The Merchant of Record (“MOR”) is a business model that focuses on,
- Better and wider reach for products and services offered by a business; and simultaneously,
- Reducing the administrative burden on the above businesses, thereby enabling them to focus only on improvising the quality of their products and services.
The MOR business model has been assuming importance owing to the phenomenal rise of the e-commerce industry, comprising of digital marketplaces and platforms vide which a business can expand to wider markets, and connect with a greater number of buyers, even across the globe.
A business, usually referred to as the “Seller of Record” (SOR) is accountable for its products and services from the quality/ support/ legal compliances perspective. It can function as its own MOR when it sells through its own outlets or web portals.
Alternatively, a business can outsource the above functions to a professional MOR intermediary. The MOR is a legal entity that facilitates the sale of goods or rendition of services to end customers by a business. Effectively, it assumes responsibility for these business transactions by stepping into the shoes of the supplier of goods/ services. Additionally, they shoulder the administrative and compliance burdens like the collection of customer payments and the corresponding taxes, refunding amounts in case of sales returns, currency conversion where applicable, payment card security standards, tax/ legal compliances, accounting reconciliation, opening bank accounts in customer nations (in case payments are made by them in local currency), coordination and negotiations with payment service providers/debit/credit card companies etc. An MOR sometimes also works with digital trade credit providers (DTCP). The DTCP might offer buyer loans or provide financial support to individual sellers.
The MOR business model is typically structured as two-layer transactions, namely,
- First sale transaction – transfer of ownership of goods – by the actual seller to the MOR, which is a B2B transaction; and
- Second sale transaction – transfer of ownership of goods – by the MOR to the end customer, which is a B2C transaction. It is pertinent to note that since the customer pays the MOR, it is the MOR’s name that would appear in their bank statements and they, as sellers, are held liable for any disputes.
The MOR collects the full payment, including taxes from the customer and remits the same back to the business, after deducting taxes and their fee/ commission. The sales tax/ VAT collected from the customers are remitted to the government along with compliance requirements (like filing returns) by the MOR.
It may be noted that there are instances of digital marketplaces that are pure facilitators but not MOR. In such cases, there would only be one B2C sale transaction, between the business selling the goods or rendering the service to the end customer. The payment alone is received from the customer and distributed between the selling business and the marketplace. The platform does not assume responsibility for any other administrative burdens. The bank statement of the end customer would display the name of the selling business and not the platform.
Predominantly, e-commerce, digital downloads, mobile apps, and SaaS industries benefit from the MOR business model.
Reference Material
https://www.paddle.com/blog/what-is-merchant-of-record#what-is-a-merchant-of-record
https://fastspring.com/blog/what-is-a-merchant-of-record-and-why-you-should-care
https://www.hokodo.co/resources/what-is-a-merchant-of-record-marketplace
https://1stopvat.com/global-digital-marketplace-as-a-merchant-of-record/
https://www.vatupdate.com/2024/10/27/global-digital-marketplace-as-a-merchant-of-record/
