Introducing G2’s New Merchant of Record Software Category

The need to manage transactions effectively and comply with a range of regulations is more pressing than ever for online businesses. 

To keep pace with these demands, businesses are turning to merchant of record (MoR) software. It become an indispensable tool for companies selling software and digital products or running e-commerce and direct-to-consumer (D2C) brands internationally.     

The challenges of selling internationally are significant. Managing the complexities of transaction and payment processing often leads businesses to rely on multiple solutions for payment processing, taxation, compliance, etc. According to global payment orchestration provider BlueSnap, 31% of companies operating internationally use four or more solutions to address their global payment needs.

An MoR solution acts as a consolidated solution to address these cross-border challenges. Let’s explore how.

Unlock global markets with MoR efficiency

Expanding into global markets offers promising opportunities for growth and diversification. Digital payments are a significant driver of this expansion, with spending via digital wallets projected to surpass $10 trillion by 2025, according to Juniper Research. 

Traditional digital payment methods alone aren’t enough for businesses to tap into new markets. They lack advanced systems for managing tax, local financial regulations, and currency conversion across different countries. On the other side, digital payments, too, come with their own financial risks and liabilities, such as chargebacks and payment frauds. Juniper Research reports online global payment fraud will exceed losses of $343 billion between 2023 and 2027.

Addressing these pitfalls often demands considerable effort and may lead to overspending on various technology solutions. This is where implementing the right MoR solution takes center stage. It can optimize operations, enhance the customer experience, and help businesses achieve their global expansion goals more efficiently and cost-effectively.

The MoR acts as a middleman between a business and its customers. Here’s how it works:

1. Purchase Initiation: A customer selects a product or service on the merchant’s website.
2. Payment Request: The merchant’s system sends payment details to the MoR software.
3. Authorization: The MoR software submits this request to payment networks, like Visa or MasterCard, for approval.
4. Payment Processing: Once approved, the MoR software processes the payment, moving funds from the customer’s bank to the merchant’s account.
5. Tax Handling: The MoR calculates, collects, and then remits applicable taxes to tax authorities.
6. Fraud and Disputes: It monitors for fraud and manages chargebacks if customers dispute transactions.
7. Receipt: Finally, the MoR generates and sends a transaction receipt/invoice to the customer.

The process might differ a little in the recurring billing models. But, in essence, the MoR handles the entire payment process, from authorization to tax management, ensuring transactions run smoothly and securely.

Assessing the need for a merchant of record solution

The need for an MoR solution varies from business to business and is purely based on the business model, operational requirements, and strategic goals. While MoR software offers many benefits, it may not be necessary for every business. 

Here are the top four factors that need to be assessed before selecting an MoR solution:

• Type of business model: Businesses with complex billing requirements, such as e-commerce, marketplaces, subscription services, or even those selling digital goods, can benefit from an MoR solution. 

• Transaction volume and sale: Small businesses with low transaction volumes don’t need a MoR solution; they can opt for a standard payment processor instead. Businesses with large volumes of transactions and a significant growth projection thrive from MoR solutions as they optimize processes and reduce the risk of errors.

• International sales and operations: Businesses that want to expand their sales of products or services internationally and handle cross-border transactions need an MoR solution to manage multiple currencies and comply with international tax regulations.

• Budget and cost considerations: MoR software typically involves an initial setup cost and ongoing subscription fees often marketed at higher price points due to its comprehensive nature. Evaluate your budget and ensure that the cost aligns with your business’s financial capacity.

The most suitable MoR software is the one that qualifies the majority of the factors mentioned above to suit your business needs. MoR software providers also have to make sure that they keep customizing their software to fit the evolution of this space.    

Voice of users for G2’s MoR category

G2’s Merchant of Record software category is relatively specific and focuses on software solutions that act as the merchant of record for businesses. Users can explore this category to search for MoR software and compare features, pricing, and user reviews. 

Currently, this category hosts 17 products, with popular options including Paddle, 2Checkout (now Verifone), FastSpring, PayPro Global, and more. Although relatively new, this category is evolving rapidly and holds great potential as the customer testimonials witness. 

Let's look at some of the real user testimonials in the category.

“Paddle acts as Merchant of Record, so we do not have to spend time managing sales tax applicable in multiple countries. A valuable solution for any SaaS platform that serves globally.” 

- Paddle review

2Checkout made it easy to expand our offerings into countries we likely would not have entered on our own. They manage taxation and currency conversion for us which lets us focus on our product and selling.

- 2Checkout review

The fact that Fastspring is the merchant of record means that all Sales Tax issues throughout the world are dealt with. This is massively important for us as a company.

- FastSpring review

The MoR software category will continue to evolve

As emerging trends shape the landscape, businesses can expect MoR solutions to become more advanced, adaptable, and seamlessly integrated, addressing the dynamic needs of a global market. This evolution will enhance operational efficiency, ensure reliable compliance, and elevate customer satisfaction, paving the way for more effective and innovative financial management solutions.

Don’t miss out! Explore the latest in embedded payments with our new category.

Edited by Monishka Agrawal