Merchant of Record vs Payment Processor: Which Should You Use?

Merchant of record vs payment processor comes down to one question: who is the legal seller of your product? With a payment processor such as Stripe Payments, you are, so tax, refunds and disputes stay with you; Stripe's own merchant of record guide says that in that setup "the business itself remains the MoR while Stripe acts as a payment processor or payment gateway". With a merchant of record such as Paddle, Lemon Squeezy, Polar or Stripe Managed Payments, the provider resells your product and takes on the tax and disputes, for a higher fee and less control.

Disclosure: ZeroRaised publishes this guide and appears in the final section. Fees and rules come from each provider's and marketplace's own pages as fetched on 22 Oct 2026, and HMRC's guidance for UK sellers. Prices change, so check the linked page before you choose. This is not tax or legal advice. ZeroRaised has no affiliate deal with any provider or marketplace named here.

TL;DR#

The trade-off got a fresh airing this month: on 13 October 2026 the FileFreight team argued on DEV that a merchant of record is a single point of failure and that sellers should keep a processor account in their own name as a fallback (DEV post). Here is the short version of both sides.

If you sell software to consumers in many countries and want to spend no time on VAT, start with a merchant of record. If you sell mostly to businesses, or mostly in your own country, a processor is cheaper and keeps you in control. The sections below show where that rule bends.

What happened: a "Plan B" post about merchant of record risk, 13 October 2026#

On 13 October 2026 (the post shows "Posted on Oct 13"; its published timestamp is 00:04 UTC), the FileFreight team published Your merchant of record can close your store overnight on DEV, a checklist for download sellers. The team says it builds "a flat-rate delivery tool for digital sellers: secure download links, per-buyer PDF stamping, and license keys", and that "In October 2026 we read through the newest 1-star Trustpilot reviews for four merchant-of-record (MoR) platforms": Lemon Squeezy, Creem, Polar and Paddle.

The pattern it reports is an account flagged by a risk or identity review, then a closed store or frozen payouts, then template replies from support. Its own caveat comes straight after: "These are one-sided reviews, and platforms rarely get to tell their side" (DEV post). We have not checked the reviews, and a handful of complaints says nothing about how often this happens.

The argument is the useful part, because it states the trade at the centre of this guide in one line: "That's the trade you make for MoR convenience: one counterparty can end your checkout, your delivery, and your access to your own revenue in a single decision." The checklist that follows is practical whichever model you use:

• "Export your customer list weekly."
• Keep master files and licence records outside the platform.
• "Own your front door", meaning sell from a domain and page you control.
• "Keep a direct path warm. An account with a payment processor in your own name (e.g., your own Stripe)".
• "Withdraw on a short cadence."
• Draft the email to existing buyers before you need it.

Read it with its interest in mind. FileFreight sells delivery for people who take payment through their own Stripe account, and it says so: "We are not a merchant of record. We do not handle VAT or sales tax for you." It also tells EU and UK sellers who never want to think about VAT that "An MoR is earning its fee" (DEV post). That balance is why it makes a good starting point. Neither model is free of risk; they just put the risk in different places.

Merchant of record vs payment processor: who is the seller?#

Merchant of record. Paddle's guide defines it as "a legal entity responsible for selling goods or services to an end customer", one that manages payments and takes on "the associated liabilities, such as collecting sales tax, ensuring Payment Card Industry (PCI) compliance, and honoring refunds and chargebacks". Lemon Squeezy's docs say the same in fewer words: "When a customer makes a purchase, they are buying from the merchant of record."

Payment processor, gateway or payment service provider (PSP). These move money from the buyer's card to your account. Stripe's guide says that when a business uses Stripe for direct transactions, "the business is responsible for transactional compliance, tax obligations, and managing refunds and chargebacks", while Stripe handles the technical side. Polar's docs put the downside of a PSP bluntly: "You are responsible for all liabilities associated with transactions, e.g international taxes".

Payment facilitator (payfac). A payfac sits in between. Stripe's guide says a payfac "does not assume responsibility for tax collection and remittance, which often remains the responsibility of the individual business."

The practical difference shows up in the sale itself. With a merchant of record, Paddle says, "there are actually two transactions taking place during the sale": the buyer buys from the merchant of record, and the merchant of record buys from you (Paddle guide). Polar describes itself the same way, handling international taxes "by being a reseller of your digital goods & services", and notes that it "is built on Stripe" (Polar docs). Many merchants of record run on a processor underneath. What you are paying for is the legal role on top.

The last row matters more than it looks. HMRC's guidance says: "If you supply digital services to consumers via a third party platform or marketplace, the digital platform is responsible for accounting for VAT on the supply instead of you." Some marketplaces where indie software is sold also take over billing entirely, which a later section covers.

What each model costs, fee by fee#

A merchant of record always looks more expensive on the headline rate, because its fee bundles work a processor leaves to you. Compare like with like: processor fees plus your own tax and dispute costs, against the merchant of record's all-in rate plus its extras.

The percentage is charged on the tax too#

One detail is easy to miss. Lemon Squeezy and Polar take their percentage on the whole checkout total, including the VAT they collect. Lemon Squeezy's fees page says its platform fee "is calculated on the total order value", and gives its own example: a $20.00 product bought from France with $4.00 of VAT is a $24.00 total, the platform fee is $2.06 with the international surcharge, and the seller nets $17.94. Polar's pricing page works through a $30 purchase from Sweden with $7.5 of VAT, a $37.5 transaction, and shows $2.94 in total fees on Starter.

So on a sale to a consumer in a country with high VAT, the effective rate on your own price is above the headline.

Stripe has both models#

Stripe is no longer only a processor. Its Managed Payments page says it "adds 3.5% per successful transaction to your standard Stripe processing fees", and that Stripe, via Link, "becomes the merchant of record" for those transactions. You can switch it on for some markets or products and keep direct processing elsewhere, which the page describes as keeping "direct processing in their home market" and using Managed Payments "for international expansion". On a standard UK card that puts the total at 1.5% + 20p plus 3.5% (Stripe UK).

Try your own numbers#

Our payment fee calculator compares Stripe, PayPal, Lemon Squeezy, Paddle and Polar at list prices for a sale you enter. Set where your account is, where the buyer's card is from, whether it is a subscription and a tax rate, and it shows each provider's fee and what you keep. For a UK Stripe account it also has a Stripe Managed Payments option, so you can see the merchant of record version of Stripe next to the plain processor.

For a UK-only view of the two processors, see Stripe vs PayPal fees. Selling from the US? Our dataset lists the published rates and merchant of record status for nine vendors, Stripe and Paddle among them.

Tax: the work you take on with a processor#

Tax is the main reason small software sellers pay the merchant of record premium. With a processor, you are the seller, so you register, charge, file and pay. Stripe's guide lists what the merchant of record would otherwise do: "the calculation, collection, and remittance of sales tax, value-added tax (VAT), or goods and services tax (GST)", sent "to the correct tax authority, based on the location of the business and the customer."

For a UK seller of software to consumers abroad, HMRC's digital services guidance sets out the job. The place of supply "is the consumer’s location, which is determined by where the consumer usually lives." Supplies to consumers outside the UK "may be liable to VAT in the country where the consumer is based", and for EU consumers a UK business must either use the Non-Union VAT MOSS scheme in one EU member state or register in each member state where it sells. You also have to keep two pieces of evidence of each consumer's location.

Two cases make a processor easier than it looks. If you sell only to businesses, HMRC says that with a cross-border business-to-business supply "the customer will be responsible for accounting for any VAT due". And a tax tool can take over the checkout part: Stripe's Tax page says Stripe Tax "monitors thresholds, tracks rate changes, and calculates tax in real time". You are still the seller, so the tax remains your liability.

FileFreight's post makes the same point from the other side: for many sellers "especially selling heavily into the EU", it says, merchant of record tax handling "is genuinely valuable" (DEV post).

Control, support and account risk#

The rest of the choice is about who your customer deals with and who can stop your sales.

Your name, or theirs. With a merchant of record, Paddle's guide says "it’s the Merchant of Record’s name that appears on the customer’s credit card statement", and the cardholder's recourse in a dispute is with them. Stripe Managed Payments is explicit about the effect: "The customer sees Link as the merchant of record, and sees purchases as Sold through Link", and "Custom domains aren’t supported on Managed Payments checkouts" (how it works). With a processor, the statement, the receipt and the checkout domain are yours.

Who answers billing questions. A merchant of record usually fields payment support itself. Stripe's Managed Payments docs say Stripe handles payment and subscription support requests through Link, and "If you don’t respond within 48 hours, Stripe might issue a refund without your approval." The same page says Stripe "can issue refunds within 60 days of the original transaction in certain cases" (how it works). That saves you work, and it also means someone else can decide a refund.

Who fights disputes. With Stripe Payments you respond to each dispute yourself, and Stripe UK charges £20.00 for each dispute you receive and another £20.00 for each one you counter manually, refunded only if you win (Stripe UK). With Managed Payments, Stripe decides: "If we determine that you’re unlikely to win a dispute, we might accept it instead of countering it." Polar charges "$15 per dispute, regardless of outcome" (Polar pricing).

What you are allowed to sell. A merchant of record carries the legal risk of your product, so it decides what it will resell. Polar's acceptable use policy says it serves software companies, and that if your "primary offering is human services or the sale of physical goods, the Services are not designed for and should not be used by you." It also lists marketplaces among prohibited uses.

Who can pause your revenue. This is the risk the hook post is about. Polar's pricing page shows the logic from the provider's side: because it is the merchant of record, it watches chargeback rates against card network thresholds and says it "might need to intervene and even suspend your account" if they climb (Polar pricing). A processor can also close accounts, but if it does, your tax registrations, customer records and legal relationship with your buyers are still yours.

Whichever you choose, the FileFreight checklist applies. Keep your own export of customers and licences, sell from a domain you control, and take payouts often.

When a marketplace is already the seller: Shopify and VS Code#

Not every indie product needs to choose. Some marketplaces take over billing and leave you no choice at all, and some offer no billing, so the decision is entirely yours.

Shopify App Store: Shopify bills, you get a share#

If you sell an app on the Shopify App Store, Shopify collects the money. Its App Store requirements say "Apps that use off-platform billing cannot be distributed through the Shopify App store", and that your app "must use Shopify App Pricing or the Shopify Billing API for any app charges." Shopify's billing overview lists what that gives you: charges "are directly added to the merchant's Shopify invoice", "Shopify collects the charge and automatically pays out your share", and "Shopify handles all chargeback-related processes."

The cost is set out in Shopify's revenue share docs: you keep 100% of your first $1,000,000 USD in lifetime gross app revenue, counted from January 1, 2025, and 85% above that, and "All billing is subject to a 2.9% processing fee and applicable sales tax." Registration is a one-time $19 USD per Partner account. In merchant of record terms, Shopify plays most of the role for app charges, and you would not use Paddle or Stripe for them. Our Shopify App Store page covers registration, review and the listing link.

VS Code Marketplace: no billing, so you bring your own#

The Visual Studio Code Marketplace is the opposite case. Microsoft's publishing guide lets you show a pricing label on an extension page, but the "Allowed values are: Free and Trial". There is no checkout. A paid VS Code extension takes money through a provider you choose and turns on paid features with a licence key or an account, so the merchant of record vs payment processor decision is yours in full. Microsoft's Azure DevOps publishing docs mention reports on "trials and purchases (paid)" for Azure DevOps extensions, which is a separate programme from VS Code. Our Visual Studio Marketplace page covers the publisher setup and listing link, and how to publish a VS Code extension covers the release steps.

If you sell software direct, with licence keys or downloads, how to sell software online compares app stores with direct sales.

Which should you use? Match the model to how you sell#

There is no universal answer, but these patterns cover most indie software.

A few practical points apply to every row.

1. Decide before your first subscriber. Switching later means moving existing subscribers to a new provider, so choose before anyone has a card on file.
2. Price for the fee you chose. A 5% + 50¢ fee on a small monthly price is a large share. Yearly plans pay the fixed part once a year instead of every month. Setting the price is covered in how to price a SaaS product.
3. Keep your own records anyway. Export customers, licence keys and invoices on a schedule, as the FileFreight checklist suggests, even if the provider keeps them too.
4. Read the acceptable use policy before you integrate. It is cheaper to learn a provider will not resell your product before you build the checkout than after the first payout review.
5. Revisit the choice at a revenue milestone. Polar's paid plans exist because, in its own words, "As your sales grow, the economics flip" (Polar pricing). The same is true of moving from a merchant of record to a processor plus a tax tool. Check again when your monthly fees become a real cost.

Where ZeroRaised fits#

Choosing how you take payment decides what you keep from each sale and how much admin comes with it. It does nothing to bring the first buyers.

ZeroRaised is a free launch site for bootstrapped makers whose products have no institutional VC or accelerator equity. Once checkout works with the provider you picked, you can submit your product for review. The maker perks page lists separate offers for eligible makers, and the launch sites directory lists other places to list by audience.

So, merchant of record vs payment processor in one line: a processor is cheaper and keeps you in control but leaves tax and disputes with you; a merchant of record costs more per sale and takes those on as the seller, along with the power to decide on refunds, disputes and your account.