by Frank Greer
Growing your IoT business delivers exciting new possibilities, like expanding your product reach and accessing untapped markets, but it also introduces significant complexities in billing and taxation. Selling connected devices means moving beyond the initial product sale to offering continuous connectivity and data services. These services involve complex tax implications that require a sophisticated understanding of Value Added Tax (VAT) and other international regulations. Managing these complexities in-house can become a logistical nightmare. Poorly planned global IoT deployments can lead to revenue leaks, tax compliance issues, decreased operational efficiency, and prolonged time to market.
Recognizing the challenges OEMs face with global billing and taxation, Zipit has simplified these processes by embracing the role of merchant of record (MoR) for our customers, in addition to providing cellular connectivity for IoT devices.
Customers come to Zipit because they often face the daunting prospect of monetizing and managing IoT services in foreign markets. BrightSign, a digital signage manufacturer, was concerned about the tax implications of selling data plans across different jurisdictions. Without a solution, the company was concerned that tax compliance risks could overshadow the benefits of their expansion. Hunter, a global manufacturer of irrigation systems, faced similar challenges and sought a solution to avoid managing the intricacies of global connectivity and billing for their IoT services.
For both companies, Zipit Wireless stepped in as MoR, providing not just connectivity and data plans but also taking on the full responsibility for billing and tax compliance. This partnership enabled BrightSign and Hunter to benefit from steady, recurring revenue streams from their IoT services without the operational challenges of managing subscription-related revenue collection and taxes. Zipit’s subscription billing platform and MoR services allowed BrightSign to expand confidently without worrying about the complexities of international taxation. These services relieved Hunter of the burden of internal billing management so they could dedicate their resources entirely to their core business operations.
The role of a merchant of record is imperative for OEMs aiming to scale their IoT businesses. As you venture into new markets with IoT solutions, understanding and partnering with the right MoR can transform potential risks from IoT billing and taxation into well-managed operations, ensuring sustained growth and profitability.
The following chapters address the essential role of an MoR in the IoT landscape and MoR responsibilities, from processing transactions to compliance and tax management. We’ll also share the substantial benefits an MoR brings to your IoT billing process and guide you through the critical steps of selecting the right partner to propel your business forward.
A merchant of record is a legally responsible entity that processes customer payments on behalf of a business and manages all aspects of financial transactions, including taxation. The MoR takes on the role of the seller, handling the collection and processing of customer payments and assuming liability for these payments.
IoT transactions are recurring due to the continuous data exchange typical in IoT environments. They’re also complex because they require sophisticated billing systems capable of managing the billing for numerous devices with fluctuating data usage.
The MoR ensures that all financial transactions are processed seamlessly and comply with regional legal standards by using platforms that automate tax calculations and integrate regulatory compliance into every transaction. This responsibility includes adhering to local and international tax laws, accurately calculating, collecting, and remitting taxes, and managing related financial regulations.
As you expand your business operations internationally, an MoR allows your company to focus on its core products and services without being overwhelmed by the intricacies of global commerce. The MoR boosts operational efficiency and significantly reduces financial and legal risks, establishing itself as an indispensable partner in the expansion of your IoT businesses.
While their responsibilities may appear similar at first glance, crucial distinctions exist between a merchant of record and a Seller of Record (SoR). Both can handle aspects like transaction processing, payment collection, and compliance. In smaller businesses, these roles may even be handled by the same team.
However, a key differentiator lies in inventory delivery. The SoR not only processes payments and collects taxes but also retains ownership of the product or service and is ultimately responsible for its delivery to the customer. The MoR, on the other hand, focuses solely on the financial aspects of the transaction without the responsibility for delivering or managing inventory.
A Payment Service Provider (PSP) focuses exclusively on payment processing. A PSP handles the secure transfer of funds between the customer and the merchant. Unlike MoRs, PSPs are not responsible for tax implications, compliance, or other financial complexities.
PSPs and MoRs are not interchangeable. While adept at handling the secure transfer of funds, PSPs lack the capabilities to manage tax obligations, compliance issues, and other critical financial complexities in IoT markets.
Without the comprehensive support that an MoR provides, your business might face legal risks, mismanaged tax handling, and difficulties adapting to regional financial regulations, potentially hindering its ability to scale effectively and maintain operational compliance. For IoT companies looking to expand globally while ensuring compliance and financial integrity, partnering with an MoR is often indispensable.
An MoR ensures that your business meets all tax liabilities across different jurisdictions. This responsibility involves managing sales taxes, Value Added Tax (VAT), and Goods and Services Tax (GST), each governed by unique application standards and compliance demands. Sales tax is commonly applied in the US, VAT is predominantly used throughout the EU, and GST is implemented in countries such as Canada, Australia, and India.
Unlike sales taxes, which are imposed directly at the point of sale, VAT is applied at every stage of the production and distribution process. This complex, layered application requires meticulous tracking and documentation of the value added at each stage. GST is also applied at multiple stages, similar to VAT. However, unlike VAT, which varies depending on the nature of the product or service, it maintains uniform rates across all product types within a country.
Additionally, digital goods and services, subscription revenues, and cloud services are integral to IoT because they underpin IoT solutions that rely on continuous data collection, storage, and analysis. However, they are also subject to distinct tax regulations that vary significantly from one country to another. The MoR must calculate all these taxes correctly, collect them, and remit them following local and international laws. This task often requires sophisticated platforms capable of operating effectively on a global scale.
Beyond tax management, compliance with financial and other regulations remains a core responsibility of the MoR. Compliance includes stringent adherence to PCI standards for secure transaction processing and data privacy laws governing customer information handling. Each country may have different legal frameworks that an MoR must navigate, making compliance an ever-evolving challenge. The risks of non-compliance are significant, potentially leading to legal penalties or damaged business reputations, so MoRs have automated and accurate calculation and reporting systems to avoid these risks.
Processing transactions as an MoR requires a secure and efficient payment gateway that handles the exchange of funds and safeguards sensitive customer data. The integrity of this process is paramount to maintaining trust and reliability in business operations. Additionally, this role extends to overseeing fraud monitoring systems designed to detect and mitigate the risks of fraudulent activities, ensuring the security of each transaction.
By monitoring and managing fraud, an MoR protects the company’s financial interests and shields customers from the repercussions of fraudulent activities, maintaining the integrity and trustworthiness of the business.
Accurate and timely reporting is critical for an MoR. Reporting encompasses detailed record-keeping of sales transactions, compliance with various filing periods for VAT/GST returns across different countries, and the generation of financial reports that provide deep insights into business performance. These reports are crucial for strategic planning and operational adjustments, ensuring compliance with fiscal regulations while offering valuable analytics that drive business growth.
Expanding your reach requires localizing payment processes so your business can effectively engage with different markets by offering tailored payment solutions that align with local needs and comply with area-specific regulations. Localization requires adjusting pricing structures to accommodate multiple currencies and varying market conditions, tailoring the checkout experience to meet local consumer expectations, and ensuring compliance with regional financial laws. Effectively localizing these elements is crucial in providing a seamless customer experience and maintaining a competitive advantage in diverse markets.
Effective subscription billing management captures recurring revenue streams from cellular data services associated with IoT devices. The MoR’s role includes managing complex billing scenarios within cellular subscription-based models, accounting for prorated data usage, staggered activations, and data top-ups. The MoR billing platform must be robust and flexible, capable of handling the dynamic requirements of IoT data usage by supporting global pricing variations and automating revenue recognition to ensure financial accuracy.
Learn more: Subscription Billing for OEMs: Monetizing Your IoT Products Beyond the One-Time Sale
An MoR typically manages refunds and chargebacks. But rather than taking complete control of these potential opportunities for your business to build and maintain good customer relationships, Zipit equips you with a billing platform to help you manage these processes efficiently. You can make informed decisions about issuing refunds or credits based on individual circumstances on a case-by-case basis. This flexibility helps maintain customer trust and satisfaction by enabling you to tailor responses to specific customer needs.
With over a decade of experience helping customers launch and scale IoT devices and services globally, we understand your challenges in collecting payments across different regions. Zipit’s MoR services, alongside our IoT billing platform, guarantee that all your financial transactions are managed efficiently and in strict compliance with the unique regulations of each jurisdiction. Wherever your customers are located, you can rely on us to handle the financial intricacies with precision and accountability.
The MoR process leads to smooth and compliant financial transactions for IoT businesses. Here's how it unfolds:
1. Integration with a billing system and end-user payment portal: Integrating your systems to the billing system, including the payment gateway and an end-user payment portal, via APIs establishes a secure and efficient channel for all financial transactions. A user-friendly payment portal should make choosing a subscription data plan, making transactions, changing plans, and topping up on data seamless for end users.
2. Customer activation and purchase: As soon as a customer activates a device, opts for a subscription data plan, upgrades their subscription, or adds more data, the MoR becomes directly involved in managing the transaction. This involvement ensures that each step of the process is handled efficiently and in compliance with regulatory standards.
Additionally, the billing system must be capable of accommodating staggered activations since cellular devices are often activated at different times and locations. This requires a flexible and dynamic billing system that can initiate and track billing cycles accurately from the point of each device's activation. Such a system ensures that billing is timely, precise, and aligned with the sporadic nature of device usage to maintain accurate accounting and customer satisfaction.
3. Tax and payment management: The MoR takes responsibility for several key aspects:
4. Reselling: The MoR technically "buys and resells" the product to the end-user, acting as the intermediary in the transaction. The MoR purchases the goods or services from the original vendor or manufacturer and then sells them directly to the consumer. By doing so, the MoR assumes responsibility for the transaction. However, the MoR does not handle or send inventory. This aspect is purely transactional, where the MoR facilitates the legal and financial ownership transfer.
5. Order fulfillment by the OEM: Once the transaction is processed, the OEM is prompted to fulfill the order.
6. Revenue transfer and reporting: After completing the transaction, the MoR sends the collected revenue to the business. Additionally, they provide detailed financial reports that include sales analysis and tax collection. These reports are crucial for companies to understand their financial health and make informed decisions.
By managing these complex responsibilities, the MoR enables IoT businesses to operate smoothly across diverse markets without the burden of managing intricate tax laws, compliance issues, or currency conversions directly.
With an MoR, your business can operate more efficiently, focusing your team on core areas such as brand development, product innovation, and customer engagement. By outsourcing complex billing and regulatory responsibilities to an MoR, you keep your organizational structure lean, avoiding the need for extensive in-house expertise in these intricate areas.
The MoR framework significantly simplifies the scalability of your business. As you consider expanding into new markets, the MoR manages the varied and often complex financial and regulatory landscapes of these regions. This eases your market entry strategy, allowing you to scale operations without the burden of establishing separate compliance and billing systems for each new market.
One strategic benefit of partnering with an MoR is the ability to test new markets with reduced risk and investment. Traditional market entry can be costly and uncertain, especially when predicting how well potential customers will receive new products or services in a new market.
An MoR mitigates these risks by managing the financial aspects of market entry. It allows you to gauge market potential without committing extensive resources upfront, saving time and money and providing valuable insights into market adoption rates and customer preferences.
An MoR also enhances the customer experience by enabling you to maintain control over the end-buyer experience without getting bogged down by the operational complexities of MoR responsibilities. This separation allows you to focus on customer engagement and satisfaction while relying on the MoR to handle the backend processes.
An MoR handles transactions promptly and efficiently, leading to better cash flow management for your business. This efficiency in financial transactions ensures that funds are processed and accessible faster, improving your cash flow and financial stability.
By offloading responsibilities such as tax compliance, financial reporting, and fraud monitoring to an MoR, your team is freed from these time-consuming tasks. You can devote more resources to strategic initiatives.
By leveraging the expertise and capabilities of an MoR, you can focus on what you do best—creating exceptional products and cultivating customer relationships—while confidently navigating the complexities of global markets.
As global businesses navigate the complexities of international markets, an MoR simplifies the intricacies of managing multi-currency transactions, compliance with local tax laws, and adherence to regional financial regulations. This support is invaluable for businesses aiming to expand their footprint across borders efficiently and with reduced risk.
Businesses with intricate operational structures—including those with complex pricing models and large volumes of data across multiple systems—benefit from MoR's expertise.
The necessity for an MoR is particularly evident in businesses whose cellular IoT services demand dynamic pricing strategies, which may vary based on data usage or service levels. To manage these demands effectively, an MoR implements flexible billing capable of accommodating tiered or usage-based pricing and real-time billing updates. Additionally, the sheer volume of data generated by some cellular IoT devices requires meticulous calculation and accurate billing. The MoR provides accuracy with advanced billing systems designed to handle high data consumption.
Complex businesses with high data demands not only challenge billing systems but also increase the potential for operational risks, such as fraud and compliance mishaps. An MoR mitigates these risks by ensuring that all transactions are handled securely and in compliance with relevant laws, safeguarding your business’s financial health and protecting its reputation.
Because small businesses are limited by fewer internal resources, an MoR frees them to focus more on their core operations and growth without being overwhelmed by the complexities of financial management. An MoR not only handles the day-to-day financial operations but also assists in scaling operations so small businesses can confidently explore new markets.
In all cases, the presence of a merchant of record helps streamline operations by efficiently managing all financial transactions and regulatory requirements. This partnership is crucial for any business that wishes to focus on growth and customer engagement while ensuring financial and regulatory tasks are handled professionally and accurately. Whether you’re part of a large global enterprise, a complex, high-risk business, or a small up-and-coming business, you can benefit from partnering with an MoR.
One of the primary challenges in selling cellular data is managing the variable data usage across potentially thousands of deployed devices. Data consumption can vary dramatically from one device to another, influenced by factors such as device functionality, user behavior, and the operational environment. This variability makes predicting overall data usage and costs challenging for OEMs. Consequently, you need a flexible billing system to accurately track and bill individual data usage in real time. This system must be capable of handling sudden spikes in data demand and adjusting charges accordingly.
Learn more: IoT Data Plans: A Complete Roadmap from Deployment to Monetization for Cellular Devices
Using multiple carriers to ensure comprehensive geographic coverage and network reliability adds another layer of complexity. Each carrier may offer different data plans, operate under different contract terms, and require its own connectivity management platform. This multiplicity complicates the management of data services. An effective IoT billing partner provides tools and support that help you consolidate your carrier interactions into a single, manageable framework and simplify the challenges associated with diverse carrier agreements.
The ongoing cellular connectivity costs are a significant concern, making device monetization strategies crucial. Since connectivity costs continue throughout the life of the device, you must develop pricing models that not only cover these recurring costs but also generate profit. This requires a billing partner to implement subscription billing models, like tiered pricing based on usage. These models must adapt to changes in market demand and consumption patterns, ensuring they remain viable and competitive. The MoR should provide a billing system that supports complex calculations and automation to adapt pricing dynamically.
Learn more: How to Sell a Subscription for Your IoT Product
Subscription billing in the IoT sector involves crafting intricate pricing structures and calculations designed to adapt to customers' fluctuating data needs. This complexity arises because customer data usage can vary significantly, not just day-to-day but also hour-to-hour, necessitating billing models that are both flexible and responsive. Different rates during peak and off-peak periods further complicate billing.
To address these challenges, pricing structures often include tiered data plans, where customers are charged based on the amount of data they use within certain thresholds. For instance, an initial base rate might cover a set amount of data usage, with incremental costs kicking in as usage exceeds predefined levels.
Additionally, subscription models must account for add-ons or one-time charges, such as fees for exceeding data limits or additional services that customers can activate on demand. These scenarios require dynamic pricing strategies capable of real-time billing adjustments. For example, if a customer’s device begins using more data due to a new functionality, the billing system must immediately recognize this change and adjust the billing accordingly without manual intervention.
Learn more: How to Cost-Effectively Manage IoT Data Plans
Expanding IoT services globally multiplies the billing complexities. Dealing with multiple currencies is just the beginning; it also involves navigating a labyrinth of different tax laws and regulations specific to each country. Global expansion brings an additional risk of fraud, which requires fraud detection and prevention systems. By simplifying these aspects, an MoR enables your IoT company to focus on expanding its global footprint without getting bogged down by the intricacies of international commerce.
At Zipit, we understand the challenges of managing billing for multiple IoT devices. Our advanced subscription billing platform tackles this head-on, offering:
With Zipit, you gain more than just a billing service; you receive a comprehensive, scalable solution tailored to the nuanced demands of IoT subscription billing and global operations. We are more than a service provider—we are a strategic partner equipped to guide you through the complexities of cellular IoT billing, helping you navigate and thrive in the expansive IoT marketplace.
Learn more: 10 Key Features of an IoT Connectivity Management Platform
When selecting a merchant of record (MoR) for your IoT business, it's crucial to consider several key factors that align with your operational needs and strategic goals. Here are the essential MoR characteristics to look for:
Choose an MoR with a strong presence in your target markets worldwide. A global MoR can provide valuable insights into local markets and ensure compliance with regional regulations.
Your MoR should efficiently and securely manage diverse taxation requirements, ensuring that all transactions comply with the tax laws of the countries where you operate. They must adeptly handle various regional taxes, including sales taxes, VAT, and digital services taxes, across different jurisdictions.
Security is non-negotiable when it comes to payment processing. Ensure that the MoR offers security measures to protect sensitive payment information and reduce the risk of fraud.
Standard billing systems often fall short for IoT businesses due to the unique nature of service and product delivery. The ideal MoR should have an automated billing engine that offers pricing agility and the ability to modify service access based on payment status.
The end-user platform should be customizable and brandable to ensure a consistent customer experience across all touchpoints. It should have functionalities to notify customers of important account activities, such as reaching their data limits.
Your MoR should be equipped to handle diverse types of devices across various markets and applications. An effective MoR will have a platform that integrates with different device technologies and bills according to its specific usage patterns and service requirements. Additionally, the MoR should provide a centralized system for monitoring and managing connectivity and carriers for operational efficiency and consistent service quality across your entire device portfolio.
An MoR with multi-currency capabilities minimizes risks from currency fluctuations by allowing you to handle transactions in the local currency of each market. This approach reduces exposure to sudden changes in exchange rates, which can impact costs and revenues.
Ensure that an MoR adheres to PCI compliance standards to safeguard and encrypt cardholder data, providing additional security to your transactions and customer data.
Offering a variety of payment options can significantly enhance customer convenience and satisfaction. Look for an MoR that supports multiple payment methods, including major credit cards and direct bank transfers.
The MoR's platform should integrate seamlessly with your existing systems via APIs. This integration is crucial for maintaining smooth operations and ensuring that your various platforms communicate effectively without disruption.
Choosing the right MoR involves carefully considering these aspects to ensure the partnership will support your business's growth, enhance operational efficiencies, and provide a seamless customer experience. By focusing on these factors, you can select an MoR that meets your current needs and scales with your future expansion plans.
At Zipit, our role as a merchant of record means we handle the cumbersome aspects of collecting, reporting, and filing taxes on your behalf. You can focus entirely on scaling and enhancing your IoT business without the regulatory overhead.
Zipit's advanced IoT billing system extends across continents, offering support in numerous countries and various currencies to meet your IoT business's diverse needs.
We are equipped to handle transactions from:
Our system supports major global currencies such as USD (U.S. Dollar), CAD (Canadian Dollar), GBP (Pound Sterling), EUR (Euros), MXN (Mexican Peso), and JPY (Japanese Yen).
We also offer multilingual support in English, German, and Spanish, with the flexibility to accommodate additional languages upon request. Our extensive coverage ensures that wherever your IoT business operates, Zipit can provide seamless and efficient financial transaction support.
Zipit’s billing platform is not just about facilitating transactions; it's about creating a seamless, brand-aligned user experience. You can fully customize the platform to reflect your brand’s aesthetics, from the appearance and color schemes to logos and text. Customization options include:
The Zipit platform also supports various billing models, providing the pricing agility necessary for diverse IoT services. We offer this level of customization so you can fine-tune every aspect of your billing platform to meet the specific needs of your business and your customers.
Our platform includes mechanisms to ensure your business complies with necessary licensing agreements. We provide the tools for presenting these agreements to your customers, requiring acceptance before account creation. This system supports your compliance efforts and enhances transparency with your end users.
Security and privacy are paramount in our operations. We adhere to PCI compliance standards and employ encryption and monitoring systems to protect your data and customers' sensitive information.
Zipit provides a real-time dashboard that offers invaluable insights into your financial operations. This dashboard allows you to monitor transactions, subscriptions, and customer activity, providing a detailed view of revenue generation every month.
Zipit Wireless has been at the forefront of cellular IoT for over a decade, navigating the complexities of connectivity, data management, and billing. By choosing Zipit as your merchant of record, you gain a trusted partner with a proven track record of success so you can focus your efforts on what matters most – innovation and business growth. Leave the complexities to our team of experts.
Contact us to discover how Zipit can streamline your operations and propel your business forward.
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