The Green Sheet Online Edition
May 11, 2026 • 26:05:01
Merchant of Record versus payment facilitator
Fintech innovations surprise us every day; creative solutions are now built on new technologies, offering easier life for both the payers and the payee. But utilizing the benefits is not always easy, as many companies still do not fully understand how their money moves or what providers actually do with the funds in the background.
Payment providers can operate under various models, which can affect our pocket greatly. However, this can be very confusing if we do not know what to watch for. The two most common—the Merchant of Record (MoR) and payment facilitator (payfac)—are frequently used terms in payments but are still confused by businesses.
Without a clear view of how money flows, who is truly accountable, and to what extent these choices can determine the difference between sustainable success and sudden failure, companies unknowingly expose themselves to risks that can undermine their entire operation.
Distinctions between MoR and payfac models
The MoR defines who sells and who is legally responsible for the transaction: the MoR is the party the customer buys from, the name that appears on the bank statement, and the one that receives the funds. The MoR also handles refunds, chargebacks and even taxes. The MoR acts as if it is the merchant itself. The payfac, however, is like an aggregator. The payfac processes transactions for merchants under its own acquiring relationships and sets the rules for onboarding, risk and settlements.
While the payfac processes the payment and gives the merchants access to the acquiring channels, responsibility is shared: the merchant remains the legal seller toward the customer, while the payfac takes responsibility toward the acquirer and carries onboarding, monitoring and transaction risk. The payfac acts as if it is the acquirer itself.
At first glance, these two models may sound similar, but the difference is structural, legal and strategic.
How these roles evolved
Conventional banking practices used to fit the offline world perfectly: every merchant needed a direct agreement with a bank, had to open their own merchant account, and had to negotiate their own individual terms and conditions. However, when companies started selling online and expanded globally, various digital models emerged to fit the new, digital needs of online payments.
Originally, the MoR model appeared when platforms wanted full control over the customer experience and decided to become the legal seller themselves, taking complete responsibility for the entire transaction, including taxes and disputes.
The payfac model emerged later to solve the problem of slow, complicated bank onboarding by allowing one company to sign a master agreement with an acquirer and then onboard many sub-merchants quickly under its own relationship.
Risks and benefits of MoR
The MoR setup offers significant relief from complex operational burdens, as it takes full legal responsibility off the shoulders of the seller: it handles global taxes, refunds and chargebacks, and deals with multi-jurisdictional compliance.
This allows companies, especially SaaS and digital product sellers, to expand internationally faster, reduce internal workload, and achieve more predictable cash flow while focusing entirely on product development and growth.
However, this model also comes with serious risks, which businesses often underestimate. Fees are typically much higher (often 5 to 10 percent or more per transaction) that can seriously erode margins over time, especially with recurring revenue. Companies also lose direct control over the customer experience, billing flow, checkout customization and customer data. Since the MoR’s name appears on bank statements, this can confuse customers and generate extra support tickets.
In addition, this setup carries a massive dependency on the platform: if the MoR encounters regulatory issues, changes terms or shuts down certain categories, it can disrupt or even terminate payment flows for everyone using the service.
Unfortunately, MoR issues are not uncommon, so it is essential to understand how the provider handles disputes and taxes in every target market, and to assess the provider’s financial stability and track record with similar businesses.
Risks and benefits of payfac
This model offers speed and flexibility that many platforms and marketplaces need: it enables fast onboarding of sub-merchants under one master acquiring agreement, simplifies technical integration, supports embedded payments inside the product, and keeps overall setup costs lower at the beginning.
The original merchant usually remains the legal seller, which preserves brand identity on statements and gives more direct control over the customer journey and data.
At the same time, the payfac model also leaves merchants with substantial responsibilities and hidden exposures, as the business stays fully liable for chargebacks, disputes, taxes and fraud. The payfac controls risk rules and can impose sudden holds, reserves or terminations if portfolio-level metrics look problematic, and many payfacs rely on the same underlying banks, so issues at one level can affect all connected merchants at once.
Chargeback ratios, fraud flags or regulatory scrutiny on any sub-merchant can quickly impact the entire setup and tighten liquidity.
This becomes even more critical when looking at how card schemes monitor portfolios under programs like VAMP, where thresholds are applied not only at the merchant level but across the entire acquiring relationship. A single spike in chargebacks or fraud can push the whole setup into monitoring or enforcement stages, affecting settlement timelines, increasing costs and, in severe cases, leading to termination of processing for all connected entities.
This means merchants must also understand how their activity contributes to the overall portfolio monitored under VAMP, as thresholds are assessed at aggregated level and not only on individual performance.
Even if a single merchant operates within acceptable limits, exposure to other sub-merchants within the same payfac can trigger monitoring programs, leading to stricter controls, rolling reserves or sudden disruption in processing.
Merchants working with a payfac therefore must also consider the payfac’s underwriting and risk policies, understand who ultimately holds the funds, how diversified the acquiring relationships really are, and what happens if the payfac or its underlying bank faces issues.
Use cases
These models are now widely used in everyday business. For example, Paddle, Lemon Squeezy and FastSpring act as Merchant of Record for many SaaS and digital product companies where the customer buys from them, sees their name on the bank statement, and they take full responsibility for taxes, refunds and chargebacks so the software company can focus only on product development.
In the same way, Apple App Store and Google Play Store operate as MoR when users buy apps or make in-app purchases.
On the other side, Stripe Connect and Shopify Payments are classic examples of the payfac model, as they provide fast payment processing and onboarding under their own acquiring relationships, but the individual seller or store owner usually remains the legal MoR and stays responsible for the actual sale, refunds and taxes.
Many marketplaces and platforms combine both approaches without realizing the underlying dependencies, which can create serious hidden risks when problems arise with the acquiring banks, behind the scenes.
Why do I need to know this?
Payment and banking today impact customer experience, risk management, technology, product development, data security, compliance, finance, sales and growth, and more. It should be considered a standalone function, an essential element of the business strategy, not just a part of finance. The choice between MoR and payfac models determines who carries the legal and financial liability, how taxes and disputes are handled, and how quickly funds actually reach the business. These are all essential aspects to consider when building a payment and banking strategy, and they need to be fully understood to make the right decisions.
The wrong model or misunderstanding the responsibilities can lead to blocked funds, unexpected tax exposure or even account closures, often at the worst possible moment when cash flow is critical. This is why these decisions should never be treated as a technical setup, but as a strategic choice that defines how the entire business will operate and scale.
It is alarming that the ones who manage payment and banking tasks are not adequately trained to do so. Key areas, such as how payments and banking affect technology, UX, compliance and other essential aspects in a business are absent from accounting, economics courses, and MBAs.
Without full visibility into how money actually moves and who ultimately controls it, businesses often create a huge blind risk where the payment flows without any risk, cost or timeline control. MoR versus payfac decisions are not simple technical or finance matters; they are strategic ones and can only be made by having deep knowledge of how money actually moves, who controls it and where the interdependencies lie.
This is precisely why growing organizations need a dedicated chief payment officer who can evaluate these models holistically and align them with the overall business strategy.
The chief payment officer (CPayO) role
The chief payment officer (CPayO) role has become increasingly important across growing organizations. Today companies can no longer innovate and develop products without considering exactly how they will get paid; how they will pay suppliers; and how, and where, their funds are held in between.
The CPayO is senior enough to oversee all cash flows and approach payment and banking decisions holistically. This role is the one that evaluates the MoR versus payfac options with full visibility into fund flows, provider interdependencies, fee structures, reserves, safeguarding rules, settlement timelines and regulatory implications.
The CPayO negotiates from strength, aligns the entire payment architecture with business strategy, and turns what used to be hidden risks into resilient, competitive advantage. Traditional finance roles such as accountants or treasurers are not positioned to make these decisions, as their focus is on reporting, reconciliation and liquidity management after transactions have already occurred, rather than designing how those transactions should be structured from the beginning.
They typically do not have visibility into scheme-level rules, acquiring dependencies, or portfolio risk exposure under frameworks such as Visa Inc. monitoring programs, which means critical risks are often missed until they materialize.
Only the relevant skillset and education can bring the necessary clarity, turn these complex choices into a true strategic advantage, and protect both revenue and reputation in today’s highly competitive global market. 
Viktoria Soltesz is the CEO and founder of PSP Angels and The Soltesz Institute. She is a leading advocate for strategy-led financial operations, ethical industry practices, and structured education in an area too often overlooked in traditional business training. PSP Angels is a globally awarded, independent payment and banking consultancy that has supported over 1,000 companies in building scalable, secure financial infrastructures. The Soltesz Institute is the first and only independent online organization offering EU-accredited training and certifications focused exclusively on payments and banking. To contact Viktoria, please email viktoria@pspangels.com.
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