What are MCCs and How are They Used?

Jelle van Schaick
2 mins

  • Knowledge hub

If you're a business owner, it's important to understand MCCs and how they can affect your bottom line. In this article post, we'll break down MCCs and explain how they can impact your business.

What are Merchant Category Codes (MCCs)?

Merchant Category Codes, or merchant classification codes, are four-digit identification numbers that clarify the type of goods or services a business provides. The International Organisation for Standardisation (ISO) sets the codes, their classifications and meanings, which are then assigned to businesses or merchants by credit card processors. Banks are now using these codes to figure out how much cash back or points to award consumers for shopping at these particular establishments.

What are MCCs used for?

MCCs are used by the payment industry to classify businesses into categories that fill a similar niche. These classifications are often used to determine what rewards people receive when they use their credit cards; what transactions need to be reported to the appropriate tax office and what percentage or amount of each transaction the business has to pay to the credit card processor. The following are examples of how merchant category codes are used:

  • Airline travel is a popular purchase. Consumers often buy tickets and other travel-related gear with their credit cards and then get 5% back if their card offers that reward. They should get the reward on any purchases made under MCC 4511, which is for airlines and air carriers.
  • If a merchant falls under the code for "Clothing," they will need to report any transactions that they receive in that category and pay 2.4% of each transaction to the credit card processor.
  • A gas station may be classified differently than a car rental company under the MCC. This can mean that their interchange fees (the fees a merchant pays for processing credit cards) are different.

How do MCCs impact payment processing?

MCC codes represent the predominant business activity of a merchant and are used by payment processors and credit card processing banks. Let's take a look at how this can affect payment processing in different ways.

  1. Identifying High-Risk Industries

An acquirer can quickly identify prohibited business types and measure risk by looking at the codes.

  1. Determining Interchange Rates

Credit card brands such as Mastercard and Visa use something called interchange rates to determine the fee a merchant pays when processing credit cards. The interchange rate may differ depending on the kind of organisation you are. Some types of organisations may be eligible for a lower interchange rate, depending on the MCC code. In industries that have a higher risk of fraud, the MCC can lead to higher interchange rate. 

  1. Calculations for Credit Card Rewards

Merchants should think about how to incentivise their customers and the various parts of their business that may need a new MCC consideration. A restaurant attached to a convenience store is one such example. Customers may be more likely to buy products or services from you if it qualifies them for points. 

  1. Charging Convenience fees

Due to restrictions in some MCC codes, not all businesses can assess a convenience fee on credit card payments. Your MCC code determines if you can do so. 

  1. Applying to a PSP

If your company is a high-risk merchant - depending on your category code - you may not be eligible to work with some payment service providers. However, that doesn't mean you're doomed. Some companies specialise in high-risk merchants and may be able to help you get up and running.

How to identify the correct MCC for your business

As a startup, one of the first things you need to do is find the correct MCC category to apply to your business. In order to do this, you need to know the differences between the different categories available. Below is a list of those categories, as well as a brief description of what they entail. Another great resource for merchant categories is the Visa Merchant Data Standards Manual.

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