Merchant Category Codes (MCC): All You Need To Know
If you are wondering not only what a merchant category code (MCC) is but also 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.
Table of Contents
What Is An MCC Code?
What is an MCC code, and why do you need to know about it for your business? 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.
How Are MCC Codes Used?
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, credit card processors nowadays assign the codes to merchants. These credit card merchant 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 — Visa, Mastercard, Discover, and American Express — each has its own list of MCCs. While they are largely similar, there might be some specific differences for certain types of businesses.
Why Are Merchant Category Codes Important?
As the uses for merchant category codes have increased, so has their overall importance. Since your MCC code affects how credit card processors identify your company, knowing how you tend to be categorized can be helpful when you’re comparison shopping for rates.
You should also know that many payment services companies use MCC codes to identify and mark “prohibited industries” that they will not take on as customers. If you fall into one of these high-risk categories, you may need to look at providers that specialize in payment services to high-risk industries.
Additionally, some providers may only offer specialized features to businesses with specific MCCs, such as the option to charge a convenience fee for credit card purchases.
How To Find Your Merchant Category Code (MCC)
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 know how to find your merchant category code or 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 your specific code, 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 (MCC) List?
Each card network maintains its own MCC code list. Your best bet is always to go right to the networks to find their lists; some merchant account providers or other financial organizations post merchant category code listings 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.
Similarly, you can use Visa’s Supplier Locator to get a sense of how businesses in your area are classified.
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. 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, such as 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 how different offshoots of your business 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. Some companies 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 & Can You Charge One To Your Customers? to learn more about this fee and start charging it to your customers (if you can).
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 special interchange rates that businesses can qualify for with the right MCC code, check out our complete guide to B2B credit card processing.
How MCC Codes Can Lead To Declined Transactions
It’s rare for transactions to be declined due to MCC codes but not unheard of. When it happens, it will usually be due to a restriction over the type of credit card your customer hands you.
Some customers may have cards that have restricted usage: for example, an EBT card or health care savings account card. EBT cards and health care cards are only authorized for specific types of commerce. If the customer tries to use them for any unauthorized purpose, the card may be declined and show an MCC code error.
Should You Update Your MCC Code?
Most businesses probably won’t run into serious issues with their MCC Codes, but there are times when it’s worth looking into updating your code with your payment services company. Instances in which you may want to push the issue include:
- Your Business Has Changed: Maybe you’ve started selling different products, offer new services, or change the way you’re marketing your business. It’s possible your MCC code no longer accurately reflects how your business operates.
- You’re Getting An Unusual Number Of Declined Transactions: If you’re seeing a conspicuous increase in declined transactions that your customers can’t explain, it may be time to see if your MCC code is accurate.
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 have and what products or services you provide.
Understanding how this code affects you can help you decide whether or not to register as a nonprofit or 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 our article on small business credit card processing companies not only to see some top picks but also to learn what to look for when you’re shopping around.