Merchant of Record: Navigating Compliance
With the global SaaS industry expected to reach $819 billion by 2030, the shift towards international cross-border sales is more relevant than ever. And this can only mean one thing.
Business owners must quickly navigate evolving challenges and fuel global expansion before they miss out on this opportunity. To put it simply, the path to achieving this lies in forging a partnership with a trusted Merchant of Record (MOR).
To find out why that is and what the exact benefits are that an MOR brings new to the table for SaaS and software companies, read our complete Merchant of Record guide.
While numerous Merchant of Record options exist, not all are tailored to meet the specific needs of SaaS and software vendors like yourself. Choosing the right partner to successfully complete each payment process is the key to international success.
And this journey starts with rules and regulations.
So, let’s dive deep into the technicalities behind the MOR model, looking at:
- The 5 regulation types that apply to MORs
- How do international regulations affect Merchants of Record?
- The 7 tax types and fees that apply to MORs
- What are the payment methods MORs accept?
- How does the MOR choice impact compliance?
The 5 Regulation Types That Apply to MORs
Since the MOR processes online payments on behalf of a business, taking on the legal liabilities and financial responsibilities associated with these transactions, it has to abide by specific regulations related to its core duties.
Payment Processing Regulations: To ensure the correct and safe handling of sensitive payment information when processing payments, a Merchant of Record is subject to various compliance regulations, such as the Payment Card Industry Data Security Standards (PCI DSS) and the Payment Application Data Security Standard (PA-DSS). Additionally, MORs must comply with regulations mandated by credit card schemes such as VISA and Mastercard, which are constantly changing and must be fully understood.
Taxation Regulations: In order for MORs to accurately handle both international and local taxes, they must clearly know the different legal obligations specific to each jurisdiction in which vendors sell software, SaaS, and digital goods. This includes sales taxes, value-added tax (VAT), and income tax rules, as well as digital service taxes, which are becoming the norm in more and more countries.
Consumer Protection Laws: SaaS and software vendors and, by extension, Merchants of Record, as a result of an existing partnership, must adhere to fair trade practices, warranty regulations, refund and return rules, and customer disputes.
Privacy and Data Protection Practices: Merchants of Record are handling customer data, which makes them subject to different data protection and privacy laws, like the American Data Privacy Protection Act (ADPPA) in the US or the General Data Protection Regulation (GDPR) in the European Union. There are also the Personal Information Protection Law (PIPL) in China, the Personal Information Protection and Electronic Documents Act (PIPEDA) in Canada, and the General Law for the Protection of Personal Data, or the Lei Geral de Proteção de Dados Pessoais (LGPD) in Brazil.
Financial Regulations: Because Merchants of Record have a wider business and operational scope, they are also subject to financial regulations like anti-money laundering (AML) and know-your-customer (KYC) requirements.
How Do International Regulations Affect Merchants of Record?
The Merchant of Record model was purposely built to assist businesses in accomplishing intricate growth objectives. However, to achieve this, throughout the entire transaction process, Merchants of Record are faced with sophisticated challenges demanding focused attention and unwavering dedication.
The Complexity of International Compliance
Achieving and maintaining international compliance concerning taxation, data protection, and privacy is essential to securing business growth. It is also a highly resource-intensive process. Due to evolving rules and unique regulations, navigating and staying aligned with international compliance practices is, without a doubt, one of the biggest challenges MORs face.
Exchange Rate Volatility
MORs take responsibility for cross-border transactions, which opens the door to a new set of challenges. As a result of dealing with different currency exchange rates and fluctuations, Merchants of Record are faced with extensive complexity in ensuring accurate financial reporting and mitigating currency risks.
Potential International Sanctions
Ensuring global compliance comes with more responsibility than just putting a great deal of work into it. There is also the possible consequence of sanctions should compliance regulations ever be violated. That is why MORs are required to perform constant verifications and make great efforts to avoid engaging in transactions that may result in costly consequences.
It is the way an MOR overcomes these hurdles that tells SaaS businesses how worthy of a partner it is.
Reputable Merchants of Record are well aware of these challenges and have the resources and manpower to stay on top of compliance issues and currency fluctuations while operating successfully within the global marketplace.
Read on to learn the 7 tax types and fees that apply to MORs on PayPro Global’s Blog.
