Why a Merchant of Record Charges More Than a Payment Gateway and Why It’s Worth It?
You’ve just launched your first SaaS product. Congrats! At first, using a Payment Gateway (PG) feels like the obvious choice. It’s straightforward: process the payment, collect the money, done.
But as you expand to global markets, the picture changes fast. Payments aren’t just about transactions anymore—they’re about navigating sales tax rules, dealing with regulations, handling refunds, and offering local payment methods customers trust.
This is exactly where a Merchant of Record (MoR) like Dodo Payments steps in. While MoRs come with additional fees, their value, especially for small SaaS founders and solopreneurs, is unmatched.
Let’s explore why.
Understanding the Roles: Payment Gateway vs. Merchant of Record
What is a Payment Gateway? A Payment Gateway is like the checkout counter. It processes card payments, transfers funds, and ensures transactions are authorized. However, that’s where its responsibilities end. Tax compliance, legal regulations, fraud, or invoicing? That’s all still on you.
What is a Merchant of Record? A Merchant of Record is far more involved. They take full legal responsibility for the transaction. That means handling sales tax, staying compliant with local laws, preventing fraud, managing refunds and chargebacks—all under one roof. For solopreneurs or small SaaS teams, this can be a massive relief.
Why MoR Fees Are Higher—And Justified Tax Compliance Made Easy PG: Selling to customers in the EU? You’re responsible for VAT registration, calculation, and filing. This requires separate registrations in each country and regular compliance checks—time-consuming and costly.
MoR: Handles all VAT/GST/tax calculations, collections, and remittances automatically. This alone can save thousands annually and help you avoid painful fines.
Global Regulatory Compliance PG: You must stay updated on ever-changing laws like India’s OIDAR or EU’s digital tax rules—or risk fines.
MoR: Ensures every transaction complies with local regulations, keeping your business safe and legally sound.
Local Payment Methods = Higher Conversions PG: Limited to common options like credit/debit cards. Lack of local methods (like UPI in India) often leads to cart abandonment.
MoR: Supports local payment methods natively, making your checkout experience smoother and building trust with international customers.
Fraud Protection and Risk Management PG: Basic tools may flag suspicious behavior, but you're liable for fraud or chargebacks.
MoR: Takes on full responsibility for fraud prevention, PCI-DSS compliance, and chargeback management—so you don’t have to.
The Hidden Costs of Using Only a Payment Gateway Increased Operational Work Without a MoR, you’ll need to handle:
Tax registrations in every country you sell in
Manual invoicing
Multiple software integrations for fraud and tax compliance
These tasks eat into time that could be spent on product development or acquiring customers.
Risk of Costly Non-Compliance Failing to comply with global tax regulations—like OIDAR in India—can lead to fines or business restrictions. These penalties often far outweigh any savings from skipping an MoR.
Extra Software Costs Using a PG often means adding tools for:
Tax automation
Fraud prevention
Global invoicing
Currency conversions
These costs stack up quickly.
A Cost Comparison: PG vs. MoR ???? Scenario 1: Using a Payment Gateway Tax Compliance Costs:
VAT registration: $1,000/country
Ongoing tax management: $300/month per country Total for 5 countries/year: $23,000
Chargeback Management:
$25 per dispute × 50 disputes/year = $1,250
Tools:
Fraud prevention: $150/month = $1,800/year
Tax software: $200/month = $2,400/year
➡ Total Annual Cost: $28,450
Scenario 2: Using a Merchant of Record (e.g. Dodo Payments) MoR All-Inclusive Fee: ~5% per transaction Annual Revenue: $50,000/month × 12 = $600,000 MoR Fee: 5% of $600,000 = $30,000
Includes:
Global tax handling
Local payment support
Fraud prevention
Regulatory compliance
Chargeback liability
➡ Total Annual Cost: $30,000 Added Bonus: Zero time spent managing compliance, refunds, or tools.
Try this comparison tool to calculate the difference for your business.
Final Thoughts A Payment Gateway may seem cheaper at a glance, but the true cost lies in what it doesn’t offer—tax automation, regulatory compliance, fraud protection, and operational simplicity.
For micro-SaaS founders and solopreneurs, a Merchant of Record like Dodo Payments takes away all the backend headaches, letting you scale globally without legal chaos or financial risks.
So instead of juggling tax filings and worrying about chargebacks, you can focus on what you do best: building, improving, and growing your SaaS business.