Digital Onboarding, Identity Verification

Merchant Category Codes Explained: How They Impact Your Business   


You have probably come across merchant category codes (MCCs) if you’ve ever set up a card programme or any business to take payments. An MCC is a four-digit number that categorises the different products and services that a company provides. MCCs were first created for tax reporting needs, but they are now an essential part of payments processing. MCCs additionally provide a number of additional advantages to your card programme, such as aiding with data collection to comprehend cardholder expenditure.

We’ll discuss the significance of MCCs, how they function during transactions, and how to utilise them to improve your card programme.

What’s in this article?

  • What is an MCC?
  • How are MCCs used in transactions process?
  • Why are MCCs important?
  • How to view MCC for transactions
  • MCC list

What is an MCC?

The International Organisation for Standardisation (ISO) is responsible for defining MCCs.

Depending on variables including a company’ level of risk, payment processing companies assign MCCs to firms to decide the costs to charge for utilising their payments services. The majority of card issuers are familiar with the majority of MCCs, although certain card networks have their own unique MCC variants. Businesses cannot issue their own MCC codes, but they can ask their payment processor for a specific MCC designation, which will be given provided the firm meets the requirements for that MCC designation.

How are MCCs used in the transaction process?

Simply described, MCCs outline how transactions should be handled from beginning to end for both issuers and payments processors, including:

Interchange rate

Businesses must pay exchange rates in order to receive payments. You may gain money every time a cardholder uses a card issued by your card programme to make a transaction by arranging to keep a percentage of the interchange that a business pays. The network always decides on exchange rates according on a general set of rules, however the rate will alter depending on the MCC. Purchases from companies that fall under particular categories may result in more or less exchange. For instance, MCCs associated with business models that typically experience lower fraud and chargeback rates may have lower interchange rates. On the other hand, MCCs associated with higher-risk industries could have higher interchange rates.

Cardholder fees

For MCCs such as government-related purchases, certain businesses are allowed to charge cardholders a service fee in addition to the purchase price.

High-Risk Merchant Identification

The relative risk of a firm is often evaluated by merchant acquirers and payment processors based on the type, which helps decide costs. The transaction MCC is probably taken into consideration, even if the mechanism used by Visa’s Advanced Authorization (VAA) or Mastercard’s Decision Intelligence Score (MDIS) to establish risk score isn’t made public.

Chargeback protection

Particularly with regard to card-not-present (CNP) transactions, some MCCs may not receive the same level of fraud protection. Typically, this relates to companies with greater fraud rates and hence larger chargeback percentages. For instance, some telemarketing firms and pharmacies fall within the high-risk category and hence pay higher chargeback costs.

Tax Purposes

MCCs are also employed for taxation; they inform cardholders whether a particular transaction requires filing a tax return with the IRS. Businesses are often obliged to declare the acquisition of services but not products.

Why are MCCs important?

The following are some ways that MCCs may improve your card programme:

Imposing expenditure restrictions

Using MCCs, you may either forbid particular business kinds from using issued cards or let cards to be used exclusively at specific company types. For instance, you may implement spending limitations such that your cards can only be used for transactions with travel-related MCCs if you’re building a travel expenditure platform. Certain high-risk MCCs, including gambling, are required to be blocked at a programme level by some of our issuing bank partners.

Gathering data on cardholder spend

Every transaction includes MCC data, which is also available on the Authorization object along with other useful transactional facts including the amount, the authorization method, and extra information about the merchant where the card was used.

Rewarding cardholders

Cardholder rewards are made possible via MCCs. For instance, every transaction with a company that has an MCC allocated for office goods would alert you to distribute that reward if you offer cardholders 3% cash back on business supplies.

How MCCs Can Boost Credit Card Rewards

If a person has a rewards card, they will often earn more rewards if they are aware of their MCCs. Consider you have a credit card with a restaurant bonus of 5 points for every $1 spent. The MCCs are how the credit card provider assesses whether credit card transactions occurred at a restaurant. You won’t receive 5 points for every $1 spent if you purchase lunch at a tiny mom-and-pop business that doubles as a restaurant and a grocery shop and the MCC identifies the business as a grocery store.

To maximise your cash back, use a different credit card, like one that pays you 3% back on grocery store purchases, if you often visit this location and are aware of its connected MCC.

Another option is that, despite the fact that the transaction had an MCC that should have triggered the bonus, the credit card company did not award you the proper number of points or cash back. In this situation, you can get in touch with the credit card provider and request that they fix the mistake.

Look at your credit card statement to see how a transaction is classified. You can check how the credit card company has categorised the transaction under “category.” To make the information easier to grasp, the statement often gives the category name (such as “grocery stores” or “drug stores”) rather than the MCC. 

MCC list

The fact that different entities and organisations utilise different sets of merchant category codes is a bothersome element of MCCs. The category code ranges, however, are uniform. Following is a list of the code ranges for several industries:

  • 0001–1499: Agricultural services
  • 1500–2999: Contracted services
  • 4000–4799: Transportation services
  • 4800–4999: Utility services
  • 5000–5599: Retail outlet services
  • 5600–5699: Clothing stores
  • 5700–7299: Miscellaneous stores
  • 7300–7999: Business services
  • 8000–8999: Professional services and membership organizations
  • 9000–9999: Government services

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