Merchant of Record and Payment Facilitator

on Oct10

In this article we are going to explain the merchant of record concept and 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. Although the term “merchant of record” is related to all of the listed concepts, it was, somehow, never mentioned 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 held liable 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 paid by the customer 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 prefer to operate through larger entities, because they simply cannot afford spending their time and efforts on management of all the listed issues. Later on, as their business grows and their needs become more sophisticated, 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, a PayFac, offering a highly customized payment API.

Another reason why companies choose to operate though merchant of record model is that 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

A passenger of Uber cab is charged by Uber, but most of the payment amount goes to the specific driver. A person that purchases products on Amazon pays the marketplace owner and sees the name “Amazon” on the invoice. But the actual purchased products are provided by specific vendors, operating through Amazon that distributes payment amounts accordingly.

When it comes to recurring billing companies, it is often the MOR that manages subscriptions and payment plans for them.

When it comes to split or chained payments, it is often the MOR that provides the necessary split funding logic and distributes payment amounts among different affiliates.

When it comes to 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, a merchant of record is not necessarily a master merchant. It can be a sub-merchant of some PayFac as well.

Examples

PayPal is a merchant of record for many of its customers. People feel more secure when their cardholder data is handled by such a reputable platform as PayPal and not by some unknown vendors it represents. At the same time, some larger companies, including American Airlines, use the services of PayPal for payment facilitation only. American Airlines can afford to be its own merchant of record.

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 merchant of record 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 a merchant of record or a payment facilitator 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.

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