What is a Merchant of Record (MoR)?

A Merchant of Record (MoR) is the legal entity that sells goods or services to customers and processes payments on behalf of another business. The MoR handles payment processing, tax collection, compliance with local regulations, and assumes liability for transactions.

Think of it as outsourced commerce infrastructure. Instead of setting up payment processing, tax compliance, and fraud management yourself, you use a MoR that already has this infrastructure in place. The MoR becomes the seller of record, while you remain the provider of the product or service.

MoRs are common in digital commerce—SaaS companies, digital products, online courses, and software subscriptions. They're less relevant for service businesses, B2B transactions, or contractor management.

How the MoR model works

The MoR process is straightforward for digital sales. A customer wants to buy your software or digital product. Instead of processing the payment yourself, the MoR handles the transaction. The customer pays the MoR. The MoR collects applicable taxes (VAT, sales tax, GST depending on jurisdiction). The MoR remits the net amount to you, minus their fee.

From the customer's perspective, the MoR appears on their credit card statement and invoice. They're the legal seller. The MoR handles chargebacks, refunds, and customer payment disputes. They ensure compliance with payment regulations (PCI DSS compliance for credit card security) and tax laws (VAT, sales tax, GST) in every jurisdiction where you sell.

You focus on building and marketing your product. The MoR handles the complexity of global commerce: multi-currency pricing, automatic tax calculation, payment method localization, fraud detection, currency conversion, and regulatory compliance.

MoR vs payment processor vs EOR

These three models are often confused because they all involve outsourcing. Understanding the differences helps you choose the right tool:

Merchant of Record (MoR) sells and processes payments. They're the legal seller, handling payment processing, tax compliance, and transaction liability. Typical cost is 3-7% of revenue. Domain is commerce.

Payment Processor (like Stripe or PayPal) processes payments only. You remain the legal seller. You handle tax compliance, refunds, chargebacks, and customer disputes. The processor just moves money. Typical cost is 2.9% + $0.30 per transaction. Domain is payments.

Employer of Record (EOR) employs workers on your behalf. Completely different domain—employment, not commerce. Typical cost is $49-99 per employee per month.

The confusion arises because both MoR and EOR use "of Record" terminology, suggesting they're similar. They're not. MoR handles commerce. EOR handles employment. They solve completely different problems.

When MoR services actually make sense

MoRs are valuable for digital businesses selling to customers globally. You're selling SaaS products, digital products, online courses, or software subscriptions to customers in many countries. You want to avoid the complexity of multi-jurisdiction tax registration and compliance. You want to outsource payment processing, fraud management, and chargeback handling.

Classic MoR scenario: a small SaaS company with 5 people selling to customers in 50 countries. Instead of registering for VAT in the EU (complex), sales tax in multiple U.S. states, GST in Australia, and similar taxes in 20 other countries, they use a MoR. The MoR handles all tax compliance automatically. The company focuses on building software and talking to customers.

MoRs are less relevant for service businesses, B2B contracts, one-time projects, or contractor payments. These transactions don't involve consumer sales to many jurisdictions or complex tax compliance. Using a MoR would add unnecessary cost and complexity without corresponding benefit.

Understanding the costs and tradeoffs

MoR services typically charge 3-7% of revenue, depending on transaction volume and services included. For a company with $1M annual revenue, expect $30,000-70,000 in MoR fees. This is significantly more expensive than direct payment processing (2.9% + $0.30 per transaction, which would cost roughly $29,000 for $1M in transactions).

The tradeoff is simplicity and compliance at the cost of revenue. You avoid the cost and complexity of multi-jurisdiction tax registration, payment method integration, fraud prevention, and dispute resolution. For small teams selling globally, this can be genuinely worth the premium cost because each founder is wearing five hats already.

But you lose control and direct customer relationship. The MoR owns the transaction from the payment perspective. They appear on credit card statements. They handle refunds and disputes. You're dependent on their systems and support. Switching MoRs requires migrating your entire payment infrastructure and customer billing records.

Why direct payment makes more sense for contractors

Kontrable doesn't use a Merchant of Record model for contractor payments. We deliberately avoid funds custody entirely. You pay contractors directly via your own Wise, PayPal, or Payoneer accounts. We track payments and provide documentation, but we never hold or process your money.

This approach keeps everything simple and transparent. You maintain direct relationships with contractors. You control payment timing and methods. You see exactly where your money goes. There's no middleman holding funds or taking a cut of every transaction.

The MoR model makes genuine sense for consumer sales with complex tax compliance across many jurisdictions. It doesn't make sense for B2B contractor payments, where relationships are direct, transactions are straightforward, and tax compliance is the contractor's responsibility, not the payment processor's.

Common MoR providers for digital products

If you're selling digital products globally and need a MoR, several providers specialize in this space. Paddle and FastSpring are popular for SaaS and digital products. Lemon Squeezy focuses on creators and indie developers. Gumroad serves digital creators. Stripe Tax provides tax compliance without full MoR services.

Each provider has different pricing structures, feature sets, and geographic coverage. Evaluate based on your transaction volume, target markets, and specific needs like subscription management, affiliate programs, or multi-currency pricing.

For most service businesses and contractor management scenarios, you don't need a MoR. Direct payment processing with Stripe, PayPal, or Wise, combined with contractor management software, is simpler and cheaper.

Frequently asked questions

Do I need a MoR for contractor payments?

No. MoRs are for selling products or services to customers, not for paying contractors. For contractor payments, use direct payment methods (Wise, PayPal, Payoneer) and contractor management software. MoR adds unnecessary cost and complexity.

Can I switch MoR providers if I'm unhappy?

Yes, but it's complex and disruptive. You need to migrate your entire payment infrastructure, update customer billing and subscription information, re-register for tax compliance in some jurisdictions, and potentially set up new payment methods. Plan for 1-3 months of transition work and potential customer communication issues.

Does using a MoR affect how I record revenue?

Yes. Because the MoR is the legal seller, revenue recognition can be more complex. The revenue might be recorded as a net amount (after MoR fees) rather than gross. Consult your accountant or bookkeeper about how MoR transactions should be recorded in your accounting system.

What's the difference between a MoR and a reseller?

A MoR processes payments on your behalf but you remain the product provider and owner. A reseller buys your product and sells it themselves, owning the entire customer relationship. The reseller can change pricing, bundle it differently, or modify terms. MoRs can't do that—they're transparent intermediaries for payment.

What about MoR for international sales?

MoRs are specifically designed for international sales. They handle multi-jurisdiction tax compliance automatically, which is their main value proposition. If you're selling globally, a MoR can eliminate months of compliance work.

Is a MoR the same as a payment gateway?

No. A payment gateway (like PayPal or Stripe) processes payments. You remain the seller and handle tax compliance. A MoR becomes the legal seller and handles tax compliance. Different models, different costs, different responsibilities.

Making the decision

Ask yourself these questions:

Are you selling digital products or services to customers? (Yes suggests considering MoR, no suggests not needed.)

Are your customers in many different countries? (Yes increases MoR value, no suggests direct payment processing is fine.)

Do you want to avoid multi-jurisdiction tax compliance? (Yes suggests MoR, no suggests direct payment processing.)

What's your revenue? (Higher revenue makes MoR cost more significant; lower revenue makes percentage fees less impactful.)

How much technical setup time do you have? (Limited time suggests MoR handles complexity, sufficient time suggests direct processing is okay.)

Do you value direct customer relationships? (Yes suggests avoiding MoR, willing to abstract away suggests MoR is fine.)

Based on your answers, you'll know whether a MoR makes sense or whether direct payment processing is better.

The bottom line

Merchant of Record services are valuable for digital businesses selling products to customers globally. They handle payment processing, tax compliance across multiple jurisdictions, and transaction liability. The cost is 3-7% of revenue, which can be worth it for small teams avoiding complex multi-country tax registration and compliance.

But MoRs aren't relevant for contractor management, B2B services, or internal payment processing. These transactions don't involve consumer sales across many jurisdictions or complex tax compliance. Direct payment methods with contractor management software are simpler, cheaper, and give you more control.

Know your use case. If you're selling digital products to consumers globally, a MoR makes sense. If you're paying contractors or providing B2B services, skip the MoR and use direct payment methods. Match the solution to your actual problem.