What is Market Entry Strategy via a Merchant of Record?

Entering a market through a Merchant of Record is essentially a growth strategy any digital company could use, such as SaaS or game publishers, to launch in different countries without building local billing, tax, and compliance systems themselves. Instead of multiple subsidiary formations, the company uses an existing MoR for local tax obligations, local payment provider agreements, and sales activities.

Generally, the different ways a company can expand across borders come down to a few modes of entry, with every mode offering a trade-off between speed and control:

• DIY: Establishing a DIY subsidiary involves setting up a local legal entity, tax registration, and a payment provider; this approach provides full operational control but is generally associated with a longer establishment timeline and a higher financial commitment.
• Single-PSP, multi-region: Use a procesor płatności like Stripe or Adyen to operate in multiple regions. This approach differs from establishing a subsidiary, requiring internal management of tax compliance and regulatory registration in each country.
• Merchant of Record: This service can manage tax, compliance, and local payment methods, which may affect the company’s resource allocation for sales.

Considering the difference, it may be relevant for new or mid-market companies in the development stage.

• Usually, it takes weeks or even days to launch a new market using an MoR, versus a 9-18-month timeframe for setting up a subsidiary. MoR provides foreign-market access on the first day, with some MoR variations indicating market activation within 24 hours.
• The cost of an MoR generally involves approximately 4-10% of the market’s revenue. In contrast, establishing a local company, including tax and other related factors, may range from $500k to $2M annually.

In markets with complex payment structures and taxation issues, MoRs may manage cost and timeline considerations, particularly when the complexities of engaging third-party services are a secondary concern. It is explained in some instances below:

• EU — VAT rules vary by country and require ongoing registration and remittance.
• Brazil — For foreign sellers, managing tax requirements in Brazil typically involves addressing a complex framework.
• India — India’s RBI e-mandate rules incorporate regulatory steps that could require modifications to existing setups for companies.
• Japan — JCT and Payment Services Act requirements compliance requirements introduce additional considerations for non-local sellers.
• UAE — VAT rules and zero-tax variance require careful local handling.

Changing a long-term service provider involves adjustments to local payment systems, updates to tax registrations, and a review of compliance standards, which may influence subscription users. A new system for customer tokenizacja or payment re-validation on the updated infrastructure involves specific procedures, and deviations from these procedures may influence customer retention.

The two scenarios permitting departure from the service are as follows:

• The company’s operational context is established when a third party performs the action on its behalf. The provision by an MoR of local payment methods, full compliance tax coverage, optimized routingowi płatności, and regional reach, which may not be unique requirements for a rapidly expanding business, contributes to the infrequent occurrence of this specific scenario.
• The business operates a single market, and global expansion is not currently identified as a requirement.

MoR entry involves various factors that warrant consideration.

• A percentage-based revenue fee, while proportional at lower volumes, results in larger total expenditure as volume increases.
• MoR manages customer relationships as the direct seller of record.
• The Merchant of Record’s name on customer statements, rather than the product name, is associated with a potential for increased support inquiries.