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

Model Merchant of Record:

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.

Payment Facilitator Model: 

While the original merchant maintains legal responsibility for the actual sale, a payment facilitator primarily assists with payment processing. Although it enables payment acceptance, the PayFac does not take on the role of the transaction’s legal seller.

Funkcja 

Merchant of Record

Payment Facilitator

What does it mean for the user? 

Sales Tax/VAT Collection

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

❌ Limited or nonexistent tax collection services; the merchant is still in charge of calculating, collecting, and handling tax liabilities.

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. 

❌ Does not offer tax filing services; merchants are responsible for their own tax reporting and remittance.

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

❌ Does not oversee tax registrations; merchants must register independently in each jurisdiction.

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.

❌ No tax rate management; merchants are in charge of keeping up with fluctuating rates.

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

❌ No nexus monitoring. The merchant is required to monitor their own sales thresholds across jurisdictions. 

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

❌ Nonexistent handling of exemption certificates; validity and storage are handled by the merchant.

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. 

❌ The invoice needs to come from the merchant; a payfac doesn’t have legal grounds to issue invoices.

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 data privacy compliance centered on payment processing; the merchant maintains primary accountability.

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 support; the business is responsible for consumer protection compliance.

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 

⚠️ Offers PCI compliance for their payment processing infrastructure. The merchant has its own liability for PCI DSS.

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

Regulatory Monitoring

✅ Continuous monitoring and implementation of regulatory changes worldwide

⚠️ They will issue notifications to the merchants, but the merchants have the responsibility

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

Chargeback Management

✅ Chargeback handling ensured 

❌ A payment facilitator lacks tax compliance out of the box, doesn’t cover chargebacks or refunds

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. 

⚠️ Standard fraud detection tools with limited or no customization tools. 

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

⚠️ Limited audit support; compliance audits are still the merchant’s responsibility

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

⚠️ Usually restricted to basic support and payment processing uptime.

With an MoR:

Businesses are provided with thorough assistance across all transaction aspects. 

Funkcja 

Merchant of Record

Payment Facilitator

What does it mean for the user? 

Market Entry Speed

✅ Immediate market entry with no local entity requirements

⚠️ While faster than the traditional merchant accounts, the business is still obligated to set up a legal entity in its target market. Also, merchants will need to connect to multiple payment facilitators, depending on where the payment facilitators’ acquiring relationships are.

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

⚠️ Provides a variety of payment options, but usually with less localized optimization. 

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

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

❌ Limited or no protection; the merchant typically assumes currency fluctuation risks

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

Regional Payment Preferences

✅ Data-driven regional payment optimization

⚠️ Basic regional payment support without sophisticated optimization

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

Geographic Restrictions

✅ No restrictions 

⚠️ May have country-specific limitations based on risk assessments and acquiring partnerships.

With an MoR: Businesses gain truly global coverage.

Language Localization

✅ Comprehensive checkout localization optimized for conversion

⚠️ Limited checkout localization; businesses may need to pay additional fees for these services. 

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

Local Business Requirements

✅ Eliminates the need for local business registration in most markets

❌ Does not remove the need for local businesses; merchants must legally be present in their target markets. 

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

⚠️ Better scalability than standard merchant accounts, but the merchant is still very much part of the process. 

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

Funkcja 

Merchant of Record

Payment Facilitator

What does it mean for the user? 

Recurring billing Infrastructure 

✅ Provides a complete subscription management system with billing logic

⚠️ Simple recurring payment processing with no advanced subscription management tools

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

Zarządzanie windykacją należności 

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

⚠️ Basic retry functionality with limited optimization; the business needs to handle dunning communication. 

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

Payment Method Updater

✅Includes automatic card updater services

⚠️ Simple card updater; however, in some cases, this might be perceived as an add-on, incurring additional fees. 

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

Subscription Compliance

✅Manages regulatory compliance for auto-renewals 

❌ While a PayFac does not manage regulatory compliance for auto-renewals directly, it may assist. The business is still legally responsible for this issue. 

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

Trial Period Management

✅ Fully supports trial periods with automatic conversion to paid 

❌ This is not typically handled by the PayFac 

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

Subscription Notifications

✅ Maintains subscription communication with the end-user 

❌ No notification management; 

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

❌ While it can manage the processing of additional revenue, the merchant must implement their own upselling strategies.

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

❌ Does not manage plans or pricing.

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

⚠️ Limited support for plan changes; merchant typically manages most of the upgrade/downgrade logic

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 payment-related 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

❌ No cancellation workflow support

With an MoR: Unlike the payment facilitator 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 flow management

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 capabilities

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

Funkcja 

Merchant of Record

Payment Facilitator 

What does it mean for the user? 

Payment Support for Customers

✅ Handles payment-related customer inquiries directly

❌ Limited payment support; merchant responds to the majority of consumer questions

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

⚠️ Offers refund processing tools, but the policies and compliance are the merchant’s responsibility. 

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

⚠️ Usually have order management

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 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.

❌ Does not offer customer 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 

✅ Offers smooth system integration through robust APIs, webhooks, and 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. 

✅ Yes, this is a built-in responsibility for PayFac systems. 

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 

⚠️ Generally, depending on volumes, only high-volume merchants will have them

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

⚠️ Offers basic dashboard with limited reporting on payment issues

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

Technical Integration Support

✅ Extensive integration support, including customization options

⚠️ Basic technical support with limited customization options

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

Rozstrzyganie sporów 

✅ Handles dispute management processes with customers

⚠️ While it is not a general rule, they may help with dispute resolution related to payment processing for an additional fee.  

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