The Definitive Guide to Merchant of Record

A Merchant of Record (MoR) is a legal entity authorized by financial institutions to process credit and debit card transactions on behalf of another business. When you integrate an MoR into your SaaS application, they become the official seller of your software product—not you.

This distinction carries significant implications. When a customer purchases your subscription, the transaction appears on their credit card statement under the MoR's name (such as "Lemon Squeezy" or "Paddle"), not your company name. The MoR collects the payment, handles all tax obligations, deducts their service fee, and then transfers the net revenue to your business account.

As the designated merchant, an MoR handles critical operational responsibilities that would otherwise fall on your shoulders:

• Global Tax Compliance: Automatically calculating, collecting, and remitting VAT, GST, and sales tax across multiple jurisdictions. This is particularly valuable when building Next.js boilerplates or other SaaS starter kits intended for international markets.
• Fraud Prevention & Risk Management: Implementing sophisticated fraud detection systems, managing chargebacks, and monitoring suspicious transaction patterns to protect both merchants and customers.
• Regulatory Compliance: Ensuring adherence to PCI-DSS standards, local digital goods regulations, and consumer protection laws across different countries and regions.
• Payment Infrastructure: Maintaining direct relationships with major payment networks (Visa, Mastercard, American Express) and alternative payment methods (PayPal, Apple Pay, Google Pay), eliminating the need for you to establish these connections independently.

For indie developers and small teams using boilerplates to accelerate development, this infrastructure abstraction is invaluable. Instead of spending weeks implementing payment logic, tax calculations, and compliance measures, you can focus on building your core product features.

Why is this such a big deal now? Because tax authorities are getting smarter.

In the US: Following the South Dakota v. Wayfair ruling, states can require you to collect sales tax based on "economic nexus" (revenue or transaction count) rather than physical presence. You could trigger tax liability in Texas just by having enough customers there.

In the EU: If you sell B2C digital goods to EU customers, you MUST charge the VAT rate of the customer's country (not yours) wherever you are located. You then have to register for the VAT MOSS (Mini One Stop Shop) scheme to remit those taxes.

The Reality: A solo developer cannot possibly file tax returns in 50 jurisdictions. An MoR solves this INSTANTLY. Since they process millions of dollars, they are already registered everywhere. They collect the tax, they file the returns, and you sleep at night.

The most common question we get: "Why can't I just use Stripe?"

You can! But Stripe (standard) is a Payment Service Provider (PSP). They essentially provide the pipe for money to move from a bank card to your account. They do not take title to the goods. You are the merchant. You are liable.

Stripe has released Stripe Tax to help calculate taxes, but you are still often the one responsible for registering and remitting (though they are adding features to help with filing, it is still your legal burden).

The 5% MoR fee seems expensive compared to Stripe's 2.9%, but this comparison ignores hidden costs. Here's what you actually pay when handling payments yourself:

Break-even point: For most startups doing under $50k/month in revenue, an MoR is cheaper when you factor in time saved and reduced liability. Once you cross $100k/month with primarily US customers, self-management may become cost-effective.

Already using Stripe and considering switching? Here's the migration process:

Pro tip: If you're pre-revenue or have fewer than 50 customers, just switch completely. The complexity of dual systems isn't worth it at small scale.

While we highly recommend MoRs for most SaaS startups, they aren't for everyone. You might stick with a traditional processor like Stripe if:

• You are a Marketplace: If you are building a platform (like eBay or Uber) where you pay out to other users, standard MoRs struggle with this. You likely need Stripe Connect.
• You sell High-Risk Goods: MoRs are generally stricter about what you can sell (SaaS/Software is fine, but supplements or gambling are usually banned).
• You have high volume & local presence: If you are doing $10M+ ARR and only sell in the US, you might save money by hiring an accountant and paying the lower Stripe fees.