What is a ‘merchant of record’ marketplace?


When setting up a B2B marketplace, operators must choose whether or not to become the merchant of record (MoR), while B2B suppliers must choose whether they want to sell their products via such a platform. But what is a merchant of record? And how does it impact payments?

What is a merchant of record?

Let’s start with a merchant of record definition. A merchant of record is the legal entity selling goods or services to an end customer. A seller can be their own merchant of record, or they can outsource this responsibility to a third party that sells goods and takes on liability on behalf of the seller. Many sellers choose to do this so they can free up time and resources for things like customer acquisition and product development.

The graphic below shows a scenario where the seller is also the merchant of record. There are only two parties involved in the transaction, and ownership of the goods is transferred from the seller to the buyer.

When a seller chooses to partner with a merchant of record service provider, ownership of the goods first passes from the seller to the MoR, and then from the MoR to the buyer.

In either case, the MoR is responsible for handling all payments and legal liabilities of each transaction. This includes:

  • Arranging payment reconciliation, refunds, and chargebacks
  • Calculating, filing, and remitting sales tax 
  • Opening bank accounts in countries where customers live, to accept payments in local currencies
  • Ensuring compliance with payment card security (PCI-DSS) standards and data requirements (e.g., GDPR)
  • Establishing local business entities to facilitate merchant accounts, tax registration, payment relationships, and so on
  • Converting payments made in foreign currencies
  • Integrating & maintaining B2B payment processors or payment service providers
  • Managing all credit and debit card fees
  • Creating fraud risk controls and reviewing suspicious orders

Merchant of record example

Airbnb is a good example of a merchant of record. They handle the full payment process for hosts on the platform, charging guests and deducting their fees before sending payment to the host. Conversely, many other travel booking platforms do not take on the MoR role, so the property managers are responsible for collecting payment from customers.

So, what is a merchant of record marketplace?

When a marketplace chooses to become the merchant of record, they are essentially saying to the sellers on their platform:

“I am going to purchase your goods and services and take responsibility for selling them on to the end customer.”

Customers visit the marketplace and shop as normal, but in the background, there are actually two transactions happening simultaneously during the sale. One transaction is between the end customer and the marketplace, and the other is between the marketplace and the seller.

Because they are the MoR, it will be the name of the marketplace that appears on the customer’s bank statement and the marketplace that is held responsible if any payment disputes arise. They become the liable party.

Marketplaces often have greater international reach and payment capabilities than the sellers using their platform, so by acting as the merchant of record, they are able to help connect sellers with a greater number of buyers.

And what about marketplaces that choose not to be the merchant of record?

In this scenario, the marketplace is essentially saying to the sellers on their platform:

“I will provide the platform upon which for you to connect and do business with end customers, but all payments responsibilities and related legal liabilities remain with you. At no point will I own the goods.”

Customers visit the marketplace and shop as normal. When they make a purchase, just one transaction happens. The customer sends payment to a Stripe connect wallet or alternative that is owned by the marketplace. Automated rules applied to the account will result in funds being distributed to the relevant sellers and the marketplace itself. 

The seller’s name appears on the customer’s bank statement, and the seller remains liable.

How does this impact trade credit?

The good news is that all marketplaces can partner with a B2B Buy Now, Pay Later or digital trade credit provider in order to offer payment terms on their platform. There are variations in how this works depending on whether the marketplace is the merchant of record or not.

With MoR marketplaces, the digital trade credit provider buys the right to collect the money owed to the marketplace by customers. This is not possible for marketplaces which are not merchants of record, because the goods belong to the seller and the customers don’t owe the marketplace any money.

However, such marketplaces are still able to offer credit. One option is for the trade credit provider to offer buyer loans. In this scenario, the provider is essentially saying to customers:

“I will lend you money to buy those goods. I will pay the merchant for your purchase, and you will pay me later.”

The other option is for the trade credit provider to finance individual sellers, in the same way that they would have financed the marketplace if it was the merchant of record.

Usually, the marketplace and trade credit provider will work together to understand the best approach.

Merchant of Record vs. Seller of Record

The terms merchant of record and seller of record (SoR) are sometimes used incorrectly because of their similarity, both in name and meaning. However, each has a distinct definition and shouldn’t be used interchangeably.

In our merchant of record definition above, we explained that a merchant of record is the legal entity selling goods or services to an end customer, but that it does not assume the identity of the business selling the goods. Any invoice or bank statement will identify the MoR as the third party that they are.

On the other hand, a seller of record is identified as the seller of the product. When they partner with a seller of record, a merchant permits the SoR to sell their goods using their company name and act as if they are the original seller.

An SoR takes care of customer service, delivery, fulfilment and customer support for the product or service being sold. 

Merchant of Record vs. Payment Service Provider

A merchant of record and a payment service provider (PSP) are different types of companies operating in the payments and e-commerce sectors. 

The primary difference between an MoR and a PSP is that a merchant of record will handle the entire purchase and payment process including taking on any liability, while a PSP is only responsible for facilitating the transfer of funds between buyers, sellers and marketplaces.

Payment service providers do not assume any responsibilities relating to tax, fraud risk or payment disputes for the transactions that pass through their gateway. Conversely, a merchant of record will take care of these aspects. A PSP cannot replace an MoR, but sellers partnering with an MoR won’t need to worry about finding and integrating with a PSP.

Benefits of Selling on a Merchant of Record Marketplace

A merchant of record marketplace can offer many benefits to sellers who choose to use their platform to supply goods to other businesses. 

  1. It helps sellers with compliance.

Selling goods across borders involves navigating complex legal and regulatory requirements, such as tax compliance, customs regulations and data protection laws. MOR marketplaces take on the responsibility of managing these compliance aspects which reduces operational burdens for sellers. Sales tax collection, VAT registration and other legal obligations are all handled by the marketplace, enabling sellers to focus on their core business. 

  1. Sellers can accept a wider variety of payment methods.

MOR marketplaces provide integrated payment processing solutions. This streamlines the transaction process for sellers as they don't need to establish their own payment gateway or manage several payment methods. By relying on existing payment infrastructure, sellers can accept a variety of payment methods including credit cards, B2B BNPL, digital wallets and local payment methods, which can improve customer satisfaction and conversion rates.

  1. The marketplace assumes responsibility for risk.

Selling goods internationally can involve risks related to fraud, chargebacks and disputes. Since they are taking liability for the goods sold, MOR marketplaces tend to have robust fraud prevention measures, dispute resolution processes and chargeback management procedures in place. This helps to minimise financial losses and maintain a secure selling environment.

  1. MoR marketplaces facilitate global expansion and growth.

By providing the infrastructure to handle increased sales volumes and international expansion, merchant of record marketplaces can help sellers to reach growth goals. Sellers can tap into the MOR's existing logistics network, customer support services and marketing capabilities to scale their business without significant upfront investments or infrastructure development.

  1. The marketplace handles refunds.

Since the marketplace is liable for the goods delivered to the buyer, they are responsible for dealing with refund requests. This is a simple point but one that can help to improve operational efficiency for sellers.

  1. You’ll save time, money and resources.

Building your own payment infrastructure is time consuming and expensive, involving lots of painstaking integrations. It requires a significant amount of development time, meaning you’ll need to hire full-time or freelance experts who know what they’re doing. Meanwhile, your competitors are selling their products through MoR marketplaces and directing their time and resources to growth-centric activities like marketing and product development. We’re not saying that every seller should partner with a merchant of record marketplace, but sometimes the obvious choice is the best one.

Benefits of Becoming a Merchant of Record Marketplace

Becoming a merchant of record marketplace also provides several benefits for the platform itself.

  1. Generation of additional revenue

By acting as the official seller of goods or services, a merchant of record generates additional revenue through transaction fees, commissions on sales, subscription fees and other monetisation models. MoR marketplaces can leverage their infrastructure and services to attract sellers and buyers, driving increased transaction volumes and revenue opportunities.

  1. Global reach

By offering a global platform, MoR marketplaces can reach a wide audience and tap into different markets around the world, increasing the potential for growth and revenue generation. This attracts sellers looking to scale internationally without the burden of establishing their own infrastructure in multiple countries. 

  1. Enhanced value proposition

Merchant of record marketplaces provide a suite of services including payment processing, compliance management, risk mitigation and operational support that differentiate them from competitors. This attracts sellers who are seeking a streamlined and hassle-free selling experience and can boost seller retention.

  1. Ecosystem development

MoR marketplaces have the opportunity to build a thriving ecosystem of sellers, buyers and service providers. By nurturing a vibrant ecosystem, you can create network effects, drive engagement and establish your marketplace as the go-to destination for buyers and sellers in your industry.

Interested to find out how Hokodo can help marketplaces – merchant of record or not – to avoid platform bypass and grow their revenue? Check out our dedicated marketplace hub.

What's next?

Want to learn more about our B2B Buy Now, Pay Later solution built for B2B marketplaces? Download our product brochure to see how Hokodo optimises the experience for buyers and sellers, and improve your cash-flow.

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