Before charging customers globally, merchants need to clearly understand who acts as the legal seller in a transaction and who is responsible for payment processing, tax, and compliance. The payment structure a business chooses affects more than how money moves. It directly influences tax treatment, compliance costs, refund and dispute responsibility, and the overall complexity of international expansion.
This article explains and compares the Merchant of Record (MOR) model and the Self-Managed Payments model, also commonly referred to as a direct PSP (Payment Service Provider) integration model, from an operational and risk-ownership perspective. The goal is to help merchants choose a transaction structure that fits their stage of growth while maintaining control over their products and customer relationships.
Merchant of Record (MOR) Model Overview
A Merchant of Record (MOR) is the legal entity recorded as the seller in a transaction and assumes external responsibility for payment collection, tax, and compliance.
Under an MOR model:
- The MOR is clearly identified as the seller and payment recipient in checkout agreements, billing statements, and invoices. The MOR also appears as the payee in bank and payment records.
- The MOR assumes legal responsibility for payment processing, tax handling, refunds, and dispute management.
- The merchant itself is not the legal entity collecting funds for the transaction.
When using Subotiz’s MOR model:
- Subotiz is displayed as the seller and payment recipient on customer-facing checkout pages, billing records, and invoices.
- Subotiz handles payment collection, tax calculation and reporting, refunds, and dispute processing.
- Merchants receive settlement payouts on a recurring basis after applicable platform service fees are deducted.
It is important to note that the MOR model does not change the merchant’s role in the product-customer relationship. Even under an MOR structure, the merchant’s brand, products, and services remain clearly identified throughout checkout, order records, and customer communications. Merchants continue to control product design, pricing strategy, customer operations, and service delivery. Customers are purchasing the merchant’s products or services, not a generic platform offering.
Self-Managed Payments Model Overview
(Direct PSP Integration)
Under a self-managed payments model, the merchant acts directly as the legal seller and payment recipient for each transaction. This approach is also commonly referred to as a direct PSP integration model, as the merchant connects directly with one or more payment service providers.
This model typically involves:
- Using one or more merchant legal entities to collect payments in different markets.
- Integrating directly with third-party payment service providers such as Stripe or PayPal.
- Assuming full external responsibility for all transaction-related obligations.
In practice:
- Tax calculation, filing, and payment are handled by the merchant.
- Invoicing, refunds, and dispute management are handled internally or through third-party services.
- Each new country or region requires separate compliance assessment and operational setup.
Self-managed payments are common for early-stage businesses operating in a single market or with relatively simple transaction structures. As transaction volume increases and international expansion accelerates, however, the compliance and operational burden typically grows significantly.
Key Differences Between MOR and Self-Managed Payments
From an operational standpoint, the two models differ across several core areas.
-
Legal Seller and Billing Entity
- MOR model: The MOR (such as Subotiz) is listed as the seller and payment recipient on customer bills and invoices.
- Self-managed payments: The merchant itself is listed as the seller and payment recipient.
-
Tax and Compliance Responsibility
- MOR model: Tax calculation, reporting, and payment are handled by the MOR in accordance with applicable regulations.
- Self-managed payments: The merchant is responsible for all tax and compliance obligations.
-
Refunds, Disputes, and Risk Exposure
- MOR model: The MOR assumes external responsibility for refunds and disputes. During dispute handling, merchants may be asked to provide supporting materials, such as order details or proof of service delivery. The MOR model does not remove the merchant’s responsibility for product compliance, service accuracy, or lawful business conduct, all of which must still comply with the platform’s Acceptable Use Policy (AUP) and applicable laws.
- Self-managed payments: The merchant is responsible for handling refunds, disputes, and related risks, either directly or through third-party providers.
Business Scenarios Well Suited to the MOR Model
Based on real-world usage, the MOR model is often well suited for businesses that:
- Sell digital products, software, subscriptions, or online services.
- Operate across multiple countries or regions.
- Want to reduce the operational complexity of tax, compliance, and payment management.
- Prefer not to establish and maintain multiple overseas legal entities as they expand.
In these scenarios, the MOR structure allows merchants to offload transaction responsibility and compliance overhead without weakening their brand presence or customer relationships, enabling teams to focus on product development, growth, and customer engagement.
Choosing the Right Payment Model
There is no universally superior option between MOR and self-managed payments. The appropriate choice depends on a merchant’s business stage, internal capabilities, and tolerance for operational and compliance risk.
- Merchants that want to focus on product and growth while delegating transaction responsibility and compliance management to a specialized platform are typically well suited to the MOR model.
- Merchants with simple business structures, concentrated markets, and in-house tax and compliance capabilities may prefer a self-managed payments approach.
Clearly defining transaction responsibility is a foundational step toward building a stable, scalable payment and settlement structure that can support long-term global growth.