02.01 · Concept · Free
Gateway, Processor or Merchant of Record
Distinguish the three things people call 'a payment provider', and say which one changes who the legal seller is.
Curated for this lesson
Becoming a Merchant & Choosing the Stack
Carat: The Operating System for Omnichannel Commerce
Closest candidate to payment-provider roles, but likely vendor-specific rather than a clean conceptual explanation.
A gateway handles the checkout connection, a processor runs the transaction through payment rails, and a merchant of record is the legal seller. Only the merchant of record changes who sells to the customer, appears on the receipt, and owns responsibilities such as tax, refunds, disputes and compliance.
What this lesson answers
- gateway processor merchant of record difference
- who is the legal seller in payments
- does Stripe make you merchant of record
Notes
People often say “payment provider” as if it means one thing, but it can mean at least three different jobs. A payment gateway is the technical front door: it collects payment details, tokenizes or transmits them, and connects your checkout to the payment network. A payment processor moves the transaction through the card or bank rails and helps authorize, capture, refund, and settle money. A merchant of record is different: it is the legal seller to the customer for the transaction.
The useful mental model is to separate software plumbing, money movement, and legal responsibility. A gateway is like an API and secure router. A processor is like the transaction engine connected to acquiring banks and payment networks. A merchant of record is the entity whose name appears as the seller, who charges the customer, handles tax/VAT obligations, refunds, disputes, receipts, and compliance for the sale.
The common misconception is that using Stripe, Adyen, Paddle, Lemon Squeezy, FastSpring, or a similar company automatically means they are “the merchant.” That is wrong. Many providers offer multiple products. In one setup they may only be your gateway or processor, while your company remains the merchant of record. In another setup, especially with an MoR product, the provider becomes the legal seller and you are more like the supplier of the product.
After this lesson, you should be able to ask the key question: “Who is the legal seller on the customer’s receipt?” If it is your company, you are the merchant of record even if another company processes the card. If it is the provider, then the provider is the merchant of record, and that changes tax, compliance, chargeback, refund, and customer-contract responsibilities.
References
Common questions
- What is the difference between a gateway and a processor?
- A gateway is the technical entry point for payment data. It connects checkout to the payment network and may tokenise or pass on card details. A processor is closer to the transaction engine: it works with banks and payment networks to authorise, capture, refund and settle payments.
- What does merchant of record mean?
- The merchant of record is the legal seller for the transaction. That entity is presented to the customer as the seller, charges the customer, issues receipts, and takes responsibility for tax, VAT, refunds, disputes, chargebacks and sale-related compliance.
- Does using a payment provider make them the merchant of record?
- No. A provider can be only a gateway, only a processor, or can offer a merchant of record product. The deciding test is whose name is on the customer’s receipt as the seller. If it is your company, your company remains the merchant of record.
Short definition: what is Gateway, Processor or Merchant of Record?