Despite the noise surrounding global commerce, one undeniable fact is that new SaaS, Digital, and AI companies are reaching the $100 Million Annual Recurring Revenue Stage faster than ever before.
A big reason for that is that these companies, unlike physical goods companies, enter the marketplace with a Global mindset from day one. Instead of being localized, they develop a platform that can be used by anyone worldwide through a freemium model. Once they are convinced it is the right product for them, they can easily subscribe with just a credit or debit card.
However, to succeed means that you need to be able to sell legally in hundreds of territories worldwide, having to deal with VAT and managing fraud. To most companies, that is a terrifying thought, one that was once avoided for as long as possible.
However, not anymore; the Merchant of Record (MoR) Model as provided by Paddle, has changed the way that, especially SaaS and Digital companies, approach their Global Expansion.
In this edition of the Payments Strategy Breakdown, I will break down this model, discuss what it is, how it works, the associated costs, when to use it, and address some common misconceptions people might have about it.
Let me explain…
Why We Talk About MoR in the First Place
Nowadays, every SaaS or AI startup feels the same pressure: to land as many customers globally before the incumbents notice, while at the same time using as few engineers or lawyers as possible to achieve it.
However, traditional DIY payments require local entities, PCI audits, indirect tax registrations, and a chargeback team to manage fraud. Setting all that up can easily take months to complete, putting pressure on resources that could have been used to develop the actual product.
A Merchant-of-Record (MoR) flips that burden.
The platform, not the software vendor, becomes the legal seller-of-record, assuming responsibility for taxes, fraud, refunds, and compliance with schemes. For founders, it condenses months of red tape into an API call, allowing growth to outpace complexity.
For most companies, this boils down to a simple decision: will the speed allow them to compound revenue faster than the margin points they will give up, especially when they will have to spend months to get the right infrastructure in place to grow, if they do it themselves?
The Anatomy of an MoR
To gain a better understanding, compare Paddle, which provides a Merchant of Record (MoR) Model to SaaS and Digital companies, with a DIY and/or Orchestration Layer.
When comparing them, it boils down to four major points that help merchants determine which direction to take. These include Taxes, PCI scope, chargebacks and disputes, and FX Settlement.
Here is how they differ:
Indirect-tax filings
MoR (Paddle): Shoulders every sales tax, VAT, and GST return across 200 + jurisdictions.
DIY stack: Merchant must register and file in every market it sells into, one tax portal at a time.
Orchestration layer: Merchant still handles registrations and filings; orchestration only routes payments.
PCI scope
MoR (Paddle): Paddle is PCI Level 1 (SAQ D); the merchant drops to the light-touch SAQ A questionnaire.
DIY stack: Merchant carries full SAQ D responsibility and annual audits.
Orchestration layer: Merchant remains SAQ D because it still touches card data directly.
Chargebacks & disputes
MoR (Paddle): Paddle is the counterparty on the card networks and manages every dispute end-to-end.
DIY stack: Merchant fights each chargeback, funds representment fees, and tracks win rates.
Orchestration layer: Merchant remains the liable party; the platform provides dispute data feeds.
FX settlement
MoR (Paddle): Pays out one consolidated deposit in the merchant’s chosen currency, with FX already handled.
DIY stack: Merchant juggles multiple merchant IDs (MIDs) and currency balances across acquirers.
Orchestration layer: Merchant still manages multiple MIDs; orchestration simplifies routing, not treasury.
Legally, the MoR sits between buyer and seller, appearing on the networks as the merchant of record. That single shift means:
Liability shield. Schemes (Visa & Mastercard) rules point disputes at the MoR, not the software firm.
Tax invisibility. The MoR files return in the jurisdictions they provide, so engineers never touch a VAT portal.
Scope shrink. PCI paperwork drops from >300 questions (SAQ D) to a dozen (SAQ A).
The primary benefit for companies is that SaaS and Digital companies seeking to expand globally can do so in days, rather than weeks or months.
But What About the Cost?
Within payments, we are currently undergoing a reversal of a trend that aligns more with the maturity of a company, versus the preferences of a payments provider.
In the early days of e-commerce payments processing, providers provided merchants with a blended rate, which included everything from Interchange, Scheme Fees, Acquiring Markup, and any other fees.
Throughout the years, new, more digitally native and data-savvy providers started providing Interchange++ to provide more transparency in the underlying fees, separating their service from the mandatory costs.
As smaller and digital-first businesses began to emerge, models that offered a flat fee started to gain popularity again.
To compare the fees for a Merchant of Record to those of providers isn’t accurate.
Because Merchant of Record companies provide more than just payment processing, they offer a Vertically Integrated Solution, which encompasses tax management, PCI Scope reduction, Chargeback and Dispute handling, and FX settlement services.
So let’s break it down.
On paper, 5% + $0.50 looks steep compared to PayFac or orchestration quotes, but the Composable Payments Maturity Curve reframes the math.
At the first growth curve, from zero to roughly $15–20 million in ARR, merchants trade margin for focus: every back-office hour saved can be reinvested in product development or acquisition.
In my break-even analysis, I have calculated that the variable premium overtakes a purpose-built stack only after achieving a low eight-figure Annual Recurring Revenue (ARR). Until then, MoR spends functions like growth equity: you buy time and optionality instead of headcount.
Want to learn more about the costs of the Merchant of Record Model? Join our Webinar
When Should A Merchant Decide for a MoR?
On the Composable Payments Maturity Curve, a Merchant-of-Record is the first rung you grab while racing to product-market fit.
For ARR of up to $15–20 million, the cost for a MoR like Paddle’s, which charges a flat 5% + $0.50 fee, is usually cheaper than building payments yourself.
The MoR premium is approximately $30,000 per year on $1 million in volume, rising to approximately $600,000 at $20 million, the point at which a dedicated payments squad and an orchestration layer could become a visible and economically viable option to explore.
In other words, you rent a fully staffed payments department until the marginal savings of ownership outweigh the cash burn and engineering distraction it avoids.
Cost, however, is only half the equation.
An MoR provides same-week activation, files every VAT return across over 200 jurisdictions, reduces PCI scope to a single-page SAQ A, shoulders every chargeback, and bundles churn recovery that can cut involuntary losses by up to 30%.
Benefits that don’t show on a ledger but free founders to ship, market, and learn faster than slower, cheaper alternatives.
Looking Ahead
To me, it is clear that for globally expanding SaaS and Digital product companies, a MoR model outweighs alternatives such as the high costs of processing globally from a single entity or building a DIY global payments stack, especially in the early stages of growth.
As your ARR balloons and your finance team transitions from managing payments in spreadsheets to a data warehouse, the benefits of utilizing alternative methods will become apparent. However, until then, MoR is likely the best approach for most SaaS and Digital merchants.
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P.S. On Thursday, June 12, 2025, I will discuss the real cost of a DIY payments stack with Paddle on a webinar. To join, you can register here for free: