At ChargebackStop, we have the pleasure of working with a wide array of customers across many different industries. In this blog post, we'd like to focus on one group specifically: merchants of record who help businesses sell globally, reduce their tax liabilities, and get paid quicker.
What Is a Merchant of Record?
A merchant of record (MoR) is a business entity that processes online payments and takes legal responsibility for all transactions. Essentially, when a company wants to sell products or services internationally but wishes to avoid the complexities of global taxation and payment processing, they partner with a merchant of record. One example of a merchant of record would be Dodo Payments.
For example, consider Software Company A based in the UK. When they start selling to clients in the United States, they may eventually reach a tax liability threshold requiring them to collect and remit taxes in different jurisdictions. This can become complicated and burdensome, especially for smaller businesses or those based in countries with less integrated global tax systems.
By partnering with a merchant of record, Software Company A simplifies its relationship with global customers. The MoR becomes the legal seller on paper, handling the payment processing and tax responsibilities. Customers pay the merchant of record, and the MoR then pays Software Company A.
Challenges Faced by Merchants of Record
While the merchant of record model offers significant benefits to businesses looking to expand globally, it also comes with its own set of challenges—particularly around risk management.
Financial Responsibility and Risk Exposure
Since merchants of record are financially responsible for every transaction they process on behalf of their clients, they also bear the associated risks. This includes not only tax liabilities but also the risk of fraudulent payments and chargebacks. If a customer disputes a payment, they're disputing it with the merchant of record, not the original service provider. This can put significant financial strain on the MoR, especially if disputes are frequent.
Balancing Risk and Customer Experience
Merchants of record face a constant juggling act between mitigating risk and providing a seamless experience for their clients. On one hand, they want to offer quick onboarding and allow businesses to start selling worldwide from day one. On the other hand, they need to implement stringent checks to prevent fraud, which can slow down the onboarding process and add friction to the customer experience.
How Chargeback Alerts Can Help
So, how can chargeback alerts assist merchants of record in navigating these challenges?
What Are Chargeback Alerts?
Chargeback alerts are early notifications that inform you when a customer initiates a dispute against a transaction. By integrating your merchant of record payment service accounts with our platform at ChargebackStop, you receive these notifications before the chargeback officially processes. This gives you the opportunity to proactively refund the payment, thereby preventing the chargeback from affecting your merchant account.
Protecting Your Merchant Account
By refunding disputed payments before they become chargebacks, you safeguard your merchant account from excessive chargeback ratios that could lead to account termination. Maintaining a healthy merchant account is crucial because it underpins your entire business operation as a merchant of record.
Enabling Faster Onboarding
Chargeback alerts also allow you to onboard new merchants more quickly. With the safety net of early dispute detection, you can afford to implement a more streamlined review process. This means less friction for your clients, who can start accepting payments and selling globally without unnecessary delays.
Managing Risk Effectively
If a new merchant turns out to be a bad actor, chargeback alerts give you a second line of defence. As disputes start to come in, you can catch them at the pre-dispute stage, refund the payments to avoid chargebacks, and promptly terminate the merchant's account to prevent further issues.
Balancing Fast Onboarding, Low Fees, and Low Risk
As a merchant of record, you often have to choose two out of three benefits: fast onboarding, low fees, or low risk. Traditionally, achieving all three simultaneously has been challenging:
- Fast Onboarding + Low Fees: Increases risk due to less stringent screening.
- Low Fees + Low Risk: Slower onboarding because of detailed vetting processes.
- Fast Onboarding + Low Risk: Requires higher fees to cover potential risks.
With ChargebackStop's chargeback alerts, you can effectively balance all three:
- Fast Onboarding: Reduce friction in the onboarding process.
- Low Fees: Maintain competitive pricing for your services.
- Low Risk: Mitigate the risk of chargebacks through early detection and intervention.
This holistic approach allows you to offer a superior experience to your merchants while protecting your business interests.
Conclusion
Chargeback alerts are a game-changer for merchants of record. They provide an effective way to manage risk without compromising on customer experience or increasing fees. By integrating chargeback alerts into your operations, you can:
- Protect your merchant account from excessive chargebacks.
- Onboard new merchants more quickly and efficiently.
- Offer competitive fees while maintaining low risk.
- Enhance the confidence of your risk management teams.
- Deliver a frictionless experience to your merchants.
In a landscape where you traditionally had to compromise, chargeback alerts allow you to have the best of all worlds. By proactively managing disputes, you're not only safeguarding your business but also fostering stronger, more trusting relationships with your clients.
If you’d like to learn more about chargeback alerts, reach out to our team and we can help walk you through the entire process.
