Stripe vs Paddle vs Lemon Squeezy: Payment Processing for Solo Founders (2026)

Payment processing is infrastructure. But unlike hosting or DNS, payment infrastructure creates structural dependencies that extend into tax compliance, entity obligations, and jurisdictional exposure. The choice between Stripe, Paddle, and Lemon Squeezy is not primarily a question of fees or features. It is a question of who bears the structural burden of being the seller — and what that allocation means for a solo founder operating across borders.

The distinction is architectural. Stripe is a payment processor: you are the merchant of record, you sell to the customer, and you are responsible for collecting and remitting applicable taxes. Paddle and Lemon Squeezy are Merchants of Record (MoR): they are the seller, the customer buys from them, and they handle sales tax and VAT collection and remittance on your behalf.

This architectural difference has cascading implications for how revenue is classified, where tax obligations arise, what documentation is generated, and how the founder's structural position interacts with authorities in multiple jurisdictions.

Direct processing vs Merchant of Record: what the difference actually means

The terms get used interchangeably in founder discussions, but the structural distinction is fundamental.

Direct processing (Stripe model)

When a customer buys your product through Stripe, the transaction flows like this:

Customer pays $100 for your product.
Stripe processes the payment. You are the merchant of record.
Stripe deposits $97.10 (after 2.9% + $0.30 fee) to your bank account.
The customer's credit card statement shows your business name.
You are responsible for determining whether sales tax or VAT applies to this transaction.
If it applies, you are responsible for collecting the correct amount, filing returns in the applicable jurisdiction, and remitting the tax.

The structural implication: you are the seller. The sale originates from your entity, in your entity's jurisdiction, to a customer in their jurisdiction. Every transaction creates a potential nexus event — a connection between your entity and the customer's tax jurisdiction that may trigger an obligation to collect and remit sales tax or VAT in that jurisdiction.

For a solo founder selling a SaaS product to customers in 30 countries, the direct processing model creates 30 potential jurisdictional obligations. Whether those obligations actually apply depends on thresholds, treaties, digital services rules, and the specific tax law of each jurisdiction. But the exposure exists with every transaction.

Merchant of Record (Paddle / Lemon Squeezy model)

When a customer buys your product through Paddle or Lemon Squeezy acting as Merchant of Record:

Customer pays $100 for your product.
Paddle (or Lemon Squeezy) is the merchant of record. The customer buys from Paddle, not from you.
Paddle collects the $100, determines applicable sales tax or VAT, adds or includes it in the price, and handles collection.
Paddle remits the tax to the applicable jurisdiction.
Paddle pays you your share after deducting their fee and the tax amount.
The customer's credit card statement shows Paddle's name, not yours.

The structural implication: Paddle is the seller. The sale originates from Paddle's entity, in Paddle's jurisdiction, to the customer. Your entity is not the merchant — you are a vendor to Paddle. The jurisdictional nexus is between Paddle and the customer, not between you and the customer.

This architectural difference shifts the tax compliance burden from the founder to the MoR platform. The founder does not need to register for VAT in the EU, collect sales tax in US states, or track which jurisdictions have been triggered by which transactions. The MoR handles this entirely.

The trade-off: the MoR model costs more in fees, reduces the founder's control over the customer relationship, and introduces a dependency on the MoR platform's continued operation and policies.

Fee comparison

Fees are the most visible difference between these platforms, but fee structures vary enough that direct comparison requires examining the full cost, not just the headline rate.

| Fee Component | Stripe | Paddle | Lemon Squeezy | |---|---|---|---| | Standard transaction fee | 2.9% + $0.30 | 5% + $0.50 | 5% + $0.50 | | International card fee | +1.5% | Included in 5% | Included in 5% | | Currency conversion fee | 1% | Included | Included | | Effective rate (US card) | ~3.2% | ~5.5% | ~5.5% | | Effective rate (international card) | ~4.7% | ~5.5% | ~5.5% | | Payout frequency | 2-day rolling (standard) | Monthly (NET 15-30) | Bi-weekly or monthly | | Payout currencies | Multiple (to linked bank) | USD, EUR, GBP, others | USD, EUR, GBP | | Refund fee | Fee not returned | Fee not returned | Fee not returned | | Chargeback fee | $15 | Handled by Paddle | Handled by Lemon Squeezy | | Sales tax/VAT handling | Stripe Tax (additional 0.5%) | Included | Included | | Monthly minimum / base fee | $0 | $0 | $0 |

The fee gap narrows with international transactions. At the headline level, Stripe appears significantly cheaper: 2.9% + $0.30 vs 5% + $0.50. But for international transactions — which constitute the majority for most cross-border solo founders — Stripe's effective rate increases to approximately 4.4-4.7% when international card surcharges and currency conversion are included. Adding Stripe Tax for sales tax compliance adds another 0.5%, bringing the effective rate to approximately 4.9-5.2% for international transactions with tax compliance.

At that point, the fee differential between Stripe and Paddle/Lemon Squeezy narrows to less than 1% — and the MoR model includes tax compliance that Stripe's base product does not.

Payout timing creates cash flow structural differences. Stripe's 2-day rolling payouts mean revenue reaches the founder's bank account quickly. Paddle's NET 15-30 payout schedule means revenue is held by Paddle for significantly longer. For a solo founder managing cash flow carefully, this timing difference is a structural characteristic — not just a convenience feature. Revenue earned in January may not be available until February under Paddle's payout schedule.

Chargeback handling differs structurally. With Stripe, the founder handles chargebacks directly: responding to disputes, providing evidence, and absorbing the $15 fee for each dispute regardless of outcome. With Paddle and Lemon Squeezy, the MoR handles chargebacks because they are the merchant of record. The founder's involvement in the dispute process is minimal. For founders in industries with higher chargeback rates, this shift in liability has structural value beyond the fee saving.

Tax compliance: who handles what

This is the key structural difference between direct processing and Merchant of Record — and it is the dimension most founders underweight when comparing platforms.

Stripe: you handle tax compliance

With Stripe, you are the merchant of record. Tax compliance is your responsibility:

US sales tax. If your customers are in the US, you may have sales tax collection obligations in states where you have nexus. Nexus can be established through physical presence or, in most states following South Dakota v. Wayfair (2018), through economic nexus — exceeding revenue or transaction thresholds in a state. Each state sets its own thresholds, rates, and rules for digital products. A SaaS product sold to customers in 30 US states may create filing obligations in each state that has been triggered.

EU VAT. If your customers are in the EU, the EU's One-Stop Shop (OSS) system allows you to register in a single EU member state and file a single VAT return for all EU sales of digital services. The threshold for non-EU businesses selling to EU consumers is zero — the first sale triggers the obligation. The VAT rate varies by member state (17% to 27%).

Other jurisdictions. Australia (GST), Canada (GST/HST by province), the UK (VAT), Japan (consumption tax), India (GST) — each has its own rules for digital services sold by foreign entities. The number of jurisdictions with digital services tax requirements has been increasing.

Stripe Tax is Stripe's add-on product for automated tax calculation and collection. At 0.5% per transaction, it calculates the correct tax amount based on the customer's location and your product classification. It collects the tax at checkout and provides reporting for filing. It does not file returns or remit the tax — that remains the founder's responsibility. For a solo founder, this means Stripe Tax handles calculation and collection, but filing and remittance still require either manual effort or a third-party tax filing service.

Paddle and Lemon Squeezy: they handle tax compliance

As the Merchant of Record, Paddle and Lemon Squeezy assume the tax compliance obligation:

They determine whether sales tax or VAT applies to each transaction.
They calculate the correct amount based on the customer's jurisdiction.
They collect the tax from the customer.
They file the returns in the applicable jurisdictions.
They remit the tax to the tax authorities.

The founder's entity is not the seller in these transactions. The founder receives a payment from Paddle or Lemon Squeezy for products sold — not revenue from customers directly. This distinction matters for how income is classified and reported on the founder's tax returns.

The structural implication: the MoR model eliminates the founder's direct sales tax and VAT compliance burden. For a solo founder without a dedicated finance team, without access to multi-jurisdiction tax filing services, or without the capacity to track thresholds across dozens of jurisdictions, this transfer of obligation is the primary structural value of the MoR model.

The trade-off: the founder loses direct control over pricing presentation (the MoR may display prices inclusive or exclusive of tax), customer communication (the MoR's name appears on receipts), and refund processing (the MoR's policies apply).

When to use which: mapping the structural decision

The choice between direct processing and Merchant of Record is not a feature preference. It is a structural decision that depends on the founder's specific situation.

Revenue level

At low revenue levels (under $10,000/year), the tax compliance burden is minimal regardless of model. Few jurisdictional thresholds have been triggered, and the cost difference between 3% and 5% processing fees is small in absolute terms. As revenue increases, two dynamics shift in opposite directions: the absolute dollar difference in fees grows (favoring Stripe), and the tax compliance burden grows (favoring MoR).

The crossover point — where the cost of managing tax compliance exceeds the fee savings of direct processing — varies by business. For a SaaS product selling globally, the compliance burden tends to become material between $30,000 and $100,000 in annual revenue, depending on the customer geography distribution.

Customer geography

Primarily US customers. US sales tax is complex (50 states, each with different rules for digital products) but manageable with tools like Stripe Tax plus a filing service. The MoR model may be more expensive than necessary if most revenue is domestic.

Primarily EU customers. EU VAT compliance through OSS is structured but requires registration, quarterly filing, and rate management across 27 member states. The MoR model eliminates this entirely.

Global distribution. For founders selling to customers across multiple continents and dozens of jurisdictions, the tax compliance burden under direct processing scales linearly with each new jurisdiction triggered. The MoR model caps this burden regardless of customer geography.

Product type

One-time purchases. Both models work. Stripe's fee advantage is straightforward. The MoR's tax compliance value is proportional to the number of jurisdictions involved.

Subscriptions. The MoR model provides additional structural value for subscriptions: automated billing, dunning (failed payment recovery), subscription management, and tax compliance on recurring charges across changing jurisdictions. Stripe Billing provides similar automation for billing mechanics but not for tax compliance.

Digital products with variable pricing. The MoR model handles pricing display and tax inclusion across jurisdictions — showing customers the correct price including applicable tax in their currency. With Stripe, this pricing logic falls on the founder.

Tax complexity tolerance

This is the dimension most founders assess last but that has the highest structural impact. The question is not whether the founder can handle tax compliance — it is whether they will, consistently, across all relevant jurisdictions, for every reporting period, indefinitely.

Tax compliance is not a one-time setup. It is a recurring obligation that grows with the business. For a solo founder whose time is the constraining resource, the structural question is whether the hours required for multi-jurisdiction tax compliance are better allocated to the business or delegated to a platform that handles it as a core function.

The platform dependency angle

Payment processing creates platform dependency regardless of which model is chosen. The characteristics of that dependency differ.

Stripe dependency

With Stripe, the founder's entity is the merchant. The Stripe account is linked to the entity's bank account and processes all customer transactions. If the Stripe account is restricted, frozen, or closed:

Customer payments stop being processed.
Payouts to the bank account are held.
Recurring subscriptions fail or are paused.
The founder's entity retains the customer relationship but has no payment rail.

Switching from Stripe to another processor requires migrating customer payment methods, updating integrations, and potentially re-entering customer billing data. The timeline is weeks, not days.

MoR dependency

With Paddle or Lemon Squeezy, the platform is the merchant. The dependency is deeper in some ways and shallower in others:

If the MoR platform is disrupted, the founder loses both payment processing and the merchant relationship with customers.
Customer payment methods are held by the MoR platform, not by the founder's entity.
The MoR controls pricing display, tax handling, and customer communication.
Switching from an MoR to Stripe (or another MoR) requires rebuilding the customer billing relationship from the foundation — the customers' payment methods are not portable.

The structural observation: both models create platform dependency. With Stripe, the dependency is on payment processing infrastructure. With an MoR, the dependency extends to the merchant relationship itself. Neither is inherently more or less risky — but the nature of the dependency, and what breaks when it breaks, is structurally different.

For a deeper examination of platform dependency patterns, see Payment Rails Are Not Infrastructure: What Platform-Dependent Founders Miss and Indie Hackers: Your Stripe Dashboard Is Not a Financial Structure.

Migration and coexistence patterns

The choice between Stripe and an MoR is not necessarily binary. Some structural arrangements use both.

Stripe for US/domestic + MoR for international. A founder can use Stripe to process US transactions (where they have a single sales tax jurisdiction to manage) and Paddle or Lemon Squeezy for international transactions (where the tax compliance burden is highest). This hybrid approach captures Stripe's lower fees for domestic transactions while delegating international tax compliance to the MoR.

Starting with MoR, migrating to Stripe. Some founders begin with an MoR when revenue is low and tax compliance capacity is limited, then migrate to Stripe once revenue justifies the cost of dedicated tax compliance infrastructure. This migration involves rebuilding the customer billing relationship and absorbing the tax compliance obligation.

Starting with Stripe, adding MoR. Other founders begin with Stripe and add an MoR when international revenue crosses thresholds that make multi-jurisdiction tax compliance burdensome. This is simpler than the reverse migration because the existing Stripe customers can remain on Stripe while new international customers are routed through the MoR.

The structural observation: the payment processing architecture can evolve with the business. The key constraint is that customer payment methods are not portable between platforms — each platform migration affects the customer relationship. Planning the architecture with this constraint in mind reduces the cost of future changes.

What this means for your structure

Payment processing is not a commodity decision. The choice between direct processing and Merchant of Record creates structural characteristics that persist as long as the business uses the platform.

Stripe provides lower fees, faster payouts, more control, and greater flexibility — at the cost of placing the full tax compliance burden on the founder. For a solo founder operating across jurisdictions, this burden is real, recurring, and grows with revenue.

Paddle and Lemon Squeezy provide tax compliance delegation, chargeback handling, and simplified international selling — at the cost of higher fees, slower payouts, and deeper platform dependency. For a solo founder without tax compliance infrastructure, this delegation transfers a significant structural obligation.

The pattern that surfaces repeatedly in structural diagnostics: founders who chose their payment processor based on fees at $1,000/month in revenue face a different structural reality at $10,000/month. The processor that was optimal for launch may create structural friction at scale — not because the processor changed, but because the business's jurisdictional footprint expanded beyond what the original choice was designed to support.

The structural question is not which processor charges less. It is which processing architecture creates the structural arrangement — in terms of tax compliance, platform dependency, cash flow timing, and jurisdictional exposure — that matches the business's current position and anticipated trajectory.

Visual: Payment Processing Model Comparison

Key Takeaways

The architectural distinction between direct processing (Stripe) and Merchant of Record (Paddle, Lemon Squeezy) is structural, not just transactional: it determines who is the seller, who handles tax compliance, and where jurisdictional obligations attach.
The fee gap between Stripe (~3.2% domestic) and MoR platforms (~5.5%) narrows significantly for international transactions when Stripe's international card surcharge, currency conversion fee, and Stripe Tax add-on are included — the effective difference can be less than 1%.
Tax compliance is the key structural differentiator: with Stripe, the founder is responsible for sales tax and VAT registration, collection, filing, and remittance across every jurisdiction triggered; with an MoR, the platform handles this entirely.
Both models create platform dependency, but the nature of the dependency differs: Stripe dependency is on payment processing infrastructure, while MoR dependency extends to the merchant relationship itself — customer payment methods are not portable between platforms.
The payment processing choice that was optimal at launch may create structural friction at scale — as revenue grows and jurisdictional footprint expands, the tax compliance burden under direct processing grows linearly while the MoR model caps it regardless of geography.

References

Stripe: Pricing & Fees — Stripe transaction fees, international card surcharges, and Stripe Tax pricing
Paddle: Pricing — Paddle Merchant of Record fees and included services
Lemon Squeezy: Pricing — Lemon Squeezy Merchant of Record fees and included services
EU VAT One-Stop Shop — European Commission OSS for cross-border digital services VAT compliance

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