Merchant Category Codes (MCC): what are they and why they’re important

Merchant Category Codes (MCCs) affect your business in many ways. Originally created for tax reporting reasons, MCCs also help your business gather cardholder data, determine your interchange fees, and bolster your level of fraud protection.

In this article, we’ll discuss why MCCs are important and how they work in transactions, explaining how to use them effectively in the world of commerce.

What are Merchant Category Codes (MCC)?

MCCs, or Merchant Category Codes, serve as standardized identifiers within the payment processing sector, primarily used by merchants, banks, and credit card companies. 

These codes consist of four digits (although it can be three digits), and play a pivotal role in classifying various goods, services, and transaction types conducted by businesses on a routine basis.

Let’s say you’re running a taxi company – your MCC could be designated as 4121 (Taxis and Limousines). Using this code empowers your payment processor to easily classify, categorize, and manage each transaction for accounting purposes.

MCCs also offer benefits to your customers by facilitating swift recognition of the business category when making payments. As customers review their credit card statements, the MCC code serves as a useful memory aid, reminding them of the nature of the business associated with each payment.

What are MCCs used for?

MMCs inform both issuers and payment processors about the best way to handle transactions. These codes are particularly useful for these cases…

Interchange fees

MCCs play a pivotal role in identifying the transaction type, which helps to ascertain the relevant interchange fee. These fees, set by card issuers, are payments that merchants make to processors for handling credit card transactions.

The network decides interchange rates using general rules, but these rates change depending on the MCC, with different categories of businesses having different interchange rates. If your business is in a safer category with less fraud and fewer chargebacks, it might have a lower rate, while riskier businesses could face higher rates with their corresponding MCCs.

Risk analysis

Merchant acquirers and payment processors usually increase a business's risk level based on its type, which influences the fees. While the specific ways Visa's Advanced Authorization (VAA) or Mastercard's Decision Intelligence Score (MDIS) determine risk scores aren't publicly known, the transaction's MCC is probably included in the calculation.

Tax purposes

MCC codes can be used for tax reporting purposes, with different categories of transactions subject to varying tax rates or exemptions. By categorizing transactions accurately with MCC codes, cardholders can find out whether a certain transaction needs to be reported to the IRS. Generally, your business only needs to report the purchase of services, not goods.

Cardholder fees

MCC codes also influence cardholder fees, such as annual fees or foreign transaction fees. The type of transactions a cardholder engages in can affect the fees they’re subject to. For instance, if a cardholder frequently makes purchases in a category associated with higher processing costs or risks, the issuer might apply different fee structures.

Fraud prevention

MCCs are important in Internal Security Reviews (ISRs) and other strong anti-fraud methods. They ensure payments undergo more careful checks before processing, which helps stop fraud by better spotting suspicious activities or transactions.

Why are MCCs important?

MCCs help protect your business, whether you’re a merchant or payment processor. 

The key benefits include:

• Better fraud prevention
• Simplified tax and financial reporting adherence
• More precise transaction accounting
• Favorable rates and fees for processing payments
• Deeper understanding of payment data

For merchants, MCCs secure excellent rates and terms for payment services. Correct MCC codes ensure merchants receive accurate rates and fees, guaranteeing proper transaction cost structure.

For payment processors, MCCs help gauge credit risk linked to certain merchants. With MCC codes, payment processors swiftly spot riskier transactions and businesses needing extra security steps before processing payments.

MCCs are also important for these reasons…

• Setting spending limits – You can use MCCs to control card usage, either blocking cards from certain business types or allowing them only at specific business types. 

For instance, if you're creating a taxi-reservation platform, you can limit card use to taxi and limousine-related MCCs. It’s worth noting that some banks require blocking high-risk MCCs, like gambling businesses, but allowing low-risk industries such as taxi companies.

• Tracking cardholder spending – Every transaction includes MCC data and other transaction info like amount and business detail.

• Rewarding cardholders – MCCs help your business in rewarding cardholders. For example, if you promise 5% cashback to your employees on office equipment, then any transactions at businesses with office equipment MCCs trigger that reward.

How to find Merchant Category Codes

The easiest way to find your MCC is to contact your credit card provider (like Visa or Mastercard) and confirm your company’s MCC code.

You can also search for MCC lists on the credit card provider's website. However, these lists are long and can be time-consuming to navigate. So, reaching out to the provider directly with specific queries is usually faster and more precise.

What happens if I have a high-risk MCC?

If your business falls under a high-risk MCC, it can have several impacts. Initially, you'll need to pay higher fees for credit card transactions, as mentioned before. Moreover, you might not have access to the same level of fraud protection as other businesses, and charges could be higher for handling chargebacks. 

Lastly, certain merchants might not accept MCC codes deemed high-risk. Because of these factors, it's crucial to know your merchant category code and understand how it could affect your business.

List of Merchant Category Codes by industry

In broad terms, codes from 7300 to 7999 indicate business services, and codes from 4000 to 4899 cover goods, including transportation services. Some codes have letter prefixes like S (service) or R (retail) to specify types of businesses. 

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Here’s a breakdown of the code ranges for specific industries:

0001–1499: Agriculture

1500–2999: Contracted Services

4000–4799: Transport

4800–4999: Utility Services

5000–5599: Retailers

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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For more information, view Checkout.com’s complete list of Merchant Category Codes.

How to get an MCC with Checkout.com

It couldn't be easier to get an MCC for your business with Checkout.com. All you have to do is integrate our Payment Processing Platform once, then reap the rewards from your MCC, including better fraud prevention, detailed insights into your payment data, and streamlined tax and financial reporting.

Talk to our sales team for more information on how to boost your business with an MCC.