Merchant of Record vs. Merchant Acquirer for Software, SaaS & Video Games

Merchant of Record Model:

In the eyes of customers and regulatory authorities, a Merchant of Record becomes the seller and takes full legal liability for the transaction. They assume responsibility for every step of the sales process, including customer service, refunds, compliance, and tax collection.

Merchant Acquirer Model: 

With this model, your business remains the official seller. The acquirer simply processes payments while you retain full responsibility for compliance, tax collection, fraud management, and customer service.

Feature 

Merchant of Record 

Merchant Acquirer  

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.

By acting as an intermediary for the merchant, card networks (such as Visa and Mastercard), and issuing banks, a merchant acquirer processes the payments and settles the funds to the merchants. Although they make it easier for money to transfer, they do not legally own the transaction.

With an MoR:
You free yourself of the burden of maintaining complex regulatory requirements across many markets by outsourcing your legal and compliance duties to a Merchant of Record.

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.

The Merchant Acquirer’s liability is related to the processing of payments. The merchant is still in charge of preventing fraud, adhering to consumer protection laws, and paying taxes. They cannot offer PCI compliance tools, but they enforce compliance to the merchants, and they can close their accounts if the merchants are non-compliant.

With an MoR: 

By shifting tax, fraud, and regulatory compliance risk to the MoR, you significantly reduce your company’s exposure to fines and legal repercussions.

Subscription Management 

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

Merchant acquirers provide simple payment processing capabilities; however, they usually do not have sophisticated subscription lifecycle management features built-in. The merchant is responsible for implementing and overseeing their own customer lifecycle and subscription logic.

With an MoR:
You gain access to sophisticated subscription management tools without having to build or integrate them yourself, making it easier to implement complex billing models.

Global Reach 

The Merchant of Record enables extensive global market access by supporting a wide array of 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.

An acquirer can hold a license in one or multiple regions. However, for a merchant to open a merchant account in a specific area, they must have a local business entity.

With an MoR:
You can rapidly enter into new international markets without having to establish local business entities, secure local payment processing relationships, or navigate local tax legislations.

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.

Although the Merchant Acquirer doesn’t interact directly with the end user, it does assist the merchant with payment processing problems. 

With an MoR:

Your support team can concentrate on product-related support since they are relieved of managing complicated payment and tax-related customer issues.

Feature 

Merchant of Record

Merchant Acquirer 

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 collection; the merchant is responsible for determining, calculating, and collecting appropriate taxes.

With an MoR: You are fully protected from the complications of tax compliance; you don’t have to research tax rates or be concerned about making errors that could result in fines and back taxes.

Tax Filing, Remittance & Reporting 

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

❌ No tax filing services; the business must handle all tax filings, payments, and reporting obligations independently.

With an MoR:

By removing the administrative burden of creating and submitting tax returns in several jurisdictions, you free up internal resources and reduce the risk of noncompliance.

Tax Registration Management

✅ Handles tax registrations across global jurisdictions

❌ Businesses must obtain and maintain their own tax registrations in all relevant jurisdictions.

With an MoR: By avoiding the complex process of tax registrations, SaaS businesses cab quickly expand into new markets.  

Tax Rate Updates

✅ Continuously monitors and implements tax rate changes.

❌ No support; Businesses must stay informed about and implement all tax rate changes across jurisdictions.

With an MoR: You are automatically protected from using out-of-date tax rates and any regulatory changes, reducing your exposure to non-compliance fines. 

Tax Nexus And Threshold Determination

Proactive monitoring of nexus and sales thresholds that trigger tax obligations

❌ Businesses must monitor their sales thresholds across jurisdictions and determine when new tax obligations are triggered.

With an MoR: You gain from professional monitoring that ensures prompt compliance by carefully analyzing thresholds in new jurisdictions.

Tax Exemption Handling

✅ Professional management of all tax exemption certificates and verification processes

❌ Businesses must collect, verify, and store all tax exemption certificates and implement exemption logic.

With an MoR: Business exemptions and other special tax issues are handled automatically for you, guaranteeing accurate documentation and verification.

VAT/GST Invoicing

✅ Automatically generates fully compliant tax invoices for all transactions, including local e-invoices where applicable. 

❌ No support; the merchant must generate and distribute compliant tax invoices according to each jurisdiction’s requirements.

With an MoR: Your customers receive correctly formatted tax invoices that adhere to regional regulations, including complex e-invoicing requirements.

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

✅ Full data privacy compliance for payment operations 

⚠️ Provides limited payment data security; however, the merchant is primarily responsible for overall data privacy compliance.

With an MoR: Built-in data compliance systems are available to your business, reducing the possibility of regulatory penalties. 

Consumer Protection Laws

✅ MoR ensures all transactions meet consumer protection requirements in each jurisdiction

❌ The merchant is responsible for ensuring compliance with consumer protection laws in all markets.

With an MoR:  You’re protected from the complexity of varied consumer rights laws across regions. 

PCI DSS & Financial Compliance 

✅ Ensures full PCI-DSS compliance 

⚠️ Provides PCI-compliant payment processing; however, the merchant still needs their own PCI certification depending on how they handle card data.

With an MoR: You are not required to handle PCI DSS compliance, as your MoR partner fully handles it. 

Regulatory Monitoring

✅ Continuous monitoring and implementation of regulatory changes worldwide

❌ The merchant is responsible for regularly monitoring regulatory changes across all markets.

With an MoR:
Without having to continuously investigate shifting legal requirements across markets, you benefit from automatic adaptation to new legislation.

Chargeback Management

✅ Chargeback handling ensured 

⚠️ Simple tools for chargeback notifications, but the merchant manages and submits dispute proof.

With an MoR:

You benefit from expert chargeback process management, which frequently leads to lower chargeback ratios and increased dispute win rates.

Fraud Prevention Tools & Customization

✅ Sophisticated fraud detection systems using advanced AI and machine learning and industry-specific fraud rules. 

⚠️ Basic fraud screening tools may be available with limited customization; advanced fraud prevention requires additional third-party integrations.

With an MoR: You get access to enterprise-grade fraud prevention, which reduces fraud losses by continuously adjusting to new threats. 

Audit Support

✅ Undergoes comprehensive compliance audits, reducing merchant burden

❌ No audit support;

With an MoR:

The work involved in audit preparation is significantly reduced through MoR partnerships. 

Service Level Agreements (SLAs) 

✅ Dedicated SLAs covering the entire transaction lifecycle with dedicated support

⚠️ SLAs are typically limited to payment processing uptime and basic support response times.

With an MoR:

You receive comprehensive service guarantees covering all aspects of transaction management, often with higher support levels.

Feature 

Merchant of Record

Merchant Acquirer 

What does it mean for the user? 

Market Entry Speed

✅ Immediate market entry with no local entity requirements

❌ No support; the business is fully responsible for setting up local entities within the regions they wish to expand in. 

With an MoR: You can easily expand anywhere in the world, without facing the administrative and regulatory burden. 

Supported Payment Methods

✅ Strategic coverage of payment methods optimized for maximum conversion

⚠️ Limited; while the merchant acquirer supports major global networks, additional integrations may be required to broaden local payment method support. 

With an MoR: Without requiring any integration work, you get instant access to a strategic selection payment options in each local market, increasing conversion rates.

Local Currency Support

✅ Fully Provided 

⚠️ Limited; major regions are covered, whereas emerging markets may not benefit from support.

With an MoR: Irrespective of where you decide to sell your digital goods or services, your customers can pay in their local currency, enhancing both the shopping experience and brand trust. 

Currency Conversion Protection

✅ Financial protection against currency fluctuations built into the service

❌ No support; the business bears all currency exchange risk

With an MoR: You’re protected from currency exchange rate volatility, with predictable revenue in your preferred settlement currency. 

Regional Payment Preferences

✅ Data-driven regional payment optimization

❌ No optimization guidance

With an MoR: You benefit from automatic optimization to increase authorization rates as well as ongoing analysis of payment success rates by method and region.

Geographic Restrictions

✅ No restrictions 

⚠️ As a merchant, you are limited in opening a merchant account with an acquirer in your region, unless you have other local entities.

With an MoR: You can confidently enter virtually any market globally, including emerging economies with complex payment ecosystems.

Language Localization

✅ Comprehensive checkout localization optimized for conversion

⚠️ Limited support for checkout customization

With an MoR: Your customers receive completely localized checkout processes in their language, complete with support and payment-related communications. 

Local Business Requirements

✅ Eliminates the need for local business registration in most markets

❌ No support; the business is fully responsible for meeting all local requirements. 

With an MoR: It eliminates the need for local business registration in most markets. The MoR handles compliance, tax, and regulatory obligations on your behalf.

Expansion Scalability

✅ Effortless scaling to new markets with minimal operational effort

❌ No support; expansion into different markets requires operational and financial load. 

With an MoR: Enter new markets with ease and fast. 

Feature 

Merchant of Record

Merchant Acquirer

What does it mean for the user? 

Recurring Billing Infrastructure 

✅ Provides a complete subscription management system with billing logic

⚠️ Basic recurring payment processing capabilities, but no built-in subscription management logic or features.

With an MoR: Businesses are given a complete subscription system requiring minimal setup.

Dunning Management 

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

❌ No support for dunning management

With an MoR: Merchants can boost their revenue recovery results without additional effort. 

Payment Method Updater

✅ Includes automatic card updater services

❌ May offer basic card update services

With an MoR: Merchants can reduce involuntary churn from expired cards through built-in tools. 

Subscription Compliance

✅ Manages regulatory compliance for auto-renewals 

❌ No compliance management; the business is responsible for ensuring subscription compliance. 

With an MoR: The merchant is awarded with global compliance. 

Trial Period Management

✅ Fully supports trial periods with automatic conversion to paid 

❌ No trial period functionality;

With an MoR: Trial periods are fully supported, together with built-in conversion flows. 

Subscription Notifications

✅ Maintains subscription communication with the end-user 

❌ No support for setting up customer notifications. 

With an MoR: Subscription-related communications are handled by the MoR provider, ensuring a complete customer experience. 

Additional Revenue Streams

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

❌ No revenue optimization features; the business is responsible for implementing upselling/cross-selling systems.

With an MoR: Businesses can ensure additional revenue sources through direct access to built-in tools, ready to maximize customer lifetime value. 

Plan & Price Management

✅ Handles multiple subscription tiers, pricing models, and currencies

❌ No plan management functionalities

With an Mor: Subscription businesses gain extensive freedom to implement various pricing strategies, aimed at increasing profitability across various regions. 

Upgrade/Downgrade Processing

✅ Built-in workflows for subscription changes with appropriate billing adjustments

❌ No upgrade/downgrade support

With an MoR: Subscription businesses considerably reduce operational workload and effectively process subscription billing changes. 

Subscription Analytics

✅ Provides subscription-specific data for better decision-making

⚠️ Limited to payment analytics 

With an MoR: Backed by a merchant of record, businesses can make data-driven decisions with access to dedicated subscription metrics. 

Cancellation Processing

✅ Handles cancellation workflows, including compliance with local requirements

⚠️ Provides the technical functionalities to process subscription cancellations

With an MoR: Unlike the payment gateway that offers no cancellation support, the MoR proves to be a strong partner in managing cancellation requests. 

Free to Paid Conversion

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

❌ No conversion support;

With an MoR: Subscription businesses benefit from optimized and efficient conversion paths from free to paid users. 

Subscription Pause Functionality

✅ Includes pause/resume capabilities with appropriate billing adjustments

❌ No subscription pause functionality;

With an MoR: Subscription businesses have access to built-in pause tools, also reflected in the required billing adjustments. 

Feature 

Merchant of Record

Merchant Acquirer  

What does it mean for the user? 

Payment Support for Customers

✅ Handles payment-related customer inquiries directly

❌ No customer support;

With an MoR: The operational burden and related costs of communicating with customers on payment issues have been removed from the merchant’s shoulders and transferred to the MoR. 

Refund Processing

✅ Manages refund process and policies according to local regulations

⚠️ Provides the technical functionalities to process refunds

With an MoR: Businesses can count on a partner with the system and compliance frameworks to adequately handle the refund process. 

Order Management System

✅ Provides order management capabilities and customer notifications

❌ No order management functionality; businesses are required to implement their own tracking system

With an MoR: Merchants do not need to invest in third-party integrations to ensure order management. The MoR does this effectively. 

Customer Communication

✅ Handles transactional emails (receipts, order confirmations)

❌ No support for customer communication

With an MoR: Because the MoR handles all communications, the merchant can invest further in other essential areas, such as product development or marketing. 

Customer Self-service Tools

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

❌ No self-service tools

With an MoR: Through available customer support self-service tools, the operational workload is reduced and simplified. 

System Integration 

✅ Fast and assisted integration for rapid market entry 

⚠️ Existing integration documentation

With an MoR: Merchants are awarded with guided (complete documentation, rapid system customizations) and assisted (dedicated account manager, multiple and direct communication channels. 

Risk Assessment

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

⚠️Basic onboarding risk assessment, limited to financial and fraud risk concerns.

With an Mor: Merchants go through a sophisticated screening process, which can help identify issues early on and ensure effective fixes. 

Account Management

✅ Ensures dedicated account managers for strategic guidance and rapid response 

⚠️Limited; large accounts may be provided with dedicated account management, whereas smaller ones benefit from standard support. 

With an MoR: Businesses are provided with a personalized approach, fast response times, and strategic approaches to various requests. 

Vendor Portal

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

⚠️ Basic reporting dashboard limited to payment processing 

With an MoR: Comprehensive business insights are collected within a single dashboard, ensuring easy access. 

Technical Integration Support

✅ Extensive integration support, including customization options

⚠️ Standard documentation provided

With an MoR: Business-specific customization requests are quickly answered by a hands-on technical team. 

Dispute Resolution 

✅ Handles dispute management processes with customers

⚠️The business is responsible for responding and overseeing the process.

With an MoR: Not only do MoRs handle disputes, but they also have the necessary experience to do so effectively.