Merchant of Record: The New Way of Doing Business that is Revolutionising D2C E-Commerce

Blog

July 06, 2022

Merchant of Record: The New Way of Doing Business that is Revolutionising D2C E-Commerce
More and more e-commerce companies are taking the leap into internationalisation. Inevitably, a broader potential consumer base of cross-border commerce means unparalleled growth opportunities, but it also presents a series of difficulties which significantly increase the level of complexity of the situation. As markets multiply, so do the currencies, languages, and cultures companies will have to deal with, as well as regulatory and tax regimes to contend with if one does not want to incur penalties – all while also staying focused on the business itself. As daunting as all this may seem – the transition to cross-border commerce requires considerable economic and, more than anything, organisational involvement in the various stages – there are ways to manage your presence in the international markets. In fact, collaborating with a third party such as a Merchant of Record, especially in complex scenarios such as in the case of Europe, is now becoming the reference model for internationalisation.

What is a Merchant of Record (MoR) and what does it do?


A MoR is a legal entity that acts as an intermediary in transactions between an e-commerce seller and its customers. The MoR takes care of merchant-client relations from several angles. Essentially, it is fiscally and legally responsible for cross-border sales to end consumers worldwide. The MoR therefore takes care of aspects such as payment options, opening and management of the brand's VAT position, country-specific bureaucratic requirements, customs-related costs and their respective variables, tax compliance and legal advice. At the same time, it also localises solutions and integrates all processes.

Merchant of Record, Seller of Record and Payment Service Provider


The three entities differ, with progressively narrower scopes of competence. The Merchant of Record, Seller of Record and Payment Service Provider do not, in fact, overlap. The MoR is a retailer that assumes full legal and fiscal responsibility for sales and is authorised to process payments: a true intermediary. The SoR, on the other hand, helps process payments and taxes, but still acts on behalf of the brand. Finally, the PSP is a third party that enables merchants to collect payments, but without intervening in any tax or legal transactions. 

 

Why is a Merchant of Record necessary when expanding an e-commerce business internationally?


Normally, when deciding to branch out internationally, businesses are confronted with various complexities, made all the greater the greater the scope of the expansion: the difficulty factor is multiplied by the number of countries involved. As a result, many companies have doubts about making the leap, and all the more so if the company is American. A market as unique as the United States is clearly a huge market, but it only deals with one currency, has a relatively cohesive culture, one or two main languages, and a single legal and fiscal framework. In many other cases, efforts made to sell cross-border are rewarded with much smaller markets and figures than in the US. Europe is a prime example of the challenges internationalisation presents. While there are many great opportunities to be had in what are among some of the top markets in the world, it is also highly complex in terms of management because, despite a high degree of homogeneity, each nation has its specificities. This is why the Merchant of Record has become the preferred model for American companies in internationalisation, providing them with assistance in the most important aspects.

 

A winning model: how it works

"The Merchant of Record is the preferred working model for American companies that want to sell in Europe. The MoR handles thousands of B2C sales to end customers and then the brand issues a monthly B2B invoice to the MoR. Meanwhile, all risks and complex procedures are left to the MoR,” explains Simone De Ruosi, CEO of Go Global Ecommerce. In essence, the Merchant of Record acts as a reseller, mediating the relationship between seller and customer. There is no commission charged to the MoR for individual transactions, but instead a fixed monthly payment. This allows companies, De Ruosi adds, "to focus on the business itself – designing, creating and marketing their products – with a 'borderless strategy' in mind, and the MoR is simply used as a business accelerator.” The company grows, eliminates hard-to-manage responsibilities and streamlines processes, as they do not have to invest time and expertise in managing, updating and localising legal and tax elements.

Is a MoR suitable for your company?

Clearly, a MoR is an asset to any e-commerce business keen to position itself in the cross-border market. "It is beneficial for any type of company to be hassle-free and to avoid risks or allocating resources to activities not central to their business". But, De Ruosi notes, "Highly regulated companies, such as those dealing with alcohol and electronics, can benefit even further.” They experience the most difficult aspects of internationalisation processes and are understandably subject to more intricate regulations – the very same ones that could cause nasty surprises for companies that have not taken the steps to prepare for such risks. 

From the US to the rest of the world

A Merchant of Record has become essential for American companies. Europe can prove a tricky environment in the eyes of the US for a number of reasons. Firstly, there are much stricter consumer protection and privacy regulations. Then there are different tax and legal frameworks, as well as various payment methods, taxes and customs fees. However, international sales management is not just outgoing items and constraints. In fact, it can present itself as an opportunity. “Ensuring fiscal and legal transparency, being compliant with the regulations in each territory and localising check-outs has a positive impact on the shopping experience and on trust. All of this is proven to increase conversion and return rates.” Equally, “Legal risks are reduced to zero. The sales responsibility lies with the MoR and the seller is only responsible for the products going to the MoR.” 

Share it!: