The rise of e-commerce has made it easier than ever for businesses to sell their products and services to customers around the world, with global retail e-commerce sales reaching an estimated $5.8 trillion. The allure of global markets for ambitious businesses is undeniable, yet very few businesses are willing to take on the challenge of expanding into new markets. Why?
Venturing into a new market comes with complexities like
- Transaction processing
- Tax compliance
- Security and fraud prevention
- Chargeback management
The cost, time, and resources needed to navigate these challenges may cause brands to leave money on the table in favour of a less cumbersome growth model. What if you could expand without the challenges of expanding? With a Merchant of Record, you can streamline your expansion plans and completely outsource the compliance and operations burden to another business the Merchant of Record.
What is a Merchant of Record (MoR)?
A Merchant of Record is a company that acts as the legal seller of your products or services in international markets. The MoR takes ownership of the entire payment process, handling tasks such as:
Payment Processing: Accepting payments in multiple currencies, from various payment providers, and across different countries.
Tax Compliance: Calculating, collecting, and remitting sales tax, VAT, and other local taxes to the relevant authorities.
Regulatory Adherence: Ensuring compliance with data privacy laws (like GDPR), Payment Card Industry Data Security Standards (PCI-DSS), and other regulations specific to each market.
Chargebacks and Fraud Prevention: Managing and mitigating chargeback disputes and fraudulent activities.
Using a third-party MoR allows you to focus on key aspects of your business, like creating impactful products and developing marketing to drive awareness in international markets
It’s important to note that in a traditional business model, brands act as their own MoR, most times, without even knowing it—they handle their own sales, tax compliance, and chargeback processes.
As a thriving business, it’s unwise to act as your own MoR because, as you continue to expand, each new market will bring a different set of financial and legal complexities that can slow down your business. Partnering with an MoR optimizes for speed of expansion while saving you time, money, and unnecessary legal hoops.
Expanding your business solo vs Using an MoR
Expanding your business globally by establishing your legal entity in each target market offers complete control and potentially lower long-term fees. However, this approach comes with significant drawbacks:
Increased Time and Cost: Setting up subsidiaries involves navigating complex legal and regulatory processes in each country, requiring legal and tax professionals, which can be time-consuming and expensive.
Operational Complexity: Managing separate legal entities, complying with diverse tax regimes, and handling international payments can become resource-intensive and divert focus from core business activities.
Compliance Challenges: Staying current with ever-changing regulations across different markets can be overwhelming and lead to costly compliance lapses.
Limited Scalability: Setting up individual entities in each market can hinder quick and efficient expansion to new territories.
Using a Merchant of Record:
While relinquishing some control, partnering with an MoR offers several advantages:
Fast Track to Market: MoRs eliminate the need for establishing legal entities, allowing for much quicker and easier entry into new markets.
Reduced Operational Burden: MoRs handle all aspects of cross-border transactions, from payment processing and tax compliance to fraud prevention, freeing up your internal resources.
Compliance Expertise: MoRs have the knowledge and experience to navigate the intricacies of international regulations, ensuring your business stays compliant.
Scalability and Flexibility: MoRs can support your expansion into multiple markets simultaneously, providing a cost-effective and scalable solution.
Here’s how it works:
- International Customer Orders: An international customer places an order on your e-commerce website.
- MoR Takes Charge: The Merchant of Record (MoR) provider collects the payment from the customer, including any applicable taxes and duties.
- Ownership Transfer: The MoR provider takes temporary ownership of the items from your customer’s order.
- Resale and Fulfillment: The MoR provider then acts as a seller, reselling the products to the end customer. This triggers you, the merchant, to ship and fulfill the order.
- Revenue Distribution: Finally, the MoR provider sends your share of the revenue for the international sale, minus their fees and any relevant taxes, back to you, the merchant.
Why Use a Merchant of Record (MoR)?
Effortless Expansion:
Lean and Agile: Entering new markets usually means building payment infrastructure and keeping up with complex regulations. MoR lets you test the waters without expanding your team or managing intricate international selling processes.
Reduced Costs:
Lower Operational Costs: Handling international payments often demands legal and accounting expertise, which can be expensive. MoR services eliminate the need for these additional third-party services.
Enhanced Customer Experience:
Localized Shopping: MoR providers often offer local currencies and payment methods, providing a seamless buying experience for global customers, something that independent market setup might take years to achieve.
Simplified Compliance:
Managed Compliance: MoR providers guarantee compliance not only with PCI standards but also with ever-changing local regulations, a major challenge for businesses expanding globally.
Focus on What Matters:
More Time for Your Business: MoR frees you up to focus on growing your brand, sourcing products, or strategic marketing, allowing you to dedicate your energy to your core business.
When is an MoR Right for You?
If you’re looking to scale internationally, MoR can be a valuable partner. Managing multi-country regulations is difficult and risky on your own. Consider an MoR if yu fall into any of the following categories:
High-Growth Businesses: If your company experiences rapid international expansion, an MoR can scale quickly to support your growth ambitions.
Businesses Selling Digital Products and Services: For SaaS companies or those providing digital goods, the complexities of cross-border payments and tax compliance can be particularly burdensome. An MoR offers a streamlined solution.
Businesses Entering Highly Regulated Markets: Some countries have stricter regulatory requirements for online businesses. An MoR with experience in these regions can guide you through the complexities and ensure compliance.
Stagnant Domestic Growth: You’ve established success domestically, but growth has plateaued.
International Interest: Organic international traffic indicates potential demand for your products in new markets.
Low Conversion Rates: You’ve entered a few markets, but conversion rates remain low.
Surprise Fees Frustrate Buyers: International customers are unhappy with unexpected fees upon delivery.
Overwhelmed by Regulations: Navigating global tax and legal complexities are hindering your team. You want to diversify revenue streams while remaining agile and minimizing overhead.
Testing New Markets: You’re considering a physical presence in a new market but want to test the waters with a low-risk approach before committing.
Choosing the Right MoR Provider
With dozens of MoR providers to choose from, selecting the right partner can be a challenging process. Careful consideration of key factors will help merchants find an MoR that meets their unique needs and supports their international expansion goals.
Global Coverage
Verify the MoR you’re considering has the global footprint required to serve your target markets. Evaluate which countries they have a direct physical presence in versus relying on agents or third parties. Direct operations allow for closer oversight and control. Consider both major markets like the EU and long-tail opportunities to position your business for maximum growth potential.
Fee Structure
MoRs generate revenue through a variety of pricing models like per transaction fees, monthly or annual subscriptions. Get transparent comparisons of pricing tiers and fee schedules from competing providers to understand true total costs. Look for providers with tiered or volume-based pricing to benefit from economies of scale as your business grows. Consider additional hidden fees for services like customer support or reporting.
Industry Experience
Certain industries face unique import/export, customs and regulatory hurdles. Choosing an MoR with deep expertise in your sector means they understand intricacies like product classifications or compliance issues. This positions them to proactively advise and assist and avoid costly mistakes. Look for MoRs that have successfully supported other established brands within your industry vertical.
Integration Capabilities
Ease of integration is critical to efficient operations. Research the MoR’s APIs, plugins and other tools to seamlessly connect their platform into your existing tech stack like e-commerce sites, order management systems and marketplaces. Consider future-proof integrations that accommodate ongoing platform or technology changes over time on both sides.
By carefully evaluating potential MoR partners based on these key criteria, merchants can feel confident choosing a provider that is positioned to efficiently and compliantly support their growing international e-commerce operations for years to come. Conducting diligent due diligence upfront ultimately saves money and protects brand reputation in the long run.
AutoComply: Seamless Compliance and MoR Globally
AutoComply stands out as a comprehensive solution designed to simplify compliance and Merchant of Records (MoR). Here are the features of AutoComply
Obligation Discovery and Documentation Made Simple
AutoComply provides real-time discovery of all relevant obligations in new markets, automatically updating requirements as regulations change. This ensures your business never misses a filing deadline or falls out of compliance.
The platform also streamlines documentation processes. AutoComply generates compliant contracts and paperwork for import/export customs clearance, taxation, and other areas with a few clicks. This removes manual data entry and reduces the risk of errors.
Simplified Payment Processing
As the MoR, AutoComply handles local payment collection and shields your business from complexities like currency exchange rates and foreign tax withholding.
Funds are delivered to your bank account in your home currency to streamline bookkeeping. And our customer service team is available to resolve any issues that may arise.
Compliance You Can Trust
By acting as the seller of record, AutoComply MoR ensures taxes and other obligations are addressed correctly in each new market from day one. Our proprietary technology monitors thousands of regulatory changes daily to guarantee your business stays compliant as rules evolve over time.
Contact us today to learn more about how AutoComply can help you scale internationally with confidence. Our compliance-first approach removes the barriers to global expansion so you can focus on growth.
