Due to inflexible checkout options, lack of local payment method support, and prohibitive costs your growing digital business has chosen to move away from a Merchant of Record PSP. But, what now? What is your next step?
Firstly, of course, you will select one or more PSPs that fit the needs of your business. Whatever PSP you choose, moving away from a Merchant of Record PSP will create one gap that can be hard to fill. That is the support for VAT/GST (sales tax) for your international digital sales.
At your stage of growth you need a PSP agnostic service that will take care of your entire global digital VAT/GST compliance, from transaction to tax authority. Doing so in-house is not a long-term viable option due to the significant investment in revamping and updating your sales processes, and acquiring the necessary expertise to manage rapidly evolving global VAT/GST rules. This is where Taxamo comes in.
Taxamo eases your move away from a Merchant of Record Payment Service Provider (PSP), by taking the VAT/GST (sales tax) liability for all of your international digital sales.
As internet penetration rates climb across the globe, cross-border digital transactions continue to increase rapidly. This online commerce boom, however, has not escaped the attention of tax jurisdictions. Indeed, it has directly led to a series of indirect tax rule changes aimed at the growing digital economy. In just four years the number of jurisdictions taxing international digital businesses has expanded from a handful pre-2015 to 70-plus in 2019.
Today, 2 billion potential consumers live in a country that has introduced such digital VAT/GST rules and there’s more to come.
But can you actually sell to these 2 billion customers? Can you offer their preferred payment option? Can you comply with their country’s digital VAT/GST rules?
These are the questions you need to answer, but first let’s delve into why you want to move away from the services of a Merchant of Record PSP.
Once your digital business starts to grow your sights change, they start to target foreign markets. Once you start selling into foreign markets then having cost-effective support of local payment methods becomes mission-critical.
This is not always possible with Merchant of Record PSPs. This is a downside as your potential customers will always want to use the most popular payment options, many alternative options, in their country.
While payments processing has been commoditized there are a growing number of payment types, strongly influenced by markets with huge growth in transaction volume, e.g. Latin America, Africa, and South-East Asia. The growth here is dominated by alternative payments (e.g. unbanked, mobile, etc). Your growth must take these payment options into account, otherwise there will be an increase in cart abandonment.
In short, your access to flexible payment options is paramount for global strategic and cost-benefit reasons. Having a PSP focused on international payment method support is key in global growth for digital business.
Typically, Merchant of Record PSPs charge a premium over a traditional PSP. When a business is in startup mode, or initial growth phase, this may not be a problem. When a business starts to grow and process increased volumes then this becomes an increasingly significant cost for the business. Cost considerations are key drivers for digital businesses to move from Merchant of Record PSPs once they begin to grow significantly.
As you grow you will want more control over the checkout process to drive more conversions. Having complete control over your checkout process is not always possible with a Merchant of Record PSP. Furthermore, as there is a third party in the relationship between you and your customer, sometimes your customer data is not always available to you.
Access to this data strengthens your connection with the customer as you can personalize the experience as you re-calibrate based on past experience and the customer’s likes and dislikes. In doing so you are embedding a more direct relationship with your customer.
Some digital businesses see the issues around customer relationship as a key driver motivating a move from Merchant of Record PSPs.
As the Merchant of Record PSP is the payment merchant of record, this means that they are typically referenced on the customer’s credit card statement.
This can often lead to customer confusion, leading to an increase in support issues as your team explain why the name of your Merchant of Record PSP, and not your name, appears on customer payment card statements.
To start with Taxamo bridges the global VAT/GST compliance gap where a digital business moves from a Merchant of Record PSP to a traditional PSP.
With Taxamo you can use any PSP that you want and enjoy all the benefits of having the cost and flexibility benefits of using whatever combination of PSPs (even including the Merchant of Record PSPs where you wish), while still not having to manage global VAT/GST in-house.
By facilitating our customers’ global VAT/GST liability on digital service sales, we bring certainty to tax affairs ensuring compliance with digital VAT/GST regimes.
In using the Taxamo service there is no foreign tax authority registration, filing, or settlement worries nor any exposure to fines/penalties and foreign exchange.
Taxamo has been designed with the interests of growing global businesses at its core. The rules are evolving and there’s more to come down the line.
This is now an international revolution when it comes to the taxation of cross-border digital transactions. Amidst this chaotic landscape what you now need is certainty. One integration with Taxamo provides you with this certainty now and into the future.
Taxamo content is created for guidance only, please consult your local tax advisor.
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