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

Merchant of Record Model

The MoR includes payment gateway functionality as part of its service bundle. The MoR becomes the official seller of record, taking on compliance responsibilities.

Direct Payment Gateway Model

The merchant contracts directly with a payment gateway provider, and the merchant remains the seller of the product, responsible for all compliance aspects. Additionally, businesses still need to obtain a merchant account with an acquiring bank and connect to it through the payment gateway.

Feature 

Merchant of Record 

Payment Gateway

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.

Serves only as a technological intermediary that processes payment transactions between your business and the customer’s bank or credit card provider. You remain the direct seller of record.

With an MoR: You offload legal and compliance responsibilities to a third party, being able to fully focus on product-related operations. 

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.

You maintain full liability as the merchant, including tax calculation, collection, and remittance. You are responsible for compliance with all regulations, fraud prevention, PCI DSS compliance, and managing chargebacks and refunds.

With an MoR: Significantly reduced risk exposure as the liability for tax management, regulatory compliance, and fraud prevention is fully shifted to the MoR.

Subscription Management 

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

Provides basic payment processing for recurring transactions, but typically requires integration with additional subscription management software or custom development for comprehensive management of the subscription lifecycle.

With an MoR: You gain flexibility with significantly less development effort by gaining instant access to an all-in-one subscription management system, part of the MoR solution.

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.

Supports multiple payment methods and currencies, but does not handle local legal entity requirements, tax complexities, or regulatory compliance across different jurisdictions. You must establish these capabilities yourself. Also if you want to get a local merchant account, you need to contract with a local acquiring bank, as well as in some cases a local payment gateway.

With an MoR: You are able to expand global operations with minimal legal setup and maximum operational efficiency.

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.

Payment-related customer service remains your responsibility. The gateway provider typically only offers technical support for the payment processing system itself.

With an MoR: You eliminate the burden of ensuring payment-related customer service, as the MoR takes care of it for you. 

Feature 

Merchant of Record

Payment Gateway

What does it mean for the user? 

Sales Tax/VAT Collection

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

❌ No tax calculation capabilities. Payment gateways only process transactions; they do not calculate, collect, or manage any tax-related aspects.

With an MoR: Save hours and resources, while also eliminating the exposure risks as complete tax calculation and collection is handled for you.

Tax Filing, Remittance & Reporting 

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

❌ No involvement in tax filings or remittance. The merchant is fully responsible for all tax reporting and payments.

With an MoR: The tax filing burden is lifted from your shoulders, as the MoR model takes care of everything for you.  

Tax Registration Management

✅ Handles tax registrations across global jurisdictions

❌ Payment gateways have no role in tax registrations. The merchant must manage this process independently.

With an MoR: Businesses do not need to concern themselves with tax registrations in multiple countries.

Tax Rate Updates

✅ Continuously monitors and implements tax rate changes.

❌ Does not track or implement tax rate changes; strictly limited to payment processing.

With an MoR: Because your MoR partner is in charge of monitoring and implementing tax updates, you can rest assured that rates are always current and accurate.

Tax Nexus And Threshold Determination

✅ Proactive monitoring of nexus and sales thresholds that trigger tax obligations

❌ Provides no nexus or threshold monitoring. The merchant is solely responsible for tracking these obligations

With an MoR: You gain access to proactive compliance monitoring as you reach new market thresholds.

Tax Exemption Handling

✅ Professional management of all tax exemption certificates and verification processes

❌ No capability for managing tax exemptions. The merchant must handle all aspects of collecting and verifying the exemption certificate.

With an MoR: Exemption certificate management is taken care of; you need not concern yourself with these operations. 

VAT/GST Invoicing

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

❌ No invoicing capabilities. Payment gateways only process payments without generating any documentation.

With an MoR: Businesses are awarded with automatic tax-compliant invoices. 

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

✅ Full data privacy compliance for payment operations 

⚠️ Limited to securing payment data during processing. Merchant retains full responsibility for overall data privacy compliance.

With an MoR: Businesses will enjoy a significant reduction in their data privacy compliance burden.

Consumer Protection Laws

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

❌ No consumer protection services. The merchant bears full responsibility for compliance with all consumer protection regulations.

With an MoR: Through an MoR partnership, businesses have access to built-in compliance with consumer laws in all markets.

PCI DSS & Financial Compliance 

✅ Ensures full PCI-DSS compliance 

⚠️ Provides PCI-compliant payment processing, but the merchant remains responsible for securing their own systems that interact with the gateway.

With an MoR: This business model ensures comprehensive PCI compliance coverage.

AML & KYC Requirements

✅ Manages complete AML/KYC programs

❌ No AML/KYC services. Pure payment gateways only process authorized transactions without verification services.

With an MoR: The burden of managing AML/KYC across all markets is fully lifted 

Regulatory Monitoring

✅ Continuous monitoring and implementation of regulatory changes worldwide

❌ No regulatory monitoring. Payment gateways only focus on payment processing technology.

With an MoR: Businesses are not required to perform regulatory monitoring, being able to focus on other key operations.  

Fraud Detection & Liability

✅ Assumes primary responsibility for fraud detection and prevention

⚠️ Basic fraud screening only. The merchant bears full financial liability for fraudulent transactions and chargebacks.

With an MoR: Fraud prevention and detection responsibility rests with the MoR, not with the merchant. 

Chargeback Management

✅ Chargeback handling ensured 

⚠️ Only notifies of chargebacks. The merchant is fully responsible for responding to and managing the chargeback process and can get their account shut down if they don’t manage it properly, leaving them with no option to process payments.

With an MoR: Chargeback management is handled and simplified through MoR partnerships. 

Fraud Prevention Tools & Customization

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

⚠️ Limited to basic fraud screening rules. Advanced fraud prevention requires integration with specialized third-party services.

With an MoR: There is no need for fraud prevention system integration, as the MoR has comprehensive fraud prevention included.

Audit Support

✅ Undergoes comprehensive compliance audits, reducing merchant burden

❌ No audit support beyond payment processing. The merchant is fully responsible for all compliance audits.

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 limited strictly to payment processing uptime and basic technical support.

With an MoR: Businesses are provided with thorough assistance across all transaction aspects. 

Market Entry Speed

✅ Immediate market entry with no local entity requirements

❌ Payment gateway provides technical capabilities only; merchant still needs to establish local entities, local acquirers, tax registrations, and compliance with local laws before entering markets

With an MoR: You can enter new marketplaces without a legal setup within days. 

Supported Payment Methods

✅ Strategic coverage of payment methods optimized for maximum conversion

⚠️ Supports major international payment methods but often lacks complete coverage of local/regional payment preferences; the businesses need to connect and manage  multiple gateways to ensure global coverage

With an MoR: Businesses are offered an optimized mix of global payment methods, adequately answering local preferences

Local Currency Support

✅ Fully Provided 

⚠️ Supports major currencies but may have limitations with certain regional or less common currencies

With an MoR: Easily sell anywhere in the world without additional setup required. 

Currency Conversion Protection

✅ Financial protection against currency fluctuations built into the service

❌ No currency risk management;

With an MoR: Partnering with an MoR leads to protection from currency exchange losses. 

Regional Payment Preferences

✅ Data-driven regional payment optimization

⚠️ Basic support for regional payment methods, but requires the merchant to research and configure the optimal payment method mix for each market

With an MoR: Through the collection of partner-related data, businesses obtain optimized checkout options. 

Geographic Restrictions

✅ No restrictions 

⚠️May have limitations on supported countries or regions; 

With an MoR: Businesses gain truly global coverage.

Language Localization

✅ Comprehensive checkout localization optimized for conversion

❌ Limited to no language localization

With an MoR: Online companies can obtain localized checkout experiences. 

Local Business Requirements

✅ Eliminates the need for local business registration in most markets

❌ No assistance with local business requirements; the merchant must establish and maintain all necessary local business registrations

With an MoR: There is no need for local business entities, reducing both setup and ongoing compliance costs. 

Expansion Scalability

✅ Effortless scaling to new markets with minimal operational effort

❌ No support 

With an MoR: Businesses can expand into new markets with ease. 

Feature 

Merchant of Record

Payment Gateway

What does it mean for the user? 

Recurring Billing Infrastructure 

✅ Provides complete subscription management system with billing logic

⚠️ Basic recurring payment processing only; requires additional subscription management system 

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

❌ Limited or no dunning functionality;

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 updater features for an additional fee

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; merchant is fully responsible for ensuring all subscription practices meet local regulations

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

Trial Period Management

✅ Fully supports trial periods with automatic conversion to paid 

⚠️ Basic support for trials, but typically requires custom implementation of conversion logic

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

Subscription Notifications

✅ Maintains subscription communication with the end-user 

❌ No customer communication capabilities; 

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 support for upsell/cross-sell flows;

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

⚠️ Basic plan structure support; 

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

⚠️ Basic payment processing for plan changes; 

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 transaction processing-focused reporting; no analytics unique to subscriptions

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

❌ No cancellation flow management;

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 support for specific free-to-paid conversion 

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

Payment Failures & Recovery

✅ Sophisticated retry strategies and payment optimization tools

❌ Limited payment recovery tools; the merchant can increase assistance through third-party system integration

With an MoR: Because MoRs take on the legal responsibility for processing payments, this involves targeted and sophisticated measures for payments recovery ( optimized routing, smart retry logic, card updater, dunning management) 

Subscription Pause Functionality

✅ Includes pause/resume capabilities with appropriate billing adjustments

❌ No native dedicated functionality; the merchant needs to perform custom integrations

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

Usage-based Billing Components

✅ Include metered billing capabilities 

❌ No support for usage-based billing;

With an Mor: Businesses gain increased flexibility through existing usage-based pricing. 

Feature 

Merchant of Record

Payment Gateway

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 for processing refunds; however, the merchant remains responsible for the refund policy, decisions, and compliance

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

⚠️ Provides technical capability to process refunds, but the merchant remains responsible for refund policy, decisions, and compliance

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 communications

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 customer self-service tool

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 

⚠️Technical implementation with limited support

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 fraud screening during setup;

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 account management;

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 transaction reporting dashboard;

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

Technical Integration Support

✅Extensive integration support, including customization options

⚠️ Documentation and basic technical support

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

Dispute Resolution 

✅Handles dispute management processes with customers

⚠️While it does provide tools to respond to disputes, the merchant needs to handle the entire process. 

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