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Introduction
Merchant of Records (MoR) models are the foundation for businesses seeking to simplify global expansion while addressing one of the biggest challenges: chargebacks. Imagine investing considerable resources in obtaining international consumers only to see revenue reversed due to disputes, fraud, hidden costs, or unfamiliar payment methods. This is where the Merchant of Record (MoR) model combined with localized payment gateways truly shines.
A trusted MoR like Dodo Payments not only streamlines international payment processing but also reduces chargebacks by ensuring customer-friendly, legally compliant payment experiences It will assist merchants in reducing disputes, increasing conversions, and achieving long-term success in global markets by including regional payment options into their solution.
Let's look at why chargebacks are so common in cross-border transactions, and how localized payment gateways may transform global business.
Why Are Chargebacks More Prevalent in Cross-Border Transactions?
Chargebacks, which are customer-initiated payment reversals, are significantly more common in international markets. While they serve as a consumer protection mechanism, chargebacks can become a major operational and financial burden for merchants.
Key Causes of Cross-Border Chargebacks
Fraudulent Transactions:
A report by Juniper Research states that merchant losses from online payment fraud will exceed $362 billion globally between 2023 to 2028.
Now, Fraudulent Transactions can take many forms;
- Identity Fraud: When a Fraudster steals a credit card to make purchases, which results in chargebacks when the legitimate cardholder disputes the transaction.
- Account Takeover: An unauthorized person gains access to a customer’s account, leading to illegitimate transaction
Friendly fraud is also a problematic form of chargeback where legitimate transactions are disputed by customers, either due to misunderstanding or intentional deceit.
Customer Distrust:
Customers are less likely to trust unfamiliar payment gateways or services that don’t offer local payment options like Apple Pay in the United States or SEPA in Europe. In 2024, 70% of online cart abandonment by customers was due to unexpected fees and hidden charges at checkout.
Regulatory Complexities:
Cross-border transactions can result in chargebacks and financial penalties if regional payment compliance regulations are not met.
For instance;
- The European Revised Payment Service Directive (PSD2) mandates strong Customer Authentication (SCA) for most online transactions.
Non-compliance can lead to fines or increased chargebacks.
- The United States' state-specific sales tax system poses significant challenges for cross-border merchants where some states impose taxes on digital items, while others do not.
The effects of chargebacks go beyond revenue loss:
Financial Costs: High chargeback rates lead to penalties, increased transaction fees, and potentially losing access to payment processors.
Operational Strain: Managing disputes takes time and resources from core business operations.
Reputational Damage: Excessive chargebacks harm customer trust and credibility with acquiring banks.
The Solution?
The Merchant of Record model tackles these issues head-on. They ensure compliance, and eliminate customer confusion and fraud reduction by acting as the legal entity responsible for payment transactions through payment gateways.
What Are Localized Payment Gateways?
Localized payment gateways are payment solutions customized for specific regions. They cater to local customer preferences, ensuring seamless and familiar transaction experiences that reduce friction and disputes.
Key Features:
- Multi-Currency Support: Customers pay in their local currency, eliminating conversion issues. As 98% of online buyers worldwide prefer to browse and pay in their local currency when given the option.
- Localized Payment Methods: Integration of localized payment methods like UPI, Apple Pay to align with customer expectations.
- Clear Pricing Structures: Transparent tax calculations and fee structures to help avoid hidden costs and build trust.
How Dodo Payments and Chargebackstop help mitigate Chargebacks
Fraud Detection and Prevention:
It uses Real-Time fraud detection and multi-layered security protocols to minimize chargebacks and safeguard transactions across regions. Ensuring smoother transactions and increased customer trust. Chargebackstop’s technology enables faster detection of suspicious transactions, further reducing the risk of fraudulent disputes.
Building Trust Through Familiar Payment Methods:
It ensure familiarity by integrating localized payment gateways customers can recognize and trust, while Chargebackstop’s solutions help to manage and mitigate any disputes that arise from payment failures Whether it’s supporting local systems like Apple Pay in the USA or UPI in India, these tailored options significantly reduce customer hesitation and disputes.
Ensuring Regulatory Compliance:
A Merchant of Record manages all compliance requirements helping clients from complex regional specific regulations.
From implementing Strong customer Authentication (SCA) for European transactions to calculating and displaying accurate GST in India, the company ensures every transaction adheres to local laws, preventing disputes that stem from non-compliance.
Chargebackstop ensures that the transaction complies with local laws and provides assistance if a dispute arises due to regulatory issues.
Streamlined Dispute Management:
It handles chargeback and dispute processes, reducing the operational burden on merchants and chargeback delivers value by providing a chargeback management tool that allows merchants to resolve disputes.
This allows businesses to focus on growth while knowing their payment processes are secure and efficient.
How to Implement Localized Gateways with a Merchant of Record
Step 1: Evaluate Your Market Needs
Assess the regions you operate in or plan to enter. Identify customer preferences, popular payment methods, and potential regulatory hurdles.
Step 2: Partner with Merchant of Record
Leverage MoRs’ payment localization services. They act as the legal entity responsible for global transactions, managing everything from tax compliance to chargeback disputes.
Step 3: Integrate Localized Gateways
Use the platform to implement payment gateways customized for each region. This includes multi-currency support, local payment methods, and fraud detection systems.
Step 4: Monitor and Optimize
Continuously track transaction data to identify trends, monitor chargebacks, and adjust strategies. Use analytics tools to help merchants make data-driven decisions for sustainable growth.
Conclusion
Expanding into global markets no longer has to mean dealing with high chargeback rates or compliance headaches. By combining localized payment gateways and the Merchant of Record model, businesses can create payment experiences that build trust, reduce disputes, and drive conversions. Whether you’re an Indie hacker, a SaaS startup, or an established enterprise, Merchant of Record ensures you can scale globally without the operational burden of managing chargebacks.