Picture the scene; a U.S. developer discovers that one of their fastest-growing markets is overseas. For many digital businesses, the first signs of international opportunity develop quickly. However, new local markets also mean new local complexities. Brazilian customers expect support for Pix. In India, UPI dominates the payments landscape. In Poland, BLIK accounts for as much as 70% of e-commerce transations annually. Across any market, local regulations, payment preferences, and fraud considerations can vary significantly.
This is how an exciting growth opportunity becomes an operational challenge.
These local complexities and risks have fueled the rise of the Merchant of Record (MoR) model, in which a third-party partner assumes liability for key functions such as tax obligations, regulatory compliance, and chargeback handling.
While these platforms deliver benefits across all these areas, the evolution of cross-border commerce has transformed MoR solutions from a tax workaround into a critical component of international business operations.
In a recent PaymentsJournal podcast, Bridger Bullock, Senior Business Development Manager at Nuvei, and Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, discussed the evolution of the Merchant of Record model, the criteria that differentiate these solutions, and how the operational advantages MoR platforms provide can equal—and potentially surpass—the tax and compliance benefits that originally drove their adoption.
Far Beyond Orchestration
One reason for MoR solutions rise in popularity over recent years is the landscape for international growth becoming exponentially more complex.
“Just in the U.S., if you want to manage all of the sales tax collection, there are 13,000 different jurisdictions that you would have to adhere to in making sure that you are compliant,” Bullock said. “Outside of the U.S., you can only imagine how many different rules and jurisdictions you have to be compliant with, and that’s just from a tax perspective.”
“There’s also fraud, which is getting much more complex depending on the region,” he said. “Lastly, there are so many different payment methods for each region that it’s critical that merchants offer those payment methods in those local regions so that there is a frictionless customer experience.”
Along with domestic real-time payments systems like Pix and UPI, alternative payment methods (APMs) now include everything from stablecoins and buy now, pay later services to digital wallets.
As these payment types have emerged, many merchants have sought to increase payment flexibility by leveraging payment orchestration systems that route transactions through the optimal payment rail.
While these solutions offer clear value, payments are only one component of successful cross-border commerce.
“Orchestration connects the dots from an authorization and a settlement perspective so you can transact globally fairly easily,” Apgar said. “But when you get into complexities such as local APMs, local fraud and risk tools that are available, local tax, and local banking, the complexity really multiplies. Being global today goes way beyond just orchestration.”
Taking Gaming Global
One of the industries that has been a trailblazer for the MoR model is gaming. Gaming platforms built for digital commerce often face relatively few barriers to expanding their products into new territories.
In their zest for expansion, gaming companies have frequently taken a proactive approach to the operational realities of global expansion.
“Forward-thinking companies like Roblox or Epic Games look at it holistically, so a local payment method in each region is critical to them,” Bullock said. “Say they want to be able to create the best customer experience in Korea. They need to make sure that GCash is set up as a payment method. Once the customer purchases, the sales tax is collected without Roblox or Epic having to deal with what that sales tax looks like in that region and what fraud looks like in Korea.”
Addressing these challenges at a granular level is critical because many gaming platforms aspire to expand into dozens of countries and regions quickly to remain competitive. Effective MoR solutions, therefore, must pay careful attention not only to local payment preferences, but also to tax laws and regulatory requirements that are constantly changing.
“Ideally for the merchant, they can do all of this through one API,” Bullock said. “They don’t have to go through several different PSPs, payment processors, and gateways to make sure that they can offer all these things. They just have one that can be this all-encompassing solution for them, which takes a huge burden off and makes it a frictionless customer experience during the checkout process.”
The Architectural Differences that Matter
MoR platforms can provide this level of comprehensive support, but not all solutions are created equal. For merchants and the institutions that serve them, selecting the right provider begins with the fundamentals: ensuring that tax liability and fraud risks are effectively managed.
MoR platforms differentiate themselves in several ways:
- Their distinctly local approach to fraud prevention and compliance management across regions.
- The level of transparency they provide into the rules, controls, and decision-making processes used to manage risk.
- Local acquiring capabilities represent another importance differentiator and can often determine the success of an integration.
“Let’s say that there’s a large merchant that has an entity in the U.S,” Bullock said. “Certainly, merchants want the highest authorization rates that they can get. If they have quite a presence of customers in APAC, it gets difficult for the issuers in that region to approve the majority of the transactions because they’re looking at those transactions as foreign transactions, as not from that region.”
Merchant of Record solutions—on top of all their other benefits—frequently enable local acquiring in regions where merchants don’t have a legal entity. This can improve authorization rates while also delivering a range of operational benefits.
“When you talk about local acquiring, you have to talk about local banking, too,” Apgar said. “If you have a local acquirer, they still have to pay the merchant somehow, and a local acquirer is going to pay in local funds, which means you need a local bank account, which then oftentimes you need to have a legal business entity present in that domain so that the bank can open an account for you.”
“It’s not just the U.S., all countries have compliance requirements, so complexity quickly spirals,” he said.
A Holistic Global Solution
At their core, Merchant of Record solutions are designed to simplify the challenges of global commerce by assuming responsibility for many of its most complex operational requirements. This not only eliminates the need for merchants to build these capabilities internally, but also removes the burden of researching and managing the regulatory and tax nuances of every market they operate in.
The result is a meaningful operational boost. Alongside the financial gains generated by higher approval rates, stronger fraud prevention, and customer-friendly payment options, merchants gain more time and resources to focus on growing their business.
“For merchants, they want to focus on the customer experience, and they want to focus on delivering quality products,” Apgar said. “Being able to offload all this operational responsibility to a Merchant of Record construct is a huge savings operationally and from an opportunity cost and time perspective. It’s great that merchants can outsource this without completely relinquishing control over the fraud processes and the mechanics of how it’s executed—it’s the best of both worlds.”
However, fully offloading these responsibilities requires a comprehensive solution that can address all of a merchant’s needs; and can adjust its parameters on the fly as merchants scale and global commerce shifts.
It will also require business leaders to rethink how they view MoR solutions.
Many still regard them primarily as a tax shortcut or a buffer against chargeback and fraud liability, when in reality they have become a foundational component of modern cross-border commerce.
“It should be looked at as an all-inclusive solution to expand internationally,” Bullock said. “It can certainly offload some of the tax and compliance and it does, but it is much more than that. Looking at it from a holistic approach is going to allow the highest authorization rates for many reasons, it’s going to create a great customer experience for many reasons, and it’s going to offload my burden as a merchant to be compliant for many reasons.”
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