How Your Merchant Category Code (MCC) Affects Your Credit Card Processing Rates

If you are wondering not only what a merchant category code (MCC) is, but what it means for your business, you’re in the right place. Credit card processing can be a confusing and overwhelming topic, but when you become familiar with basic terms, everything becomes easier to understand. And when you understand how MCC codes fit into the larger landscape of payment processing, you can make better decisions for your business, too!

To demystify what your MCC code is and how it affects your business, keep reading.

What Is An MCC Code?

A Merchant Category Code, or MCC, is a four-digit number that indicates your line of business and the types of goods or services you provide to your customers.

Originally developed to simplify accounting for the year-end 1099 tax form reporting, the MCC code is now a critical piece in the payments landscape. While the International Organization for Standardization (ISO) sets the MCC codes and meanings, nowadays credit card processors assign the codes to a merchant. These codes are then used by acquiring banks and payment service providers to set fees, assess risk, and more. Keep in mind that each card network –that is, Visa, Mastercard, Discover, and American Express — each have their own lists of MCCs, and while they are largely similar, there might be some specific differences for certain types of business.

How To Find Your Merchant Category Code

Your MCC code is something that usually exists quietly behind the scenes once your business gets going. You’re probably not going to find it on your merchant statement, and if you don’t do a little digging, you may not even know what it is at all!

Here’s a quote from Trace Wendell, VP of Sales and Operations at Dharma Merchant Services that sums it up best:

The important thing to remember is that the MCC code is chosen by the processor during the application process. It cannot be chosen by the merchant. Certainly, some merchants can request a specific MCC. But, they will only get it if they qualify for it.

When you’re applying for a merchant account, it certainly is beneficial to you to understand what types of MCCs may apply to your business. However, there are specific criteria to qualify for these MCCs. Some merchants may blur the line between categories but don’t quite make the cut for the lower interchange rates of a particular merchant category code because of the particulars of their day-to-day business, and that’s okay.

If you want to know what your specific code is, we recommend contacting your processor and asking them to find out what MCC code has been assigned to your business.

Where Can You Find The Merchant Category Code List?

Each card network maintains its own list of MCCs. Your best bet is always to go right to the networks to find their lists; some merchant account providers or other financial organizations do post lists of MCCs as well.

A great source of information about merchant categories and related policies and guidelines is the Visa Merchant Data Standards Manual. Here you can see that even under a general blanket (e.g., repair shops), the codes get a lot more specific depending on the products and services a merchant provides.

How Do MCC Codes Affect Payment Processing?

Since your MCC code represents the “predominant business activity of the merchant,” it can influence payment processing in a few different ways:

• MCC Codes Help Determine Interchange Rates: The card brands such as Mastercard and Visa utilize MCCs to determine interchange rates, which is the wholesale price you’ll pay when you process credit cards. Your interchange rate may differ slightly between brands. For some types of organizations that process payments, the MCC code can mean lower interchange rates. And conversely, in higher-risk industries and industries that have higher-than-normal chargeback rates, the MCC code means higher interchange fees on every transaction.
• Identify High-Risk Industries: An acquirer uses the MCC code to identify prohibited business types as well as measuring risk before signing a merchant up for services.
• Determine Chargeback Protections: Certain types of MCCs like direct marketing, betting, and money orders don’t have the same eCommerce fraud protections in card-not-present transactions. Additionally, if a business has been assigned a high-risk code, you’ll likely face higher fees for any individual chargeback you get.
• Credit Card Reward Calculations: While we think about rewards applying to a customer who purchases from a merchant, it might behoove a merchant to understand that different offshoots of your business that may need a new MCC consideration, such as a restaurant attached to a convenience store. Your customers may be more apt to purchase goods or services from you if it qualifies them for points.
• Application With A Payment Service Provider: Some payment service providers simply won’t accept certain categories of merchants, but don’t get too discouraged if you’re one of them. Companies are out there that specialize in higher-risk merchants. Check out Need A High-Risk Merchant Account? Here’s The 6 Best Payment Processors To Work With.
• Ability To Charge Convenience Fees: Not all business types can assess and charge a convenience fee on credit card payments. Your MCC code is part of what flags your ability to do so. Read What Is A Convenience Fee? to learn more about what this fee is and if you can (and how) to start charging it to your customers.

Can Getting The Right MCC Really Lower Your Processing Costs?

Yes, for certain types of organizations. As touched on above, merchant account providers utilize the MCC code to identify what type of business you’re in to determine interchange rates. Nonprofit organizations, healthcare, education, and B2B businesses generally enjoy lower interchange rates than other types of businesses.

Visa and Mastercard both offer lower interchange rates to “emerging markets” — that is, businesses that historically haven’t accepted credit cards as their predominant form of payment. That includes healthcare and education as well as government organizations, utilities, and even insurance sales.

Of course, specific requirements apply to be qualified for these MCC codes. That’s because ultimately, you can request a review for certain codes, but the credit card processor assigns them based on specific criteria.

For more information on how to register your nonprofit, see our post, The Step-By-Step Guide To Registering Your 501(c)(3) Nonprofit Organization.

How MCC Codes Can Lead To Declined Transactions

Don’t be too alarmed, as declines due to an MCC code aren’t very common. One major reason that a card would be declined due to an MCC code is because of an MCC restriction over the type of credit card your customer hands you.

Some types of cards do have limitations on where they can be used. For instance, your customer may have pulled out their HSA medical card and tried to purchase lunch. If the MCC restriction code does come up for another curious reason, have your customer call the number on the back of their credit card and get to the bottom of it.

The Final Word On MCC Codes

MCC codes are a critical component of every business when it comes to accepting credit cards. They are decided by credit card processors at the start of the application process and indicate what type of business you are and what products or services you provide.

Understanding how this code affects you can help you make decisions, such as whether or not to register as a nonprofit or to request that additional MCC codes apply to an expanding part of your business. Beyond reaching out to your credit card processor, however, there isn’t much you can do as a business owner to make the final decision about your MCC code, as it’s based on specific criteria identified by the credit card processor at the time of your application.

Need more information on credit card processing? We have a world of resources waiting for you. Start by checking out The 5 Best Small Business Credit Card Processing Companies to see some top picks but also learn what to look for when you’re shopping around.