Joshua D'Costa
Growth & Marketing
Apr 2, 2025
|
5
min
Online marketplaces are at the heart of this growth. With more than 60% of sales now happening through these platforms, major players like Airbnb, Amazon, and Uber are reshaping global commerce.
A report shows that globally over 35% of all online purchases occur on marketplaces, while in Europe, these platforms drive 85% of web traffic. As these marketplaces expand, they not only connect millions of buyers and sellers but also take on additional responsibilities such as managing tax collection and complying with diverse regulatory standards across various regions.
In this blog, let’s understand how partnering with a Merchant of Record can simplify these complexities and empower your marketplace to thrive in a competitive digital landscape.
The Expansion of Digital Marketplaces
Online marketplaces have evolved into key players in the digital economy, serving as the primary hubs for buying and selling. Their growth is evident in the numbers:
Marketplaces are a driving force in cross-border e-commerce, accounting for 63% of Europe’s cross-border revenue, a figure projected to rise to 65% by 2025 and facilitating an impressive €167 billion in cross-border sales.
Industry giants like Amazon and eBay have achieved a combined turnover of $84.7 billion, illustrating the scale and influence of these platforms.
Moreover, third-party marketplaces are expected to account for nearly 60% of online sales globally by 2027.
This rapid expansion, fueled by convenience, wide choice, competitive pricing, and excellent customer service, also brings about complex operational challenges.
The Compliance Challenge for Marketplaces
Digital marketplaces are now responsible when it comes to legal and regulatory compliance. They must collect and remit taxes such as VAT, GST, or sales tax in numerous jurisdictions, adhere to financial reporting standards, and meet international legal obligations.
Failing to manage these responsibilities can result in heavy fines, reputational damage, and even operational disruptions. With marketplaces increasingly treated as the buyer and reseller in transactions, the administrative burden is only growing, making streamlined compliance more critical than ever.
Before the digital economy took off, tax authorities could easily manage indirect tax collection from a relatively stable set of conventional businesses. Today, the ease of starting an online business, whether selling products or participating in the gig economy has led to a surge of small entrepreneurs that traditional tax systems struggle to monitor.
To tackle this, many countries have implemented marketplace facilitator rules. These rules legally position the marketplace as both the buyer and the reseller in each transaction, even though sellers interact directly with customers.
However, it also significantly increases the administrative burden on marketplaces, making it crucial for them to adopt advanced compliance tools like a Merchant of Record to manage the growing complexity of tax collection and invoicing requirements.
Understanding the Merchant of Record
A Merchant of Record (MoR) is the legal entity that handles transactions on behalf of a business. In the context of online marketplaces, an MoR takes on the complex tasks of processing payments, managing tax obligations, handling chargebacks, and ensuring regulatory compliance.
By taking up these responsibilities, an MoR allows marketplaces to offload the intricate financial and legal work and lets you concentrate on growing your business. An MoR not only handles the legal complexities of tax collection and compliance but also supports local payment methods, which helps attract a broader customer base. Offering region-specific payment options builds trust and increases conversion rates, all while reducing the risk of errors and regulatory issues.
This partnership can be a game-changer for marketplaces aiming to scale efficiently and securely.
Benefits of a Structured MoR Partnership
Working with a dedicated MoR offers several clear advantages:
Tax & Compliance Management: With expertise in handling diverse international tax laws and regulatory standards, an MoR ensures accurate tax collection, timely filings, and adherence to global compliance requirements, minimizing legal risks.
Improved Resource Allocation: Marketplaces can reallocate internal resources to focus on core business development and innovation, while leaving the complex tasks of tax management, compliance, and fraud prevention to experts.
Enhanced Customer Satisfaction: Secure and compliant transactions build customer trust and ensure a seamless shopping experience, which in turn leads to higher customer retention and loyalty.
Cost Savings: Outsourcing financial and regulatory responsibilities to a dedicated MoR reduces the need for maintaining an expensive in-house compliance and security team, lowering the risk of fines and reducing operational costs.
Streamlined International Operations: Automated processes and support for local payment methods make cross-border transactions smoother and more efficient, simplifying tax calculations and compliance in multiple jurisdictions.
Fraud Protection: A dedicated MoR employs advanced fraud detection tools and security protocols to monitor and prevent fraudulent transactions, safeguarding both the marketplace and its users.
Operational Efficiency: By centralizing critical functions such as invoicing, payment processing, and dispute resolution, a MoR helps reduce administrative overhead and accelerates the overall transaction process.
Dodo Payments as an Ideal MoR
Dodo Payments makes handling taxes and international payments simple so you can focus on growing your marketplace.
It manages tax calculations, filings, and cross-border transactions, ensuring you meet local laws without extra hassle.
Simplifies payment processing and delivery for digital products, giving customers immediate access so you can focus on product innovation and revenue growth.
With strong security measures like PCI DSS compliance and advanced fraud detection, your transactions stay safe.
It offers over 25+ local payment options that match regional customer preferences, which helps boost sales.
It also takes care of subscription management, handling recurring billing and adjustments easily.
Conclusion
As online marketplaces continue to grow, so do the complexities of tax collection and regulatory compliance. Partnering with a Merchant of Record like Dodo Payments can transform these challenges, freeing up resources and building customer trust.
If you’re ready to simplify your marketplace’s financial and legal processes while driving sustainable growth, Contact Dodo Payments today to learn how their MoR solution can support your global expansion.
