Joshua D'Costa
Growth & Marketing
Apr 15, 2025
|
5
min
You Launched your first SaaS business and you choose Payment Gateway to handle your payments and why not! It seems simple: it processes transactions, collects payments, and that's it. But to serve customers across multiple countries.
You will quickly realize payments weren’t just about transactions—there is a whole maze of tax compliance, local payment methods, and regulatory challenges
That's where Merchant of Records like Dodo Payments comes in. It comes with an additional fee but its value is unmatched, especially for micro-SaaS and solopreneur businesses.
In this blog, we will discuss the key difference between Merchant of Records and Payment Gateway and why the additional fees are justified.
Understanding MoR and Payment Gateway
What is a Payment Gateway (PG)?
A Payment Gateway is an online payment method that acts as a bridge between merchants and customers. It handles and authorizes payment, processes transactions and transfers the funds to your account. While the Payment gateway is essential, it's basic. As it lacks other functionalities like taxes, compliance or fraud
What is a Merchant of Record (MoR)?
A merchant of records on the other hand is an entity that doesn't just process transactions; they take responsibility for everything that comes with it. Taxes, compliance, fraud prevention, chargebacks etc,. For solopreneurs and micro-SaaS companies a MoR can be a Game changer taking all your administrative headaches so you can focus on scaling your saas business globally.
Key Differences in Fee Structures
Payment Gateway Fees: Basic transaction, often charging per transaction along with currency conversion fees.
Why Additional Fees on an MoR Are Justified
Tax Compliance Across Multiple Jurisdictions
PG: If you are selling your SaaS product in Europe, you need to know how VAT works there because with a Payment Gateway, the responsibility of managing VAT, GST, and other regional taxes falls on the business. Registering for taxes in multiple countries, calculating rates, and filing returns, all this becomes a time-consuming and error-prone process.
MoR: A Merchant of Record automates tax compliance by calculating, collecting, and remitting taxes like VAT and GST. This is a lifesaver for Solopreneurs and micro-SaaS companies operating in multiple countries. Avoiding penalties and fines is definitely worth the cost
Regulatory Compliance
PG: Every country has regulations for example, India’s OIDAR or the EU’s VAT directives. Missteps can lead to fines or operational restrictions.
MoR: Merchant of Records stays on top of these rules by ensuring full compliances, staying updated on local regulations, allowing SaaS businesses to operate smoothly in international markets without the legal headaches.
Localized Payment Methods
PG: Often limited to standard payment methods like credit cards, making customers abandon their cart as they cant use UPI (in India).
MoR: Provides built-in support for local payment methods such as UPI in India or PIX in Brazil, enhancing customer trust and reducing cart abandonment rates.
Fraud Prevention and Risk Management
PG: While payment gateway offers basic fraud detection tools, the liability for chargebacks and fraud is on you, increasing financial risks.
MoR: A Merchant of Record takes all the responsibility for fraud prevention, tax compliance with PCI-DSS standards, and protecting the business and its customers.
The Hidden Costs of Skipping an MoR
Increased Administrative Work
Without a Merchant of Record, SaaS businesses must dedicate significant time and resources to tasks like tax registrations, audits, and payment gateway integrations.
This detracts from core business activities like product development and customer acquisition.
Penalties for Non-Compliance
Failed to comply with global tax regulations? This can lead to hefty fines and legal consequences. Let's say your non-compliant with OIDAR regulations in India.
This will result in penalties that far outweigh the costs of an MoR.
Higher Costs for Payment Integrations
Payment Gateway users often need to invest in additional tools for invoicing, tax compliance, and currency conversions. These hidden costs can quickly add up, making the perceived cost-effectiveness of PGs misleading.
Comparing Costs with and Without an MoR
Scenario 1: Using a Payment Gateway
VAT Registration and Filing:
Registering for VAT in multiple countries: Approx. $1,000 per country.
Ongoing compliance costs: $300/month per country.
Total for 5 countries: $1,000 × 5 (registration) + $300 × 5 × 12 (monthly compliance) = $23,000 annually.
Chargeback Handling:
Chargeback fees: $25 per instance.
Estimated 50 chargebacks annually: $25 × 50 = $1,250/year.
Additional Tools for Fraud Prevention and Tax Compliance:
Fraud prevention software: $150/month = $1,800/year.
Tax compliance software: $200/month = $2,400/year.
Total Estimated Costs Without an MoR:
$23,000 (VAT) + $1,250 (chargebacks) + $4,200 (tools) = $28,450 annually.
Scenario 2: Using a Merchant of Record
All-Inclusive Fee:
MoR typically charges 4-5% per transaction (inclusive of VAT, tax compliance, fraud prevention, and localized payments). Let’s take 5% for this scenario.
Example Transaction Volume:
Monthly revenue: $50,000.
Annual revenue: $50,000 × 12 = $600,000.
MoR fees: 5% × $600,000 = $30,000/year.
Additional Savings With an MoR:
Administrative Savings: Avoid the time and expense of managing tax registrations, filings, and fraud prevention tools.
Reduced Chargeback Liability: The MoR takes on the responsibility for fraud and chargebacks, reducing risks.
Total Estimated Costs With an MoR:
$30,000 annually, which includes all compliance, fraud prevention, and administrative efforts.
The MoR's fees may seem higher at first glance, but the consolidated service saves businesses significant administrative time and resources.
For micro-SaaS companies, the peace of mind and reduced complexity make the MoR a far more cost-effective solution in the long run.
You can also use this comparison tool to understand more: https://compare.dodopayments.com/
Conclusion
While a Payment gateway might seem cost-effective upfront, the cost of administration and lost revenue make it less appealing in the long run.
A merchant of Record like Dodo Payments simplifies global payment, offers localized payment methods, and whatnot! Letting you focus on what you do the best: building and growing your SaaS business on a global scale!
