What is a merchant of record?

Merchant of record definition

A merchant of record doesn’t just move money - it takes full responsibility for the transaction, including handling taxes, compliance, chargebacks, and financial liability. Some game studios choose to take on this additional risk themselves and build this service in-house, but many hand it off to a third party merchant of record, like Stash, that handles it all on their behalf.

Why are merchants of record so popular in gaming?

The demand for merchants of record in online gaming payments is only growing. In the last few years, new worldwide regulations have been cracking down on Apple and Google, who until now have prevented studios from selling game items outside of Apple IAP and Google Billing. 

For example, in the US, the Apple vs Epic Games court case ruled that studios can now link out to alternative payment options from the app. Meanwhile, in the Google vs Epic Games case ruled in favor of Epic Games and declared Google's app store an unfair monopoly, opening up the entire Android app store ecosystem to third-party payments and app distribution. In Europe, the Digital Markets Act did the same. 

Thanks to these regulations, a majority of the top grossing games are beginning to sell in-game items on the web through webshops. To do that, these studios are partnering with merchants of record to help them handle and process payments on the web, all while staying compliant.

How is a merchant of record different from a payment service provider and payment gateway?

A third-party merchant of record isn’t your only option for taking online payments - there are a few different types of platforms to work with, such as payment service providers (PSPs) and payment gateways.

• Payment service providers act as the middlemen between your customer’s bank account and payment methods. They process the transaction, making sure everything runs smoothly, and take a fee for their work. Think Stripe or PayPal. 
• Payment gateways are like digital doorways, securely connecting your site to the payment network. However, these platforms only pass along the transaction details - they don’t handle the funds. Think Adyen or Worldpay.
• Merchants of record don’t just move money from point A to point B like PSPs and payment gateways. Instead, they take full responsibility for the entire transaction end to end. Merchant of record services include handling taxes, global compliance, fraud, chargebacks, and even negative balances. This way, you don’t need to worry about registering in different countries or dealing with tax thresholds - as they aggregate transactions under their entity and pay and remit taxes for you. A PSP and payment gateway, however, leave all of that to you. 

By shifting the risk to a merchant of record, like Stash, for example, it simplifies payments, ensures compliance, and lets game studios focus on growing games, not adhering with tax regulations.

Now, let’s dive into each of these merchant of record services and why they’re critical for your business success. 

7 benefits of merchant of record services

So, why are so many game developers choosing a merchant of record over a payment service provider when taking online payments? Let’s break down the benefits. 

1. Outsource tax compliance: Handling tax obligations across multiple regions is complicated and time consuming - small businesses spend 163 hours per month on sales tax compliance alone. With a merchant of record, tax liability is managed for you, so you don’t have to worry about the specifics of tax registration or filing in every country you operate in. This allows you to focus on growing your game, while the merchant of record ensures taxes are properly collected and remitted according to local regulations.

2. Offload global and regional payments compliance: Navigating global and regional compliance requirements is one of the most challenging aspects of taking online payments, especially as you scale worldwide. Each country and region is constantly adding and updating their payments policies. With a merchant of record, you offload the burden of staying compliant with local laws, taxes, and regulations - whether you're selling in Europe, Asia, or North America. 

3. Increase CVR with more payment methods: Offering more payment options means more chances for players to make a purchase and convert. Merchants of record provide access to a wide range of payment methods, like credit cards, PayPal, mobile wallets, and even regional options like SEPA direct debit in Europe or Alipay or WeChat in China. By supporting multiple payment options, you can increase conversion rates and reach a global audience.

4. Manage disputes efficiently: Player disputes are inevitable - global chargebacks exceeded $238 million in 2023. However, if you have a chargeback rate over 0.1%, your chargeback fees may climb up as high as $100 and payment providers may stop working with you. Put simply, your reputation as a merchant is critical. Instead of dealing with chargeback claims yourself, a merchant of record handles the process, including managing the dispute with the payment processor and providing them with the necessary proof. This saves you time and keeps your chargeback rate (and fees!) low. A merchant of record also reduces the likelihood of future disputes by answering customer support quickly, providing easy ways to request refunds, and preventing users who abuse chargebacks from making purchases in the future. 

5. Own the refund process: Handling refunds in the gaming industry isn’t just about sending money back, it’s about maintaining player trust and keeping operations running smoothly. A merchant of record tracks each request, handles currency conversions, and ensures compliance with regional refund policies - so players receive their money back quickly and in their preferred payment method.

6. Improve the customer experience: A good customer experience starts with reliable support, and a merchant of record can enhance this by offering full customer service solutions. Whether it’s a chargeback, refund, or billing question, your players have access to responsive support teams without adding strain to your business. This helps improve retention and build trust with your players, leading to higher customer loyalty and repeat purchases.

7. Monitor fraud: Fraud is a constant concern for online gaming companies. In fact, between 2022 and 2024, fraud in the online gaming sector increased 64% year-over-year on average. A merchant of record provides built-in fraud monitoring to detect and prevent fraudulent transactions, protecting your business from chargebacks and losses. By integrating advanced fraud prevention systems, a merchant of record helps safeguard your revenue and keep your players’ data secure.

How to choose a merchant of record

There are many merchant of record services to choose from, and all of them will support the key benefits listed above. But it’s important to remember a merchant of record is more than just a payment processor - it’s your partner, and you’ll want to choose one that excels in service - in your vertical. To find the best fit, watch out for the below: 

• Gaming expertise: It’s important your merchant of record brings the right knowledge and experience to the table - and by that we mean gaming knowledge. The nuances of game economies and player expectations are hugely different from other verticals like shopping. And you want your merchant of record to speak your language (and your players’!). 

• Strong network relationships: If your merchant of record has the right connections at financial institutions they’ll be able to make sure that the payments go through if a players’ card or bank has refused the transaction. This is critical for improving the user experience and reducing frustration and churn.

• Global presence: Each merchant of record chooses which payment methods they’re connected to and where. A presence in key global markets is essential to scale, so make sure the merchant of record you choose has access to payment methods that are used around the world, not just in a specific region.
  
  
• Transparency: Understanding why, when, and where you’re being charged is essential. For example, does the merchant of record charge a flat rate or is there a dashboard where you can track each deduction? Even more so, a transparent payment provider should make sure your deductions are as low as possible, reducing unnecessary fees and avoiding hidden costs.

• Customer service: A responsive and informed customer support team ensures quick and smooth resolutions when dealing with time-sensitive disputes, chargebacks, and more. Reliable support also enhances your overall operational efficiency, keeping players happy and engaged for the long term.

“We’re so pleased with Stash’s customer support. We’re very protective of players, so handing over a part of our CS operations to Stash was nerve-racking - but we haven’t received any complaints from the community. In fact, many haven’t realized there’s a difference at all! The Stash level of service is what I expect from my internal agents.” - Sanya Weathers, Senior Community Manager at Snowprint Studios

By handling everything from payment processing to tax compliance and fraud prevention, a merchant of record allows you to focus on what truly matters - creating exceptional gameplay for your players. As you choose your merchant of record, consider their expertise, global presence, transparency and customer service to find the best fit for your business.

Contact Stash today and find out how our merchant of record services can help you expand globally, optimize operations, and reduce risks.