The Merchant is a hawker who helps the Monarch for a comparatively small payment.
In Kingdom Classic
The Merchant does not have a campsite, and he instead wanders around with his donkey deep in the woods. He will not be attacked by the Greed and ignores them. When he's paid four coins, he returns to the center of town and delivers up to four tools of a single type, chosen randomly, no matter the town's side he's coming from.
If a tool rack already has tools when he delivers to it, he'll only drop off enough to fill it. If idle villagers are standing near the tool rack when the merchant comes, he might deliver more than four tools if the villagers pick them up before he's filled the rack up.
In New Lands
The Merchant returns coinage every dawn for a small investment price on the previous day. He can initially be found at a hut where he appears to spend time trapping or foraging to gather riches. Once the campfire is lit, the Merchant will then leave his hut and enter the town, providing 8 coins the next morning. When paid one coin, he leaves for the merchant settlement, loads his donkey with baggage, and returns to the center of camp, offering eight coins again the following morning. He is an excellent source of income to ensure that the kingdom always has a little money to work with, but he becomes quite rare on the third island and onward, making later Kingdoms require other funds, such as bringing help from a previous island.
The Merchant will only accept payment during the day and will only deliver coinage if he reached his spot in the center of town before sunrise. And he will not accept/give coins if a portal has just been destroyed.
If he is sent to resupply too late in the day, and he can't get back to the town, completely finishing his travel before dawn, he won't give the money and won't accept a new journey this day. He'll keep the money he brought with him and will only release it the next dawn. This might give to some players the impression that he was robbed by the greed. But the greed ignore him. As he only releases his riches the day he sees its dawn from the city, if he's not in town at this precise moment, he'll wait the next sunrise. Collecting from him early and tipping him promptly will ensure daily deliveries from the Merchant.
The idle, unladen Merchant who is waiting to be paid stands to the right of the kingdom's central campfire, until the town hall is upgraded to a stone keep. At that point, he idles next to either the scythe trader's stand or the siege workshop, presumably not to get in the way of purchasing shields from the Keep. When the Merchant has a shipment to be collected, he returns from his campsite to the center of town (for all town hall upgrades). When he is laden with goods and waiting in the town center. the greed will strip him of his coins and he will remain in the center of the town, but unladen.
In Two Crowns
The behavior of the merchant used to be the same as in New Lands, except that he waited a little further out of the town center, to reach his settlement a bit earlier. As of the Conquest Update, the Merchant can now payout at any time of day, but only accepts payment to leave the Kingdom if it is safe (e.g. during the day).
The merchant settlement is where the Merchant goes to resupply. Much like the vagrant camps, it can exist only in the forest, so the Merchant settlement requires the nearest two trees on either side to stay put. Cutting either of these two trees makes the camp disappear, followed by the Merchant leaving the area for good once his current load is collected. However, if the kingdom borders are expanded without cutting the two trees, the Merchant settlement will remain as a patch of forest in the kingdom.
Removing his settlement is only recommended if better opportunities lie just beyond.
Apparently no other character in the Kingdom series had such a radical change between two consecutive versions of the game, as the Merchant did. For example, the breeder changed a lot, from the flash game, up to Two Crowns; but the changes would take place along the years, each game version adding a bit to the current monster profile. The comment bellow made by a game developer about the Merchant in Classic and his random deliveries, may explain why this happened:
“ I've really had a change of heart regarding "random" mechanics. There is a difference between Risk/Reward and Random, the line I still have to find but the merchant is on the wrong side of it.—Game creator Noio, on 14 December 2015 on. „