A three-person team created an AI programming tool, and just two weeks after launch, customers in the United States, Japan, and Germany have started subscribing. The company doesn't even have a dedicated finance team, yet it cannot escape the German VAT, Japanese consumption tax, or sales tax from various U.S. states, and refunds and renewals also need to be monitored.

With the overseas entity still not registered, users' money is already at the door. Many teams have simply decided to hand over the seller identity entirely to a MOR (Merchant of Record). The MOR collects money from users on behalf of the seller, manages taxes, refunds, and chargebacks, and finally settles accounts with the team.

This is an example given by Isabelle on a podcast, and it is also what she frequently encounters in her daily work helping Chinese AI companies with overseas payments. This practice has a long history and has become popular again in recent years due to AI going global. Not all companies seeking a MOR are small teams; some have already set up entities in Hong Kong but still want a U.S. MOR to increase the approval rate for credit cards from American users.

In this episode, we invited Kevin and Isabelle to discuss the MOR model: What is it, why can't AI companies going overseas do without it, and what pitfalls might they encounter when using it?

Guests of this episode:

Kevin, Co-Founder of Chain Tech

Isabelle, BD from a leading global payment company

This article is adapted from Money in Motion EP.16 discussions, with some edits. Guest opinions represent personal views.

1. Understanding MOR: It's not a type of merchant, but an arrangement

Kevin: In the rules of card organizations, there is actually no specific type of merchant called MOR. I prefer to see it as a commercial arrangement: in a transaction, whoever stands up to collect money from consumers in the seller's name has an agreement with the seller about responsibilities, and that’s how the role of MOR comes into play.

Editor's Note: Indeed, the term Merchant of Record cannot be found in Visa's publicly accessible rules; they refer to a Merchant, which is the one presenting itself as selling goods or services to the buyer. To determine who the merchant is, generally consider three points: whose name is on the bill, who does the buyer think they are buying from, and who appears in case of a dispute.

A MOR, as referred to in the industry, is a company positioned in this manner. When AI teams say "find a MOR," they are actually looking for a payment company that provides this bundle of services, such as Paddle, FastSpring, or Stripe Managed Payments. The product remains the team's own, but in the eyes of card organizations and consumers, the seller has changed to these companies: their names appear on the bill, money flows into their merchant accounts, and they handle taxes, refunds, and chargebacks.

Kevin likens it to shopping malls. Renting a counter means the brand sells and collects money themselves; in a joint venture, the mall collects payments on behalf of the brand and settles at the end of the month; in a buyout, the mall buys the goods and resells them to customers. He thinks a joint venture resembles agency in the payments industry more than a resale.

MOR follows the joint venture model. It holds merchant identification numbers (Merchant IDs) issued by acquiring institutions. Merchants can only obtain these after passing the acquiring institution's review, and every transaction thereafter is recorded under this number. MOR uses its own number, money from consumers goes to it, taxes and refunds are handled by it as agreed, and after deductions, it settles with the product company.

For example, in a $20 monthly AI subscription, a user pays at the MOR, and the product confirms receipt and activates the membership; MOR deducts the necessary amount per agreement and transfers the remaining balance. The following month, renewals will also rely on this payment arrangement, so if a platform change is needed in the future, it must be clarified whether this aspect can be transferred.

When it comes to the App Store, Kevin and I didn't see it the same way. We focused on the developer outsourcing certain tasks, with Apple handling payments and some taxes, which made us think it is a MOR. Kevin, however, considered its position within the card organization system and preferred to classify it as a marketplace.

Editor's Note: The distinction between a marketplace and MOR lies in who the consumer believes they are buying from. According to Visa's definition, a marketplace is a platform that brings buyers and sellers together, collecting payments on behalf of sellers, but consumers clearly know they are purchasing from a specific seller on that platform; whereas MOR is the seller itself.

2. What AI companies are buying is the founder's time

Yuki: A few years ago, when we developed overseas AI products, we first registered a company in the U.S., opened a bank account, connected to Stripe, and then launched. At that time, the product was still being refined, and these formalities could be completed in time. Nowadays, with the company and account still not set up, users are already waiting to make payments.

Isabelle: The pricing of AI companies also changes continuously. Today it's still $20 per month, but a few days later, if GPU costs are deemed too high, it might change to a monthly fee plus 1,000 credits. Each price change requires adjustments in billing, renewals, and taxes accordingly.

Once the company has income, its concerns differ. Clients generating tens of thousands of dollars a month prioritize authorization rates, renewals, and control. I've encountered a company that had already established an entity in Hong Kong but sought a U.S. MOR. Initially, I thought their motivation was tax-related, only to learn that they wanted to improve the authorization rate for American card transactions. Advertising expenses had already been incurred, users were at the payment page, and if the card fails to process, the transaction is lost.

People often ask me, why still need a MOR if they are using Stripe? In fact, Stripe's own products are very specific: Payments handles payment processing, Tax helps you calculate taxes, and Managed Payments is where Stripe acts as MOR. If a company prefers to act as a seller and can manage taxes and refunds, using payment services is sufficient; if the team can't handle these, it can be handed over to a MOR.

MOR charges more than payment processors, and that extra cost covers those troublesome issues.

Kevin: In the U.S., registering a company, opening an account, and connecting with an acquiring institution often takes several months, and many payment processors only sign contracts with local entities. Stripe's two services can be viewed together: Atlas helps entrepreneurs register companies in the U.S., and Managed Payments allows eligible teams to transfer seller responsibilities to Stripe.

3. Why do acquiring institutions care about who is using MID

When acquiring institutions sign a merchant, they need to know who is selling, what they are selling, and which markets they are selling to. When a transaction is under the MOR's name, they also need to understand what business is really being conducted behind the scenes.

Kevin: Acquiring qualifications are regional. Where the actual merchant is located and what they are doing must match what is declared; otherwise, the acquiring institution may run into trouble with card organizations. What card organizations mean by "cross-border acquiring" refers to transcending qualification limits; it differs entirely from what is commonly spoken of in the industry as helping overseas companies receive payments. Card organizations do not reject MORs, but they do reject those that are abused.

If the original team operates the website and ships the goods, while the acquiring institution has signed the MOR, can it still see what is genuinely being sold?

Kevin: Such situations have occurred in the past. A primary merchant had thousands of sub-merchants under it, and the acquiring institution only saw one signing entity, while the actual sold items diverged greatly from what was declared. They couldn't determine the relationship between the primary merchant and sub-merchants, nor see the real transaction; the merchant review (underwriting) conducted during signing didn't cover what happened afterward.

If a problem occurs, the first entity the acquiring institution contacts is typically the one it signed the contract with. As for how to bear losses and penalties, that depends on the contract and applicable rules. This is also why acquiring institutions are tightening their reviews, extending settlement periods, collecting deposits, and outright refusing clients they don't understand. Therefore, whether a business can be accepted ultimately needs to pass through two filters: the MOR and the acquiring institution behind it.

4. When selecting a MOR, first ask how to separate

Isabelle: Negotiating with a MOR is somewhat like dating; when you first meet, everyone asks how soon they can be together. But I always ask right away: if we switch platforms later, can my subscription users still follow?

It’s not easy to gather 10,000 paying users for an AI tool, and if the payment receipts can't be carried over, switching platforms would mean asking users to re-enter their payment details one by one. So clarifying whether payments can continue to be collected should be addressed during the contract signing. How much customer data can be exported, and whether payment receipts and renewal authorizations can transition, depends on the migration methods supported by both old and new platforms.

Isabelle: Even after separating, the accounts aren't settled. When will last month's payment come through? If old orders need refunds, who do I contact? Just when you think everything is settled, next month may still require meetings, called historical account reconciliation. So before signing the contract, I always ask two questions: which old users can automatically renew after moving over? Who have you successfully helped migrate before?

Money and taxes cannot be handled carelessly. Kevin mentioned that some DTC sellers building their sites from Amazon have to manage their sales taxes independently, and many fail to do it correctly. When selecting a MOR, you need to ask what regions they manage, who reports them, and what records they can provide. Who is responsible for reporting as stated in the contract is one thing; whether they actually report is something that needs documented proof. Moreover, since funds first go into the MOR's account, you also have to consider whether the money is placed securely.

Kevin: As for which one to choose, I first look at how familiar the provider is with your industry. There are different risk areas involved in selling games, e-books, or AI subscriptions; whether they have experience in similar businesses is more worth asking than just a minor percentage difference in fees.

Isabelle: For developing AI tools and SaaS subscriptions, I would first look at Paddle; it has self-service subscriptions along with B2B orders negotiated by sales teams. FastSpring could also be considered; for games, Xsolla’s coverage in target markets should be reviewed. Teams already within the Stripe ecosystem can consider Stripe Managed Payments. My advice is to use the same market and product to negotiate, first run a few test orders to experience the checkout process, and then ask each provider to issue a mock settlement based on the same order structure, clarifying how refunds, chargebacks, and migrations would be handled as well. Comparing the first payment success rates and renewal rates is best done with trial data from the same source.

5. The challenge of being a MOR lies in understanding what the merchant is selling

Kevin: Running a MOR involves several tasks: having an entity that can handle transactions, gaining acceptance from the acquiring party for this arrangement, and signing a contract with the product company specifying how sales will be collected, how taxes will be handled, the frequency of settlements, and who bears the loss for refunds and chargebacks. For taxes, I tend to outsource, as there are many tax APIs in the US that can help with calculations, but it must be determined upfront who will be responsible for reporting and tax payments.

The difficult aspects are chargebacks. MOR handles chargebacks, and the final loss allocation is mostly agreed upon in the contract with the product company. Kevin provided an example: if a user uses a service for a month and then informs the card issuer that the transaction is unauthorized, even if the product company can provide usage records, the funds may still become unrecoverable. Products like e-books, which are considered complete upon delivery, frequently face such disputes.

Secondly, it’s crucial to see what the underlying merchant is actually selling. If a transaction incurs penalties from card organizations, fines will trace back to MOR, which must then distribute losses according to contracts. Isabelle's team sometimes purchases a paid account themselves to check what users actually get when they pay. When Kevin encounters platforms producing content, he will ask, "Who handles your content monitoring?" If they can answer, it roughly indicates whether that platform is capable of continuously monitoring for violations.

6. What segment of MOR can stablecoins replace?

As merchants collect payments, if users pay directly with USDC, merchants can indeed bypass card acquiring. But someone still needs to handle refunds, manage disputes, and arrange taxes; none of these issues can be overlooked. Funds flowing through the chain without card acquisition reduces the paths for users to request chargebacks from issuers. Merchants can save some headaches regarding chargebacks, but whether consumers can get refunds or have other appeal avenues depends on whether the platform has alternative arrangements in place.

Kevin believes the reason for the long-standing use of card payments is that both card issuance and acquiring earn money, and there is an existing process for handling disputes. For stablecoins to enter mainstream consumer usage, platforms must also address these several issues: if money is paid incorrectly, who do they turn to, and how can items be returned if not received?

Will: I've seen some platforms operating both paths: card payments still run through a MOR while also opening a separate stablecoin payment entry, giving users an additional choice when paying. But how seller responsibilities and taxes are arranged still depends on how the platform operates.

Kevin thinks the enduring function of card payments for so many years is primarily because both sides make money from issuance and acquiring, and they have an established process for resolution of disputes. If stablecoins are to become mainstream with consumers, platforms need to respond to these ongoing questions concerning responsibility for erroneous payments and returns for undispatched goods.

7. First use the path, then take control

At the end of the program, we posed a very specific question: A Chinese AI company, generating monthly revenues between $100,000 and several hundred thousand, with paying users scattered across the U.S., Europe, and Asia, should they continue using a MOR?

Kevin: At this stage, don’t rush to sign acquiring agreements yourself. In the U.S., the acquiring institutions I’ve approached always look at whether companies have actual operations locally; merely registering a company often isn't sufficient; there needs to be real business and teams.

Isabelle has a saying we always remember: "Initially buy speed, later buy conversion rates, and ultimately buy control." When a product first launches, the priority is to quickly receive the first payment. Once renewals support a substantial portion of revenue, the seemingly insignificant contract clauses must be scrutinized: who can initiate payments, how historical refunds are processed, and how many users can renew normally after switching service providers.

In conclusion

Returning to that three-person team mentioned at the beginning. Overseas users started paying within two weeks of launch, and what they need most is time—a MOR essentially sells time: acting as their seller, taking on tax, refunds, and chargebacks. At the startup stage, this money is very well spent.

The troubles come later. As subscriptions accumulate, payment authorizations, user data, and historical accounts pile up more heavily on the MOR, making it increasingly difficult to switch service providers. Card organizations are concerned about who is using the MID, and acquiring institutions care about what the underlying merchant is selling; these risks will ultimately be traced back to the product company through contracts. While stablecoins can bypass some card acquisitions, they cannot avoid the old issues of refunds, disputes, and taxes.

Therefore, when selecting a MOR, the rate is secondary; first, make sure to clarify three things: what it will shoulder for you, what you are giving up, and whether you can reclaim it whenever you want.

It's fine to borrow paths, but you need to recognize the road clearly.

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