Merchant of record vs. seller of record: Key differences and similarities


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  1. Introduction
  2. What is a merchant of record?
  3. What is a seller of record?
  4. Merchant of record vs. seller of record
    1. Scenario one: Merchant of record and seller of record as different entities
    2. Scenario two: Merchant of record and seller of record as the same entity
  5. Should I work with a merchant of record or seller of record?

Forrester estimates that retail sales, driven by ecommerce, will grow to $3.8 trillion by 2027. As businesses big and small continue to engage with online platforms to sell their goods and services, it’s important to understand the key roles in online transactions. Two terms to know: “merchant of record” and “seller of record.” Though they’re often used interchangeably, they represent different responsibilities and potential liabilities that can deeply impact a business’s operations and risks.

The merchant of record and the seller of record can influence customer experience, tax obligations, regulatory compliance, and even business profitability. These roles are shaped by a company’s specific business model and sales structure, and awareness of their distinctions not only equips businesses with better operational knowledge but can also help them make informed decisions that improve their online sales strategy.

Below we’ll explain the roles and responsibilities of the merchant of record and the seller of record, and then we’ll discuss the scenarios in which a business might be one, the other, or both. We’ll also look at the implications of these roles for different business models and offer guiding considerations for businesses establishing their ecommerce operations.

What’s in this article?

  • What is a merchant of record?
  • What is a seller of record?
  • Merchant of record vs. seller of record
  • Should I work with a merchant of record or seller of record?

What is a merchant of record?

A “merchant of record” (MoR) refers to the entity that is acknowledged by a payment processor as the seller of the product or service. This entity has the overall responsibility for the entire customer purchase process and its related obligations, such as:

  • Collecting payment
    The MoR is responsible for processing the customer’s payment. They are the entity whose name appears on the customer’s credit card or bank statement after a transaction.

  • Sales tax
    The MoR is responsible for calculating, collecting, reporting, and remitting any applicable sales taxes or value-added taxes (VAT). They need to be registered in all relevant tax jurisdictions to perform these duties properly.

  • Compliance
    The MoR must ensure that all transactions comply with local and international laws and regulations. This includes, but is not limited to, compliance with consumer protection laws, data privacy laws, antifraud regulations, and card network rules.

  • Customer service and dispute resolution
    The MoR is generally responsible for managing customer service related to transactions, including handling customer inquiries, complaints, returns, and refunds. They are also responsible for resolving disputes that arise out of the transactions, such as chargebacks.

  • Fraud prevention
    The MoR implements and manages fraud prevention measures to protect against fraudulent transactions.

In the context of ecommerce, the merchant of record could be the marketplace or platform itself, or it could be the individual seller, depending on the specific setup and policies of the marketplace. The MoR assumes a significant amount of risk and responsibility but, in return, has control over the customer experience and potential revenue from the transaction.

What is a seller of record?

A “seller of record” (SoR) refers to the entity that is selling goods or services to the customer and is therefore responsible for the transaction from a legal and financial standpoint. This includes obligations like:

  • Collecting payment
    Like the MoR, the SoR can also be responsible for processing the payment from the customer and is the entity they see on their credit card statement. Below, we’ll further unpack the distinctions between these entities, but in short, either can be responsible for processing transactions.

  • Sales tax
    The SoR is responsible for collecting and remitting any applicable sales tax. They need to have the appropriate tax registrations and must calculate, collect, report, and remit the correct amount of sales tax to the right tax authority.

  • Compliance
    The SoR must ensure that the sale complies with all applicable laws and regulations, which can vary by jurisdiction. This can include consumer protection laws, data privacy regulations, trade compliance, and more.

  • Customer service and delivery
    The SoR generally has responsibility for delivering the goods or services to the customer and handling any customer service issues, returns, or refunds.

Like MoR, the seller of record might sometimes be the marketplace or platform itself or it might be the individual vendor, depending on the marketplace’s policies and structure.

Merchant of record vs. seller of record

Both “merchant of record” and “seller of record” refer to entities that take on certain responsibilities in a transaction. They are used interchangeably in some contexts, but they can play different roles depending on the business model and the specific arrangement of a sale; for example, selling through a larger ecommerce platform vs. conducting sales on a proprietary website.

How different or similar the MoR and SoR are often depends on the level of control a business needs over its sales process, as well as the complexity of its sales operations. Larger platforms often separate these roles to distribute responsibilities and risks, while smaller businesses or direct sellers tend to keep these roles unified. Here’s a more detailed explanation:

Scenario one: Merchant of record and seller of record as different entities

This separation typically happens on larger ecommerce platforms or marketplaces, where the platform acts as the MoR and the individual vendors are the SoRs.

For instance, in some configurations of Amazon’s marketplace, Amazon acts as the MoR. They handle payment processing and financial compliance. When a customer makes a purchase, they see “Amazon” on their bank or credit card statement. Amazon has a relationship with the payment processor and is responsible for dealing with chargebacks or payment disputes.

The individual vendor, however, remains the SoR. They are responsible for the inventory and its delivery. If there’s a problem with the product or a customer wants a refund, it’s the vendor’s responsibility. The vendor is also responsible for ensuring the products they sell comply with local, national, and international laws and regulations. In some cases, the SoR may also handle sales taxes, although this can vary.

Scenario two: Merchant of record and seller of record as the same entity

When a business sells products or services directly to customers via their own website or a smaller ecommerce platform, the business is typically both the MoR and the SoR.

For example, if you’re a small business owner selling handmade crafts via your own website, you’d likely be both the MoR and the SoR. You’d be responsible for every aspect of the sale including listing the product, processing customer payments, delivering the product, and handling any after-sale customer service or returns.

Similarly, a software company selling its own software-as-a-service (SaaS) subscription is both the MoR and the SoR. They develop and sell the software, process customer payments, handle customer service, and ensure compliance with all relevant regulations.

In both scenarios, the business takes on all responsibilities related to the transaction, including payment processing, sales tax collection, product delivery, customer service, and compliance with laws and regulations.

Should I work with a merchant of record or seller of record?

Determining whether your business should partner with an MoR or act as its own SoR depends on several factors, including your business’s size, capabilities, and strategic goals. Here are a few questions businesses should consider when making this decision:

  • How complex are your financial operations?
    If your business operates in multiple tax jurisdictions or handles a high volume of transactions, then managing sales taxes, VAT, and payment processing could become quite complex. An MoR can handle these aspects, leaving your business free to focus on product development, marketing, and customer service.

  • What is your capacity for risk management and compliance?
    As an SoR, your business needs to comply with various laws and regulations, from consumer protection laws to data privacy regulations. If your business has the resources and expertise to handle these tasks, acting as your own SoR may be feasible. However, if not, partnering with an MoR can help ensure compliance and mitigate risks.

  • How much control do you want over the customer experience?
    Acting as your own SoR typically offers more control over the customer experience, from checkout to delivery. If maintaining this control is important for your brand and customer service strategy, acting as your own SoR may be the best option. However, if your focus is more on the product or service itself and less on the sales process, partnering with an MoR may be beneficial.

  • What are your resources for customer service and dispute resolution?
    An SoR is generally responsible for handling customer service issues, including returns and refunds. If you have the resources to manage these aspects efficiently and effectively, acting as your own SoR may be the right choice. Otherwise, an MoR can handle these aspects for you.

  • What is your long-term business strategy?
    If you plan to expand to new markets or scale your operations significantly, partnering with an MoR may provide the support and infrastructure needed for growth. However, if you plan to maintain a smaller, more controlled operation, acting as your own SoR might align better with your strategy.

Each business is unique, and you should decide whether to act as your own SoR or partner with an MoR by carefully considering your business’s specific context. Learn more in depth about what a merchant of record is and the benefits of working with one.

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