What is a Merchant of Record? And Why Subscription Businesses Need One

Key takeaways: Merchant of Record (MoR)

• What is an MoR? A Merchant of Record (MoR) is the legal entity that takes on full financial and legal responsibility for selling to a customer. They handle all payments, tax compliance, fraud, and chargebacks on your behalf.
• MoR vs. PSP: A Payment Service Provider (PSP) (like Stripe or Adyen) only processes transactions. A Merchant of Record (like Cleeng) also handles all the liability, tax remittance, and compliance associated with those transactions.
• Why MoR for subscriptions? For global subscription businesses, a MoR is essential. It offloads the immense complexity of managing recurring billing, international sales tax (like VAT-MOSS), and multi-currency compliance, allowing you to scale faster.

Digital subscription businesses rely on recurring revenue. However, the D2C subscription model comes with its own set of challenges. E-learning platforms, fitness apps, or streaming services deal with a global customer base. And that's when recurring billing can get overwhelming, fast. From handling global transactions, dealing with refunds, to navigating tax compliance, there’s a lot to manage. 

That’s where the Merchant of Record (MoR) comes in. A MoR solution can make a huge difference for digital subscription businesses. Merchant of Record brings smoother operations, easier compliance, and faster global growth!

In this blog, we’ll explain what a Merchant of Record is, why it’s essential for subscription-based models, and how it drives growth. 

1. What is a Merchant of Record?
2. What does a Merchant of Record do?
3. What’s the difference between a Merchant of Record (MoR) and a Payment Service Provider (PSP)?
4. Benefits of using a Merchant of Record for subscription businesses
5. How is Cleeng different from other Merchants of Record on the market?

What is a Merchant of Record (MoR)? Definition:

A Merchant of Record (MoR) is the legal entity that handles payments for your business. It acts as an intermediary between your customers and your subscription service. The MoR manages the entire payment process:

• Transaction handling
• Compliance 
• Refunds and chargebacks
• Tax management

When you use a Merchant of Record, it handles all the payment details behind the scenes. Even though customers subscribe to your services directly on your website, the MoR’s name is what appears on their credit card statements.

For D2C subscription businesses, a MoR manages recurring payments and handles global payment methods.It also ensures compliance with regulations like GDPR or local sales taxes.

You could act as your own Merchant of Record, but managing the infrastructure, payments, and compliance yourself can be very time-consuming and challenging. This is especially true for businesses operating internationally.

By partnering with a third-party Merchant of Record for subscriptions, you can streamline administrative setup. It offloads the complexities of payment processing and sales tax compliance, allowing you to focus your resources growing your business through product innovation and customer acquisition. 

Did you know that Apple Pay and Google Pay's fees can be as high as 30 per transaction? Learn how to save up to 25% on fees with web payments for subscriptions. 

What does a Merchant of Record do for subscription businesses?

A Merchant of Record is an entity legally responsible for processing payments and managing all associated financial and regulatory tasks. By acting as the legal seller of the goods or services, a MoR handles tasks you might otherwise need entire teams or external consultants for. Here’s a closer look at the key responsibilities of a MoR:

1. Tax compliance and liability management

Tax compliance can be a minefield. For digital subscription businesses, managing taxes requires understanding location-based rules for intangible products. For example:

• European VAT regulations require digital service providers to calculate and remit VAT based on the customer’s location rather than the business’. Additionally, EU member states do not have a registration threshold, meaning all businesses must comply. In Switzerland, however, the threshold is 100,000 CHF.
• In the U.S., sales tax policies for digital goods vary by state.
• South Africa requires companies to account for VAT on sales to businesses and consumers. 

A MoR calculates, collects, and remits taxes on your behalf, ensuring your business stays compliant with local and global regulations. More importantly, they assume liability for tax errors and compliance issues, saving you from costly fines or reputational damage.

Learn more about digital subscription tax calculation, collection, and remittance. 

2. Payment processing across borders

Managing payments for subscriptions often involves handling recurring billing across various geographies. With global audiences, you must ensure seamless auto-renewals, provide various payment methods and localized pricing. A Merchant of Record simplifies this by handling:

• Account setups, allowing you to accept payments in the countries you want to operate in. 

• Currency conversions, ensuring customers can pay using their local currency while reconciling revenue across international markets.

• Global payment gateway integration, for seamless transaction processing. 

• Fee negotiations, ensuring cost-efficient payment processing for your business. 

By removing these complexities, a MoR allows you to expand into international markets without reinventing the wheel. 

3. Fraud prevention and risk mitigation

Subscription businesses are lucrative targets for fraudulent transactions and cyber threats. Customers trust you to keep their payment info safe, and a MoR adds a layer of defense with measures such as:

• Advanced fraud detection systems, reducing fraudulent activities. 

• Chargeback management, protecting your revenue and reputation. 

• PCI-DSS compliance, securing sensitive payment data to minimize risks. 

 Thanks to a MoR, you can avoid financial pitfalls while preserving customer trust.

4. Simplified operations and reduced overhead for subscription businesses

Operational efficiency is the backbone of any successful subscription business. For digital businesses, managing legal, tax, and payment complexities in-house can quickly become overwhelming. Instead, a Merchant of Record handles these time-consuming tasks on your behalf. 

This not only saves money but also frees up your internal resources to concentrate on core business activities like product development and customer engagement. 

5. Enhanced subscriber experience

Seamless transactions are key to subscriber satisfaction. A Merchant of Record for subscriptions helps optimize the purchasing experience by:

• Managing local payment preferences, so customers can use their preferred payment methods. 
• Offering quick and hassle-free refunds. 
• Handling chargeback and disputes, preserving customer goodwill. 

Image: Preferred payment method by country in Europe

Wondering if a Merchant of Record for subscriptions is the right solution for your business? A MoR can help you reduce costs by up to 34% when operating globally. Download our free eBook to learn how!

What's the difference between a Merchant of Record and a Payment Service Provider (PSP)?

PSPs are a component of your payment infrastructure, focused on processing transactions. They route payments from the buyer’s account to the seller’s account. Examples of PSPs include gateways like PayPal and Stripe.

However, when using a PSP, you’re responsible for managing additional tools to create a complete billing stack. You must still keep an eye on tax thresholds, register for sales tax, manage reports and documentation, and ensure everything stays compliant.

In contrast, a Merchant of Record takes full responsibility for payments and associated liabilities. This includes tax compliance, reporting, and other regulatory obligations. With a MoR, your role is limited to ensuring they remit payments to you.

Benefits of using a Merchant of Record for subscriptions

Scaling a global subscription business is complex. A Merchant of Record solution is designed to ease and accelerate that growth by taking on critical operational responsibilities. Here are the key benefits:

1. Simplies global payment and tax compliance

A Merchant of Record immediately absorbs the complexities of international laws and payment systems.

• Ensures compliance with intricate international laws, like digital sales tax rules (e.g., VAT-MOSS in the EU).

• Takes on the legal liability for tax calculation and remittance errors.

• Supports and manages a wide variety of local payment methods and currencies.

2. Streamlines backend operations and lowers costs

You reclaim time and resources by outsourcing the most time-consuming administrative tasks. A Merchant of Record:

• Offloads your team from managing disputes, chargebacks, and complex billing inquiries.

• Allows you to focus internal resources on growth activities (product, marketing) instead of administration.

• Offers a more cost-effective model by leveraging the MoR's existing infrastructure and economies of scale.

3. Improves the subscriber experience

A seamless, localized checkout process builds trust and improves satisfaction.

• Enhances customer experience and satisfaction by providing localized payment options and currencies.

• Leads to lower churn (especially involuntary churn) and higher retention rates.

• Often provides customer support in local languages, for billing-related issues

4. Accelerates global expansion

A MoR acts as your passport to new markets by removing regulatory and financial barriers.

• Enables confident, hassle-free global expansion into new territories.

• Navigates all region-specific regulations, payment systems, and tax requirements on your behalf.

• Mitigates the significant costs and risks associated with entering new markets.

5. Enhanced revenue growth

A Merchant of Record actively minimizes revenue leakage while providing data for strategic growth.

• Minimizes revenue loss by reducing failed transactions and preventing fraud.

• Automates complex tax processes to eliminate costly errors.

• Provides data and reporting to help you make smarter decisions about marketing, pricing, and retention.

How is Cleeng different from other Merchant of Record solution providers? 

If you’re looking for a proven partner to simplify payments and compliance, look no further than Cleeng. With years of experience in subscription management, Cleeng’s MoR solution is tailored to the needs of subscription businesses.

Cleeng’s MoR service offers everything you need to manage subscription payments:

• Global payment processing. Accept payments in local currencies and through preferred regional payment methods. Cleeng integrates 200+ payment methods across 230 countries and territories, supporting 37 currencies out of the box. See all currencies accepted by Cleeng. 

• Tax compliance made easy. Cleeng handles tax calculation and remittance across 13,000+ jurisdictions. Using tools like Avalara for complex regions like the U.S., Cleeng determines the correct tax based on customer location and ensures timely remittance to the appropriate authorities. By taking full liability for errors or delays, Cleeng eliminates the risks of tax compliance.

• VAT-MOSS. Cleeng simplifies complex global tax management, including VAT Mini One Stop Shop (VAT-MOSS) for digital services in the EU, to keep you compliant across multiple jurisdictions.

• Fraud protection. Cleeng’s advanced fraud detection system identifies suspicious behavior. It analyzes customer and fraudster patterns against industry benchmarks. Risk checks are triggered by multiple payment refusals exceeding our set threshold. With AI, we adapt to evolving fraud tactics, ensuring robust protection tailored to your needs. Our chargeback rate is just 0.3%, which is 50% better than the industry average.

• Payment Card Industry Data Security Standard (PCI DSS). Cleeng ensures all cardholder data is handled securely. This reduces the risk of data breaches and fraudulent transactions that could lead to payment declines.

• GDPR, CCPA, and other data privacy regulations. Cleeng strictly follows global data protection laws, guaranteeing that customers' personal data is handled responsibly. This not only ensures compliance but also fosters trust with your audience.

• PSD2 compliance for European transactions. Cleeng implements Strong Customer Authentication (SCA) and other PSD2 requirements, boosting transaction security and minimizing fraud for businesses operating in or serving European customers.

• Actionable insights. Cleeng provides key payment metrics and customizable filters to create your own dashboard. You can also view benchmark insights to understand your business' standing and identify areas for improvement. With real-time data, you can make strategic business decisions faster and smarter.

• Localized experience: With Cleeng, you can provide a customer-friendly checkout process in any market you choose to operate in.

"Working with Cleeng as our MoR has been a game-changer for us. Their expertise in handling payments and preventing fraud has streamlined our operations and helped us achieve results surpassing industry standards. It’s allowed us to concentrate on growing our content and connecting with our audience, knowing that Cleeng has the financial side covered."

Tsunehiko ‘T’ Takeuchi, Vice President at NHK Cosmomedia America

Learn how Jme achieved record KPIs by partnering with Cleeng. 

Cleeng goes beyond just acting as your Merchant of Record. Cleeng is a complete Subscriber Retention Management® platform. Whether you’re a fitness platform, streaming service, or e-learning provider, Cleeng’s tools are designed to grow your business. 

Did you know that you can get started with Cleeng in less than 60 minutes? Create your free account now and find out for yourself. 

Frequently Asked Questions (FAQs)

1. I already use Stripe (or another PSP). Isn't that the same as a Merchant of Record?

This is a common point of confusion. A Payment Service Provider (PSP) like Stripe primarily processes your payments—they are the "pipes" that move money. You are still the legal entity responsible for all tax compliance (like VAT), managing fraud liability, and handling chargebacks. A Merchant of Record (MoR) is a comprehensive service that acts as the legal seller on your behalf. The MoR handles all of that liability for you, including the tax, fraud, and compliance, so you don't have to.

2. How does an MoR like Cleeng actually reduce chargebacks?

MoRs use a combination of advanced technology and proactive dispute management. For example, Cleeng employs an AI-driven fraud detection system that analyzes transaction patterns in real-time to stop fraudulent payments before they happen. We also manage the entire dispute process, fighting illegitimate chargebacks on your behalf. This specialized focus leads to significantly better results; for instance, Cleeng maintains a chargeback rate of just 0.3%, which is 50% better than the industry average.

3. When should a subscription business move from a simple PSP to a full Merchant of Record?

The tipping point is almost always global expansion. As soon as you start selling to customers in different countries, you become legally responsible for their local sales tax (like EU VAT-MOSS) and must comply with their payment regulations (like PSD2 in Europe). Managing this across dozens of countries is incredibly complex and risky. An MoR is the simplest, most cost-effective solution to scale globally while remaining 100% compliant.

4. Does using a Merchant of Record cost more than just managing payments myself?

An MoR provides a significantly larger service, so it's structured differently than a simple PSP fee. While the percentage fee might seem higher at first glance, it replaces massive hidden hard costs and soft costs. You are effectively eliminating the need for:

• Hiring dedicated tax compliance staff.

• Paying for fraud management tools.

• The cost of potential fines for non-compliance.

• Revenue lost to high chargeback rates.

For global businesses, an MoR is almost always more cost-effective than managing everything in-house.