What Does Merchant of Record Mean?

A merchant of record simplifies payment processing by accepting payments on a seller’s behalf.
by Roenen Ben-Ami
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Published: November 23, 2022
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As modern eCommerce grows, there is greater penetration in the usage of “merchants of record” for processing product or service payments. This phenomenon is typically driven by the motive of simplifying the acceptance of payments and legal complications in domestic and international markets. 


This blog explores what a merchant of record (MoR) means and its implications on chargeback management for sellers. 


What is a merchant of record ?


A merchant of record refers to a legally authorized entity to accept payments concerning a sale. Whenever an eCommerce transaction occurs, the MoR's name appears on the payer's credit or debit card statement.


Some sellers choose to be their own MoR and set up local accounts wherever they operate. Others choose to work with external MoR services to manage transactions on their behalf. 


What are the benefits of using an external MoR?


Working with an external merchant of record provides sellers with the convenience of a payment processing party that also bears the different legal obligations within the territory that apply to a retail business, including sales tax compliance. 


The MoR's roles and responsibilities encompass ensuring compliance with PCI-DSS standards, handling taxes that vary from jurisdiction to jurisdiction, and managing the currency exchange rates. MoRs also address payment-related complexities like refunds and chargeback dispute management as per contractual agreements with sellers.


Using an MoR becomes even more beneficial in cross-border sales. It simplifies cross-border payment collection and foreign financial compliance. This way, sellers can focus better on their core business operations and improve their offerings and marketing to grow their customer base.

Merchant of records’ in simplifying chargebacks


When sellers use an external MoR, the latter assumes complete legal responsibility for payments and any complications, including chargebacks.


However, it’s important to note that MoRs often have terms of service or contracts with the original sellers that include clauses that entitle the merchant of record to deduct the amount of any chargeback and its resulting chargeback fee from their payable dues to the original seller against sales. However, without an explicit agreement to this effect, the MoR would be held responsible for chargebacks and chargeback fees.


How does a MoR mitigate chargeback risk for sellers?


Some MoRs work with robust chargeback protection services. These services enable MoRs to take a proactive approach to chargeback management. 


By taking the time to understand the root causes of their chargebacks and incorporating a combination of alerts, deflection tools,  chargeback guarantees, and/or chargeback mitigation,  these services offer chargeback protection and safeguard the sellers' interests. 


If the merchant of record uses a chargeback mitigation solution, then in the event of any disputes or credit card chargebacks, they're better equipped to fight and reverse the unjustified ones. This ultimately benefits end-sellers, as they're not debited for the reversed chargeback and fees. Therefore, sellers should always check if an external MoR service provider they're considering uses such services.


Now let's explore sellers of record. 


What is a seller of record?


A seller of record (SoR) is the entity that is legally responsible for the sale of a product or a service to an end customer. It takes care to provide the different necessary financial elements like the payment system, channels, processors, and settlers to process payments. The same entity is also responsible for accounting for sales tax and the risk of a product liability unless stated otherwise.


Every transaction recorded via the payment systems points to the seller of record, who is identified as the original seller of the good or service.


The idea behind working with a SoR is to shift sales responsibilities and liabilities like managing customer recourse or sales tax to them and focus more intensely on the core aspects of production and distribution. 


Is a merchant of record different from a seller of record?


As you may have observed, MoRs and SoRs are similar. They both act as resellers on behalf of the original merchant or seller. In addition, they are responsible for online transactions and sales.


However, the merchant of record is a reseller but doesn't replace the seller's identity. Their role is restricted to receiving payment and appearing on the customer's credit or debit card statement. Transactions continue to be traced back to the original seller. On the other hand, the seller of record assumes the seller's identity by taking on the legal right to sell goods on the original seller's behalf. They also take responsibility for the brand reputation of the business they are partnered with. When a SoR is used, the actual seller’s store name will not appear on the credit or debit card statement.

Bottom line


Using an external MoR for payment processing comes with many benefits for sellers. Those advantages become more pronounced when selling in multiple territories across borders as it helps sellers to focus on the core business and delegate additional responsibilities like international payments, related compliance concerns and complexities like chargeback handling. Using a SoR eliminates any legal association with the sale and also introduces convenience for sellers. 


To ensure optimum benefit from using a MoR, it's advisable to confirm if the chosen partner uses chargeback protection services to protect sellers’ interests. 


For more information on chargeback protection and other related topics, contact us or visit the Justt blog.


Written by
Roenen Ben-Ami
Co-founder & Chief Risk Officer at Justt. I am an all-around payments expert and a veteran commissioned officer. I previously led the Chargeback and Merchant Risk teams at the payments service provider Simplex, which now successfully recovers millions of dollars a year using the best practices I developed.
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