The world has become a much smaller place today – a true global village where everyone is a click away. Even E-commerce businesses have joined the party, selling their products across borders to tap into new markets and expand their customer base. But the expansion is not without its own share of hurdles.
Cultural differences, language barriers, currency fluctuations, and regulatory complexities are just a handful of obstacles that they encounter on their way to international success. Such challenges have made global expansion a really slow endeavor. In fact, the share of cross-border sales in total E-commerce sales worldwide has risen only by 7 percentage points between 2016 and 2022.
The easiest way for businesses to counter these issues and experience exponential growth internationally is by partnering with a Merchant of Record (MoR) and a Seller of Record(SoR). Both these entities help you navigate the difficult waters of cross-border trade and achieve success on a global scale. In this post, we will take a look at both these concepts along with their key differences.
What is a Merchant of Record?
A Merchant of Record (MoR) is a service provider that acts as a legal entity responsible for selling goods to end customers. It takes care of the financial and legal aspects of your business, including processing payments, managing taxes, and handling compliance. The primary goal of an MoR is to enable businesses to sell internationally without worrying about local laws and regulations. An MoR does not assume the identity of the business selling the goods and will always be identified separately as a third party.
How does the Merchant of Record model work?
When the end customer buys from your E-commerce store, they are officially buying it from your MoR partner. They are the legal seller of your product in the country of your customer but do not hold any inventory. In this model, the service provider becomes the only buyer of your goods in that country.
Once the MoR partner receives the order notification, they buy the product(s) and resell it to the customer. They take care of the international payments and taxes, and your customers do not have to worry about foreign exchange fees as they are paying a local business in local currency.
- They are responsible for securely processing customer payments, including managing payment gateways and processing credit cards in accordance with applicable laws and regulations.
- They are responsible for calculating, collecting, and remitting taxes related to daily online transactions.
- They are responsible for implementing protective measures against fraudulent activities
- They are responsible for generating and maintaining accurate financial reports.
- They are responsible for managing relationships with payment service providers, financial institutions, and other stakeholders involved in the transaction process.
What is Seller of Record?
A Seller of Record is another legal entity that is entirely responsible for selling and delivering goods to your customers. Unlike MoRs, who never own the products( and the inventory) (in the customers’ eyes), the SoRs can be the owners and even responsible for fulfilling customer orders, provided you authorize them. The main goal of a Seller of Record (SoR) is to handle the entire lifecycle of a sale so that the business can concentrate on more mission-critical activities.
How does a Seller of Record model works?
You give the SoR the legal right to sell your goods under their name, making them the original seller of your products in front of the customers. When a customer purchases the product, the SoR handles the sales transaction, including processing payments, issuing invoices, and collecting customer information. They also become the primary point of contact for customers regarding purchases.
The SoR works in a revenue-sharing model, where you receive a percentage of the sales revenue, while the SoR retains a percentage as compensation for their services.
- They are responsible for managing orders and fulfilling them. It may include anything from inventory management to shipping and delivery.
- They are responsible for the quality management and the performance of the products being sold.
- They are responsible for providing customer support related to products, orders, returns and refunds, etc.
- They are responsible for price management, including setting prices, managing discounts and promotions, etc.
- They are responsible for maintaining accurate records of sales transactions, financial transactions, and customer data
Difference between Merchant of Record, Seller of Record, and Payment Service Provider
|Parameter||Merchant of Record||Seller of Record||Payment Service Provider|
|Core Responsibility||Acts as a merchant and is responsible for payment processing, compliance, and financial and legal liability.||Acts as the seller of the products and is responsible for day-to-day operations and customer support.||Provides payment processing services, but does not take on merchant or seller responsibilities.|
|Legal Liability||Assumes legal liability for processing payments, managing refunds, and handling chargebacks.||Assumes legal liability for products sold.||Does not assume legal liability for payment processing or product sold.|
|Customer Relationship||Manages the customer relationship, including customer communication, support, and issue resolution related to payments.||Manages the customer relationship, including product inquiries, returns, and refunds, .||Typically does not manage the customer relationship related to payments, as it is primarily focused on payment processing.|
|Fraud Management||Responsible for monitoring and preventing fraudulent activities related to financial transactions.||Not responsible for fraud management.||Not responsible for fraud management.|
Benefits of using a Seller and Merchant of Record services
Using a Seller of Record and Merchant of Record service can offer several benefits for businesses, especially in the E-commerce space. Some of the key benefits include:
- Access to legal expertise
Both the SoR and MoR service providers are well-versed in navigating the complex landscape. They can offer their expertise in different areas like taxation, consumer protection, and data privacy laws. Through them, you will ensure that the sales transactions are always conducted in compliance with applicable laws, reducing the risk of penalties.
- Global expansion
SoR and MoR enable you to enter new markets without having to handle the intricacies of international sales, including local taxes and customs duties. You can focus on your core competencies, such as product development and marketing, while leaving everything else to the SoR and MoR service provider.
- Improved customer experience
The SoR and MoR service providers have extensive knowledge about the pulse of the local customers and can offer better customer service to your end customers in that country. This rapport is necessary to build a positive customer experience and trust with customers, as they have a single point of contact who knows their needs better.
- Lower operational cost
SoR and MoRs can significantly reduce operational costs by eliminating the need to hire, train, and manage staff for handling day-to-day tasks such as order processing, payment collection, and customer support. Also, you need not invest in software licenses, hardware, infrastructure and other operational resources.
- Faster execution
When you partner with an MoR or a SoR, you get a lean and agile team solely focused on managing the operational aspects of your business. They can efficiently handle different tasks by using their expertise. They can also adapt to changing market conditions and scale your operations up or down swiftly, providing you the capability to respond quickly to market demands.
Factors To Consider While Partnering with a Global Merchant and Seller of Record for E-commerce Expansion
Partnering with an MoR or an SoR for global expansion can be a strategic decision, and one needs to consider several factors before finalizing such a partnership. Here are some key factors to keep in mind:
Evaluate the reputation and experience of the MoR or the SoR service provider. Look into those companies with a proven track record in handling international E-commerce transactions. Research their credentials and go through the reviews on different platforms to ensure they are reliable and trustworthy.
- Knowledge of Local Laws & Regulations
Ensure that the provider you choose can process payments in the countries where you plan to expand your E-commerce operations. Also, verify if they understand the local laws and regulations in all those countries, including tax requirements, data protection, and consumer rights. It is also important that they have a good understanding of the customer base, so that you can start tapping into the local market right away.
- Pricing and Fees
Understand the pricing structure and fees charged by the SoR and MoR providers for their services. Compare them with other providers in the market to ensure they offer competitive pricing. Consider factors such as setup fees, transaction fees, currency conversion fees, and any other additional charges that may apply.
How much do Merchant and Seller of Record services cost?
The cost of MoR and SoR services can vary based on multiple factors, including the volume of transactions, the planned location of your business, the expertise of the provider, and so on. Also, there are several components in the fee structure of a Seller of Record and Merchant of Record provider that can determine the final cost. Here are some of the parameters –
- Service fees: This is usually a percentage of the transaction value or a flat fee per transaction. This is the main cost you incur for partnering with an MoR and SoR for outsourcing various agreed functionalities of your business.
- Set-up fees: This fee is usually charged while onboarding a new seller. For the MoR and SoR, it will cover initial setup costs, such as integrating with payment gateways, configuring tax settings, and other technical setup tasks if any.
- Additional fees: There may be certain additional fees for optional services, such as chargeback management, currency conversion, and custom reporting.
Expand Your Footprint in India with ANS Commerce By Your Side
ANS Commerce is a leading E-commerce growth accelerator that offers comprehensive solutions to businesses looking to expand their online presence in India. With a deep understanding of the Indian market and a wide range of services, we are the go-to partner for many international businesses looking to establish a strong foothold in India.
From setting up online stores, E-commerce marketplace management to ROI-driven performance marketing services and managing logistics and order fulfillment, we take care of everything related to your everyday operations so that you can focus on other strategic activities and capitalize on the booming E-commerce market in the country.
To know more about how ANS Commerce can help you expand your business in India, book a 1:1 consultation with our E-commerce experts.