Joshua D'Costa
Growth & Marketing
Apr 22, 2025
|
5
min
If you run an online business, handling payments in multiple currencies while staying compliant with diverse market regulations can be overwhelming. Fortunately, there are intermediary solutions that simplify these international transactions and take the hassle out of sales tax management. This lets you focus on your core offerings while experts manage the intricate financial details.
In this article, let’s dive into the differences between a Merchant of Record and a Payment Facilitator, explore how each works, and help you decide which one is the best fit for your business.
What is a Payment Facilitator (Payfac)?
A Payment Facilitator, often called a Payfac, is a service provider that helps businesses accept electronic payments without each one having to obtain its own merchant account. Instead, the Payfac acts as the umbrella under which many smaller businesses (or sub-merchants) can process payments.
Responsibilities
Key responsibilities include;
Payfacs allow businesses to get up and running quickly. This makes it a great option for companies that need to move fast.
It takes care of all the payment processing. They handle the technical and administrative details of receiving and transferring payments, so you don’t have to worry about the complexities of processing credit card or bank transactions.
Payfacs ensure that every transaction meets security standards such as PCI compliance, which is critical for protecting customer data. They also provide a basic level of fraud protection.
Advantages
Speed: You can start accepting payments very quickly, often within a matter of days rather than weeks.
Ease: The technical setup is minimal, making it a user-friendly solution for businesses that are just starting out.
Flexibility: This model works especially well for startups and small businesses looking to enter the market quickly without heavy upfront investments.
Limitations to Consider
While Payfacs handle the processing, they generally do not manage international tax compliance or regulatory requirements. This means you’ll need to handle sales tax calculations, filings, and other legal obligations on your own.
For businesses that plan to operate internationally, managing taxes and compliance might require additional tools or services to fill the gaps that a Payfac does not cover.
What is a Merchant of Record (MoR)?
A Merchant of Record (MoR) is the legal entity that handles all aspects of selling goods or services to your customers. In simple terms, the MoR takes on the responsibilities of processing transactions, collecting and remitting taxes, managing refunds and chargebacks, and ensuring compliance with local regulations.
This means your customers see the MoR on their payment statements, and your business can offload a lot of administrative and legal tasks.
Responsibilities
Key responsibilities include;
Manages the technical backend for processing payments and handling financial transactions
Ensures compliance with key financial and legal standards, including PCI DSS and various tax regulations
Collects applicable taxes, such as sales tax or VAT and reports them to the relevant authorities
Implements measures to prevent fraud and protect both the business and its customers
Handles disputes and chargebacks when customers contest a charge
Facilitates currency conversions for seamless international transactions
Advantages
Comprehensive Tax and Compliance Management: The MoR takes care of all necessary tax filings and regulatory requirements, allowing you to focus on growing your business.
Simplified Global Expansion: With the MoR handling legal and financial complexities, you can enter new markets with confidence.
Reduced Risk and Liability: By assuming the responsibility for payment disputes and fraud, the MoR minimizes your exposure to potential financial losses.
Limitations
Setting up a Merchant of Record solution may involve a more involved integration process compared to simpler payment solutions, potentially requiring additional technical resources.
Payfac vs. MoR: Key Differences
Feature | Payment Facilitator (Payfac) | Merchant of Record (MoR) |
Legal Responsibility | Business largely manages tax compliance and regulatory requirements | MoR takes full legal and financial responsibility for transactions. |
Risk Management | Shares risk with sub-merchants | Provides a more secure framework for global transactions |
Payment Processing | Provides core payment processing. | covers all aspects of global transactions. |
Multi-currency Support | Supports international payments, Limited or third-party dependent. | Built to handle multi-currency transactions seamlessly. |
Onboarding Speed | Faster | More extensive |
Best for | Quick domestic scaling | Complex global expansion |
When to Choose a Payfac
Ideal For:
Startups or small businesses that want to launch quickly.
Companies that operate mostly in one country or region.
Businesses that prefer a lightweight payment setup with minimal technical work.
Platforms with low to medium transaction volumes and straightforward tax needs.
Things to Consider:
You’ll be responsible for managing your own sales tax calculations, filings, and compliance.
It may not offer the depth of support needed for complex international operations.
Risk and liability (like chargebacks or tax errors) still fall on your business.
You might need to integrate other tools for currency conversion or fraud management as your business grows.
When to Choose a Merchant of Record
Ideal For:
SaaS or digital product companies planning to expand globally.
Businesses that sell across multiple countries need a partner to manage taxes, currency, and compliance.
Teams are looking to offload the legal responsibility for payments, taxes, and chargebacks.
Companies that prioritize customer trust and seamless international checkout experiences.
Things to Consider:
MoRs often come with higher service fees due to the full-suite support they offer.
Integration might take longer upfront, but it pays off in long-term scalability.
You may need to give up some control over certain parts of the transaction process.
Best suited for businesses focused on growth, compliance, and risk reduction in global markets.
Conclusion
Choosing between a Payfac and a Merchant of Record depends on your business’s current stage and future goals. If speed and simplicity are your priorities, a Payfac might be enough.
But if you're aiming for international growth with fewer compliance headaches, a Merchant of Record like Dodo Payments can offer the infrastructure you need.
