Joshua D'Costa
Growth & Marketing
Jan 28, 2025
|
9
min
For SaaS founders, the right payment solution can determine how effectively their business can scale. Platforms like PayPal are widely recognized as global payment gateways, offering services for millions of merchants worldwide.
However, as SaaS businesses evolve, they require more specialized solutions that go beyond simple transactions. This is where a Merchant of Record (MoR) emerges as an innovative option, offering a comprehensive approach to managing payments, tax compliance, and subscriptions.
In this blog, we’ll talk about PayPal’s features and limitations, explain the Merchant of Record model, and show why MoRs like Dodo Payments are the better choice for SaaS businesses.
What is PayPal?
PayPal was co-founded in 1998 by tech pioneers like Elon Musk, Peter Thiel, and Max Levchin. Then in 2002, eBay acquired it for 1.5 Billion dollars, eventually, PayPal became an Independent company when eBay spun PayPal off in 2015. Over the years, it has become a leading payment gateway, enabling businesses and individuals to send and receive money across 200+ countries.
Features of PayPal:
Paypal Supports transactions in 100+ currencies, making it a trusted choice for cross-border payments.
Paypal supports diverse payment options including credit cards, debit cards, and PayPal credit, it caters to different customer preferences.
It maintains simple integration for e-commerce platforms and websites.
Paypal offers buyer and seller protection for secure online transactions.
Its invoicing tool to create and send custom invoices easily, track payments, and manage billing history allows merchants to request payments effortlessly.
PayPal India for International Payments
Though PayPal exited India’s domestic payment market in 2021, it still supports international payments for Indian businesses. However, its limited features and high fees make it less appealing for SaaS founders looking for global scalability.
Limitations of PayPal for SaaS Businesses
While PayPal is a reliable payment platform, it falls short for SaaS businesses that need advanced features to scale globally.
Lack of Billing/Subscription Engine
PayPal does not offer advanced tools for recurring payments or subscription management, which are essential for SaaS models.High Transaction Fees
PayPal charges 4.4% + a fixed fee for international payments per transaction, along with currency conversion fees, significantly eating into your profits.Not a Merchant of Record
PayPal is not an MoR, which means it doesn’t handle tax compliance, VAT, or GST on your behalf. This leaves SaaS founders to manage complex compliance processes manually.Poor Customer service
Paypal has faced significant criticism regarding its customer service. Users report receiving generic replies when they seek assistance via email. Getting in touch with a live representative can be quite challenging, as it often involves long wait times.Frustrations expressed by users on forums highlight these issues, with many feeling that their concerns are not adequately addressed.
What is a Merchant of Record?
A Merchant of Record (MoR) is an entity that handles all aspects of payment processing for your business, from transactions and tax compliance to subscription billing and customer disputes.
How a Merchant of Record Works:
The operation of a Merchant of Record (MOR) is straightforward. Let's break down the process step-by-step using the example of an E-book purchase:
Customer Purchase
The customer visits your online store and chooses to buy your product. They add it to their shopping cart and move on to the checkout page.Payment Processing by MOR
At the checkout stage, a Merchant of Records takes charge. It securely processes the payment from the customer using various methods such as credit or debit cards, e-wallets, and more.Tax Collection and Management
The MOR is responsible for collecting any applicable taxes based on the customer's location, which is then included in the final price they pay.Compliance with Regulations
To safeguard the business from potential legal complications, the MOR ensures compliance with all relevant regulations, including data protection and tax laws specific to the customer’s region.Customer Support from MOR
After the purchase, the MOR issues a receipt to the customer. If any payment-related issues arise, the customer can reach out to MOR's customer service for assistance.
Merchant of Record Vs. Paypal: Better option for SaaS Founders
Merchant of Record (MOR) and PayPal are two distinct options that SaaS founders can consider for managing payments and subscriptions. Each has its own strengths and weaknesses, particularly in areas such as subscription billing, tax compliance, localized payment options, account security, and target audience.
Here’s a detailed comparison to help SaaS founders make an informed decision.
Subscription Billing
Merchant of Record
MORs specialize in handling subscription billing for SaaS businesses. They manage recurring payments seamlessly, ensuring that customers are billed automatically at the end of each billing cycle.
This includes handling upgrades, downgrades, and cancellations efficiently. MORs also provide detailed reporting on subscription metrics, which is crucial for SaaS businesses to track customer retention and revenue growth.
PayPal
While PayPal does offer subscription billing capabilities, it is not as comprehensive as what a dedicated MOR provides. PayPal allows users to set up recurring payments but may lack advanced features such as automatic handling of failed transactions or detailed analytics.
Additionally, PayPal’s fee structure can complicate subscription pricing for businesses, especially when dealing with international customers.
Tax Compliance
Merchant of Record
One of the significant advantages of using an MOR is its ability to manage tax compliance effectively. MORs handle the complexities of sales tax and VAT regulations across different jurisdictions, ensuring that the correct taxes are collected and remitted.
PayPal
PayPal does not provide built-in tax compliance features. While it allows businesses to charge sales tax, the responsibility for calculating, collecting, and remitting taxes falls on the business owner. This can lead to potential compliance issues if not managed correctly, especially for SaaS companies with international customers.
Localized Payment Options
Merchant of Record
A Merchant of Records typically offers a range of localized payment options tailored to different markets. This includes support for various currencies and payment methods preferred in specific regions (e.g., local bank transfers, and regional e-wallets like UPI). This flexibility can enhance customer experience and increase conversion rates in diverse markets.
PayPal
PayPal is widely accepted globally and supports multiple currencies, making it a popular choice for international transactions. However, while it offers various payment methods (credit/debit cards, bank transfers), it may not always provide the localized options that some customers prefer. Additionally, PayPal's fees can vary significantly based on currency conversion rates.
Account Security
Merchant of Record
MORs prioritize security by managing sensitive customer data and payment information in compliance with PCI DSS standards. They handle fraud prevention measures and chargebacks on behalf of the business, which can alleviate some of the burdens from SaaS founders.
PayPal
PayPal is known for its robust security features, including buyer protection policies and fraud detection systems. However, users must still be cautious as PayPal accounts can be targeted by scammers. The platform encrypts sensitive information but does require users to be vigilant about account security practices.
Target Audience
Merchant of Record
MORs are ideal for SaaS founders looking for a comprehensive solution that handles all aspects of payment processing from billing to compliance, especially those targeting international customers or complex subscription models.
PayPal
PayPal is suitable for businesses that need a quick and easy way to accept payments without extensive setup. It appeals to a broad audience due to its familiarity and ease of use but may not provide the depth of services required by more complex SaaS operations.
Best Merchant of Record Option for Your SaaS Business: Dodo Payments
Dodo Payments offers a tailored approach to managing payments, designed specifically for SaaS founders and small teams.
Global Tax Compliance: Automates tax calculations and remittances for over 150+ countries, ensuring you never miss compliance deadlines.
Localized Payment Options: Dodo Payments supports UPI for Indian merchants, improving conversion rates for global transactions.
Advanced Subscription Management: Features like automated retries and detailed invoicing minimize churn and simplify billing.
Transparent Pricing: No hidden fees, with competitive rates that keep your profits intact.
24/7 Personalized Support: Dedicated assistance tailored to small business needs.
With Dodo Payments as your Merchant of Records, you can scale globally while eliminating the burden of tax compliance, payment localization, and billing complexities.
Final Thoughts
As a SaaS founder, your choice of payment solution directly impacts your business’s ability to scale and thrive. While both Merchant of Record and PayPal offer valuable services for payment processing, the choice between them depends on the specific needs of the SaaS business.
For those focused on subscription management and global tax compliance, a Merchant of Records like Dodo Payments may be the better option. Conversely, businesses seeking straightforward payment solutions might find PayPal sufficient for their needs.
Simplify your payments and scale globally with Dodo Payments today and transform the way you manage SaaS transactions!
