In this article we are going to explain the merchant of record concept. We will also outline the differences between merchants of record and payment facilitators.
Many articles on Paylosophy cover such concepts as payment facilitator, split funding, online marketplaces, branding of payment solutions, and credit card transaction descriptors. The term “merchant of record” relates to all of the listed concepts. However, we, somehow, never mentioned it here. So, let us start with merchant of record definition and then move on to some explanations and examples.
Merchant of record definition
A merchant of record (MOR) is an entity that accepts cardholders’ payments and is assumes liability for processing of these payments on the merchant’s behalf. In simple terms, the MOR is the name that the customer (cardholder) sees on the receipt. The name of the merchant of record (which is not necessarily the name of the product seller) is specified by transaction descriptor. For a short time the MOR actually holds the transaction amount the customer pays at the POS.
Why choose MOR model
Technically, the merchant of record has to handle plenty of aspects related to electronic payment acceptance. These include
- taxation,
- funding,
- PCI DSS compliance,
- payment security,
- deduction of credit card processing fees,
- management of chargebacks and refunds.
Many small and medium-size merchants cannot afford spending their time and efforts on management of all the listed issues. So, initially, they prefer to operate through larger entities. Then, their business grows and their needs become more sophisticated. As a result, they might find merchant of record model too intrusive and constraining. At this point a merchant might consider becoming its own MOR or switching to another service provider. Potentially, it can be a PayFac, offering a highly customized payment API.
There is also another reason why companies choose to operate though merchant of record model. They want some reputable and trusted entity to represent them in the eyes of their clients. Typical examples of such reputable companies include Uber and Amazon.
Example
When it comes to recurring billing companies, it is often the MOR that manages subscriptions and payment plans for them.
In split or chained payments, it is often the MOR that provides the necessary split funding logic and distributes payment amounts among different affiliates.
Finally, in international and multi-currency payments, it is the MOR that has to do currency conversion and manage these payments for the retailer.
Some major companies resort to the services of merchants of record to sell products and services that they do not consider to be top-priority ones.
Difference between a merchant of record and a payment facilitator
As we can see, the functions performed by a merchant of record are similar to those performed by a payment facilitator (check out our PayFac articles series). And, yes, the process of becoming a MOR is almost as labor-intensive and time-consuming as the process of becoming a PayFac. So, what is the difference?
Well, not all merchants of record are PayFacs and vice versa. Payment facilitators are often referred to as master merchants. However, an MOR is not necessarily a master merchant. It can be a sub-merchant of some PayFac as well.
Examples
Stripe and WePay are just PayFacs and not merchants of record in relation to their respective sub-merchants. So, a cardholder, purchasing products or services from these sub-merchants, sees the name of the retailer (sub-merchant) and not of the underlying PayFac (Stripe or WePay) on the invoice.
Payment facilitator model is more flexible and lucrative than MOR model, although it involves larger costs and more responsibilities. So, becoming a merchant of record might be a step on the way to becoming a white-label or full-fledged payment facilitator.
Conclusion
Merchant of record concept is one of the basic concepts of merchant services industry. If you are a small-to-medium-size company, being your own merchant of record might be a tough task to manage. However, if you are a larger-size business, becoming an MOR or a PayFac for other merchants might be beneficial for you and allow you to make some extra money on merchant services.
Feel free to consult our experts at UniPay Gateway to learn more about how merchant of record and payment facilitator models can work for you.