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Agree. When you have a digital product or service, intended or not, you have a global customer base. Sales tax, VAT is just one of the burdens a company will fa

Agree. When you have a digital product or service, intended or not, you have a global customer base. Sales tax, VAT is just one of the burdens a company will face to keep on the right side of the rules. Denied party screening, export controls, various data protection and privacy laws, to name a few. By selecting a provider that acts as the “merchant of record” (or reseller of your product), you offload many of those regulatory burdens to a party that has the proper economies of scale to provide the service for a lower cost than you can do it on your own. Modern platforms that provide you with the option to be the merchant of record usually provide a host of other features that making running an online SaaS business much easier. And to your customers, it won’t feel like your sending them off to some unrelated store to buy your product, you can generally customize your integration so that the transition during the purchase process is mostly seamless. Source: I’ve been in the business of providing a service that acts as merchant of record for more than 20 years. In the early days, people came to us mostly to for the online payment processing. These days, many of our customers express that it was the reduction in regulatory burden that they value the most.

alt_f4 7y ago
Whilst I am happy for you and that your business of providing these services is doing well, it is a sad state of affairs when small online businesses have to cough up anywhere between 3%-7% of revenue to deal with the regulatory mess the governments have created.
- davidgh 7y ago
  I look at this from a different angle. Doing business is always going to be associated with some regulatory overhead. Traditionally, the footprint of a small business was the owner’s local area, where the scope of rules and regulations is small enough that it can be managed. With the advent of the Internet, it is now possible for a small business to have the same reach as a large multi-national. Along with this market potential comes a massive number of jurisdictions, each with their own particularities. I find it quite liberating that a small business has the option to go to the entire world market by paying a small percentage of their sales (a cost that can be quantified and factored into their pricing model) rather than being forced to spend massive amounts upfront, without any idea if their investment will pay off. Of course, there’s also the option to simply ignore the regulations, which many small businesses do (often out of ignorance). But as a business becomes successful, not following the regulations of the jurisdictions it does business in becomes an ever-growing liability. I was a witness to a transaction where a small business was approached by their much larger (publicly traded) competitor. The larger company made an offer to buy this small business for many millions of dollars. During due diligence, the buyer discovered that the small business had not been collecting VAT in the EU for the digital products it sold there. The small business asserted that since it did not have an EU presence, the EU couldn’t force it to do so. The buyer, however, did have an EU presence, and worried that with the acquisition, it may inherit the large liability of many years of uncollected VAT. This nearly wrecked the entire deal. The resolution was that the small business had to indemnify the buyer that if a claim was made by the EU for the uncollected VAT, the small business would be on the hook for most of it. So, to me, paying a very small percentage to an external party to not only take on the burden of managing the regulations, but also to assume the risk of penalty for being out of compliance with any one of the thousands of governmental jurisdictions around the world seems like a very good value.

alt_f4 7y ago

Whilst I am happy for you and that your business of providing these services is doing well, it is a sad state of affairs when small online businesses have to cough up anywhere between 3%-7% of revenue to deal with the regulatory mess the governments have created.

davidgh 7y ago
I look at this from a different angle. Doing business is always going to be associated with some regulatory overhead. Traditionally, the footprint of a small business was the owner’s local area, where the scope of rules and regulations is small enough that it can be managed. With the advent of the Internet, it is now possible for a small business to have the same reach as a large multi-national. Along with this market potential comes a massive number of jurisdictions, each with their own particularities. I find it quite liberating that a small business has the option to go to the entire world market by paying a small percentage of their sales (a cost that can be quantified and factored into their pricing model) rather than being forced to spend massive amounts upfront, without any idea if their investment will pay off. Of course, there’s also the option to simply ignore the regulations, which many small businesses do (often out of ignorance). But as a business becomes successful, not following the regulations of the jurisdictions it does business in becomes an ever-growing liability. I was a witness to a transaction where a small business was approached by their much larger (publicly traded) competitor. The larger company made an offer to buy this small business for many millions of dollars. During due diligence, the buyer discovered that the small business had not been collecting VAT in the EU for the digital products it sold there. The small business asserted that since it did not have an EU presence, the EU couldn’t force it to do so. The buyer, however, did have an EU presence, and worried that with the acquisition, it may inherit the large liability of many years of uncollected VAT. This nearly wrecked the entire deal. The resolution was that the small business had to indemnify the buyer that if a claim was made by the EU for the uncollected VAT, the small business would be on the hook for most of it. So, to me, paying a very small percentage to an external party to not only take on the burden of managing the regulations, but also to assume the risk of penalty for being out of compliance with any one of the thousands of governmental jurisdictions around the world seems like a very good value.