’s responsibility.

With an MoR: Businesses can offer customers seamless checkout experiences with accurate taxes already calculated.

Tax Filing, Remittance & Reporting 

✅ The MOR takes over everything, from management of all tax filings and payments to tax reporting. 

❌ Not involved in tax filing or reporting; the merchant retains full responsibility.

With an MoR: SaaS, software, and video games companies benefit from compliant transactions without task-related risk.

Tax Registration Management

✅ Handles tax registrations across global jurisdictions

❌ The merchant is required to manage their own tax registrations in every jurisdiction where they have nexus.

With an MoR: Merchants can sell anywhere globally, adhering to existing tax regulations. 

Tax Rate Updates

✅ Continuously monitors and implements tax rate changes.

❌ The merchant is responsible for monitoring tax rate changes across all jurisdictions.

With an MoR: Through an MoR partnership, businesses can rest assured that tax rate monitoring is fully handled. 

VAT/GST Invoicing

✅ Automatically generates fully compliant tax invoices for all transactions

❌ The merchant is responsible for generating compliant tax invoices.

With an MoR: Businesses can automatically offer customers tax-compliant invoices. 

Data Privacy (e.g., GDPR, CCPA)

✅ Full data privacy compliance for payment operations 

❌ Merchant is liable for privacy compliance

With an MoR: Businesses can rest assured that users’ data is collected, stored, and handled according to existing regulations. 

PCI DSS & Financial Compliance 

✅ Ensures full PCI-DSS compliance 

❌ No support; the merchant is responsible for maintaining PCI-DSS compliance.

With an MoR: Through an MoR partnership, merchants can rest at ease, knowing that payment data is adequately handled and stored. 

AML & KYC Requirements

✅ Manages complete AML/KYC programs

❌The merchant is fully responsible for ensuring AML/KYC compliance.

With an MoR: An MoR can effectively meet all local requirements without external help, reducing operational overhead. 

Regulatory Monitoring

✅ Continuous monitoring and implementation of regulatory changes worldwide

❌ Businesses are required to stay on top of regulatory changes in all jurisdictions.

With an MoR: MoR protects businesses by ensuring that legal compliance follows the regulation changes. 

Fraud Detection & Liability

✅ Assumes primary responsibility for fraud detection and prevention

⚠️ May provide fraud detection tools, but generally this is done by the acquirer

With an MoR: Through the MoR’s extensive fraud protection infrastructure, businesses are better protected against fraud and financial loss.

Chargeback Management

✅ Chargeback handling ensured 

✅ Often provides chargeback management tools and support.

With an MoR: Having the expertise and infrastructure, the MoR removes this operational burden.

Audit Support

✅ Undergoes comprehensive compliance audits, reducing merchant burden

❌ The merchant must handle all internal/external audit preparation.

With an MoR: Businesses benefit from independently verified compliance, removing the internal burden of completing these processes on their own. 

Market Entry Speed

✅ Immediate market entry with no local entity requirements

⚠️ Can speed up the payment setup process, but does not address more general market entry requirements like regulatory compliance or tax registration.

With an MoR: Businesses can easily expand in any region around the world, benefiting from an established infrastructure. 

Supported Payment Methods

✅ Strategic coverage of payment methods optimized for maximum conversion

✅ Focuses on particular payment methods and can offer knowledge on how to maximize payment acceptance. ISO is a reseller for merchant accounts for an acquirer/payment processor, hence it only handles card payments.

With an MoR: Both the MOR and the ISO offer a strategic payment method package, together with focused expertise.   

Local Currency Support

✅ Fully Provided 

✅ Often supports multiple currencies, though coverage may vary by region and ISO.

With an MoR: An MoR partnership offers strong local currency support anywhere in the world. 

Regional Payment Preferences

✅ Data-driven regional payment optimization

✅ Often supports local payment preferences. However, ISO is a reseller for merchant accounts for an acquirer/payment processor, hence it only handles card payments.

With an MoR: Businesses can provide customers with their preferred payment methods, increasing conversion rates and, by extension, profitability. 

Geographic Restrictions

✅ No restrictions 

⚠️ May be limited to regions where the ISO has established banking relationships.

With an MoR: Businesses can enter any market, as the MoR provides the required infrastructure. 

Language Localization

✅ Comprehensive checkout localization optimized for conversion

❌ Requires third-party tools

With an MoR: MoRs can provide merchants with integration and localized checkout pages. 

Local Business Requirements

✅ Eliminates the need for local business registration in most markets

❌ The merchant must establish local entities to sell and collect payments legally abroad.

With an MoR: To quickly expand in any chosen region, businesses are not required to set up local entities, as they benefit from the MoR established infrastructure. 

Feature 

Merchant of Record

ISO

What does it mean for the user? 

Recurring Billing Infrastructure 

✅ Provides complete subscription management system with billing logic

❌ Not included, since they are just resellers of merchant accounts; ISO is not involved in the payment processing / billing

With an MoR: Companies can completely delegate the management of subscriptions, removing the need for third-party integration. 

Dunning Management 

✅ Automatically handles failed payments with optimized retry logic, including communications and payment retries

❌ No support; they are not involved in processing payments

With an MoR: Businesses obtain a smooth resolution of unsuccessful payments. 

Payment Method Updater

✅ Includes automatic card updater services

❌ No support; they are not involved in processing payments

With an MoR: Businesses are provided with automatic tools to keep payment methods current. 

Subscription Compliance

✅ Manages regulatory compliance for auto-renewals 

❌ No support for compliance management for subscriptions

With an MoR: The business is provided with global compliance for subscription models.

Trial Period Management

✅ Fully supports trial periods with automatic conversion to paid 

❌ No support; they are not involved in processing payments

With an MoR: Complete support is provided for trial periods with integrated conversion flows. 

Subscription Notifications

✅ Maintains subscription communication with the end-user 

❌ No support 

With an MoR: 

The MoR provider ensures a comprehensive customer experience by handling subscription-related communications.

Additional Revenue Streams

✅ Opportunities for upselling, cross-selling, and bundling through sophisticated platform capabilities

❌ No support for establishing additional revenue opportunities; 

With an MoR: With direct access to integrated solutions, businesses may guarantee additional revenue streams, prepared to optimize customer lifetime value. 

Subscription Analytics

✅ Provides subscription-specific data for better decision-making

⚠️ Limited analytics, often requiring third-party integration

With an MoR: With the support of a Merchant of Record, companies can use specific subscription KPIs to make data-driven decisions. 

Cancellation Processing

✅ Handles cancellation workflows, including compliance with local requirements

❌ No support; they are not involved in processing payments

With an MoR: When it comes to handling cancellation requests, the MoR is a reliable partner. 

Free to Paid Conversion

✅ Built-in flows for converting free users to paid subscriptions

❌ No support; they are not involved in processing payments

With an MoR: Optimized and effective conversion channels from free to paid customers are advantageous for subscription businesses. 

Payment Failures & Recovery

✅ Sophisticated retry strategies and payment optimization tools

❌ No support; they are not involved in processing payments

With an MoR: Because MoRs take on the legal responsibility for processing payments, targeted and advanced payment recovery methods are required (optimized routing, smart retry logic, card updater, dunning management). 

Usage-based Billing Components

✅ Include metered billing capabilities 

❌ No support 

With an Mor: Usage-based pricing gives businesses more flexibility, leading to increased profitability. 

Feature 

Merchant of Record

ISO 

What does it mean for the user? 

Payment Support for Customers

✅ Handles payment-related customer inquiries directly

❌ Typically, ISOs do not offer customer support, although they do play a crucial role in ensuring a smooth payment experience for everyone involved

With an MoR: The MoR bears the operational load and associated expenses of interacting with customers regarding payment concerns, previously handled by the merchant. 

Refund Processing

✅ Manages refund process and policies according to local regulations

❌ No support; ISO is not involved in the payment processing, thus the refund processing is done directly by merchant with payment processor / acquirer

With an MoR: Companies can rely on a system and compliance framework partner to manage the refund process effectively.

Order Management System

✅ Provides order management capabilities and customer notifications

❌ Not typically offered by ISOs

With an MoR: To ensure order management, businesses do not have to spend money on third-party integrations. This is successfully done by the MoR. 

Customer Communication

✅ Handles transactional emails (receipts, order confirmations)

❌ Not typically offered by ISOs

With an MoR: The merchant can invest more in other crucial areas, like product development or marketing, as the MoR manages transactional communications. 

Customer Self-service Tools

✅ Provides customer portals for order history, subscriptions, etc.

❌ Not typically offered by ISOs

With an MoR: The operational workload is significantly reduced by the available self-service options for customer support. 

System Integration 

✅ Fast and assisted integration for rapid market entry 

✅ Integration support, often technically focused

With an MoR: Businesses receive assistance (a dedicated account manager, many direct channels of communication) and guidance (full documentation, quick system customizations). 

Risk Assessment

✅ Careful business model and product review, due to the fact that the MoR assumes full liability for the reselling of products. 

⚠️ Handles the application process, but the approval for the merchant account comes from payment processor / acquirer

With an Mor: Merchants undergo a thorough screening procedure that can guarantee efficient adjustments and assist in identifying problems early on. 

Account Management

✅ Ensures dedicated account managers for strategic guidance and rapid response 

⚠️ Some ISOs might offer a more basic level of account management with limited personalization. However, this varies 

With an MoR: Fast response times, strategic approaches to different demands, and a personalized approach are offered to businesses. 

Vendor Portal

✅ Complete and unified dashboard for sales, tax, compliance, and customer data

⚠️ ISO dashboard limited to payment metrics

With an MoR: An MoR integration ensures easy access to the collection of comprehensive business insights into a single dashboard. 

Technical Integration Support

✅ Extensive integration support, including customization options

⚠️ Technical support primarily focused on payment integration

With an MoR: A proactive technical team promptly responds to requests for modification tailored to a particular business. 

Dispute Resolution 

✅ Handles dispute management processes with customers

❌ Merchant responsibility

With an MoR: MoRs not only resolve conflicts, but they also possess the requisite expertise to do it successfully.