A Guide to Merchant Category Codes (MCC)

Every business that accepts card payments has a merchant category code (MCC) that classifies them with other companies that sell similar products or services. While MCCs were originally for tax purposes, they help with many different parts of payment processing.

Card companies like Visa and Mastercard use them to track and restrict spending, gather transaction data, and determine how much to charge the business for payment processing. Businesses may use them to determine their fees or understand their own risk levels. Finally, customers might use them to track their spending or strategically receive credit card rewards.

As your business accepts customer payments, you will likely need to know your MCC code. Use the guide below to understand how it can affect your payment processing fees.

What Are Merchant Category Codes (MCC)?

Merchant category codes (MCCs) are four-digit numbers that classify transactions made on payment cards. A credit card company assigns MCCs to each business that accepts cards based on factors such as the business’s:

• Purpose
• Products or services
• Risk levels

How Do MCC Codes Work?

While some credit card issuers have unique MCCs, most use a standard set of merchant codes to categorize businesses and transactions on credit card statements. MCCs are typically based on the International Organization for Standardization (ISO) and Standard Industrial Classification (SIC) codes.

Businesses are automatically assigned an MCC as part of their merchant account underwriting based on product and business description. Some companies can request a specific MCC code as long as they meet the requirements. Some businesses may also fall under multiple categories, so different card brands could assign different codes depending on what they consider the business’s primary product or service. In some cases, a company may be assigned more than one MCC.

MCC codes are used to calculate customers’ credit card rewards, as well as a business’s transaction fees. MCC codes also determine certain rules and regulations on how a merchant can process. Examples of this include recurring billing, rental car settlement times, or special interchange rates on utility merchants.

The Importance of MCCs in Credit Card Transactions

MCCs benefit credit card companies, businesses, and customers alike. They are included in many steps of the payment process, from how payments are accepted to how customers can strategically manage their credit card rewards. Below are some of the top reasons MCCs are significant.

Allows for Controlled Spending

MCCs allow credit card issuers to limit how customers can use their cards. For example, a credit card issuer may create a credit card for travel expenses. Therefore, the card can be set to only accept payments from businesses with travel-related MCCs.

On the other hand, some credit card companies want to restrict customers from spending at high-risk businesses, such as casinos or pawn shops. In this case, the issuer can limit the card from gambling-related MCCs.

Provides Cash Back or Bonus Point Rewards

MCCs also help credit card companies give customers proper rewards based on their purchases. For example, say a customer uses a credit card with cash back on groceries. Based on the grocery stores' MCCs, the credit card company will know which purchases qualify for that reward.

Additionally, customers can use the MCCs to their advantage to get the best rewards deals. For example, customers can compare stores that sell a product or service they need and choose one whose MCC code will give them the highest points or cash back.

You may also benefit from the program if your business falls under an MCC that qualifies for rewards. For example, the credit card company may market your business as one of the brands that gives customer rewards, increasing your sales from those cardholders.

Outlines Services and Purchases for Tax Purposes

While MCCs have expanded to provide many benefits during payment processing, they were initially created for tax purposes. They indicate to a business or credit card company whether certain transactions need to be reported to the IRS for taxation.

The MCC can differentiate between service-based businesses and product-based businesses. Some companies may be required to report service purchases, which are highlighted by the MCC code on credit card statements. MCC codes are becoming increasingly specific in identifying particular types of purchases, including the highly-debated new MCC code to distinguish gun purchases.  

Gathers Data From Cardholders

MCC codes can also help credit card companies and businesses learn more about customer spending habits beyond the form of payment used. You can see how much customers have spent at businesses with the same MCC code when transactions are made.

Sometimes, you can even see details about a specific business. This helps guide insights about customers, businesses, and whole industries.

The Role of MCCs in Business’s Transactions

MCC numbers are an important part of the payment processing system. They are primarily used to establish:

• Correct Interchange Qualifications
• Network Rules and Regulations around the Business Types
• If they can surcharge customers for card transactions

For example, some business types may need to pay more to payment processors, while others might be allowed to charge customers for using certain payment forms.

In addition, MCCs categorize businesses based on levels of risk. Businesses deemed higher risk (such as the casinos and pawn shops mentioned earlier) may have a more difficult time finding payment networks that will process their payments. Or they may need to pay higher payment processing fees. However, businesses that find ways to reduce their risk can qualify for lower fees and higher levels of fraud protection.

Merchant Category Codes List (In Ranges)

The list below outlines the major credit card MCC ranges. Specific MCCs will vary depending on the card issuer, but they all stay within the following ranges:

• 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

Since these are such broad ranges, each category includes smaller ranges of subcategories. For example, "cable services" may fall under MCC 4899. Check with your card processor to understand their specific MCC guidelines.

Fees and Rates: How Are They Determined?

MCCs play a significant role in determining how much your business will pay to process customer payments. The following credit card processing fees may vary depending on your business’s merchant type.

Interchange Rates

Interchange rates are the fees that your business pays to accept a payment. When a customer uses a credit card, you will have to pay a fee to the customer’s bank for them to process the payment. Each bank or card network has its own interchange rates, but one of the factors is your business’s MCC.

The customer’s card issuer might charge varying rates for different types of businesses. In all likelihood, if your business is considered high-risk, your interchange rates will cost more than a business with a lower risk of fraud or chargebacks.

Cardholder Fees

Cardholder fees are costs a business charges to the customer to process a payment. For example, the customer might have to pay the purchase amount plus a $3 fee to process the payment using a card.

However, not all companies are allowed to charge cardholder fees. Only specific businesses (such as government services) can, so your company’s MCC dictates whether you can charge a cardholder fee.

Approval Rates and MCC Codes

Many businesses can qualify for multiple MCC codes based on the products and services they sell. In some cases, the MCC codes and associated risk profile can make a significant impact in the issuer’s overall payment approvals for that business. The most common reason for multiple MCC codes is typically for e-commerce businesses that provide multiple products or services plus subscription offers. This typically means they span generic e-commerce MCC codes as well as product-specific MCCs. In these instances, the underwriter or risk-assessment team will determine the appropriate MCC codes.  

Some acquiring platforms can support the merchant/platform passing MCC on each transaction (as long as it’s approved by their risk/underwriting team), while other acquirers can only link one MCC code to a single MID. Note that usage requirements and regulations require the MCC to persist for that customer from the initial transaction (barring moving to a new acquirer).  

If you believe you qualify or could benefit from multiple MCC codes, we recommend connecting with your processor and billing platform to determine your use case and benefit from making this enhancement.  

MCC can have a significant impact on approvals, so we recommend a review to determine if you are using the correct one. Your MCC code can also impact the cost of chargebacks. Businesses with high-risk MCC codes, for example, may be charged increased chargeback fees.

How To Find a Business’s MCC?

If you are a business owner, you can find your MCC code with a simple online search or phone call. Online searches will yield lists of MCC codes from various credit card processors. However, there may be some confusion about which category your business fits into. If you call your credit card processors directly, they may be able to offer a more definitive answer.

If you are a customer trying to find a business’s MCC, you should be able to find it by reviewing your bank or credit card statements. You should be able to find the business’s MCC code under the “Merchant Description.” If you don’t see the four-digit code, you might instead see just the name of the category, which you can then look up online to find the code.

Streamline Payment and MCC Processing With Revolv3

If you’re searching for a high-powered system for processing MCC payments, Revolv3 is here to help. Revolv3 helps businesses accept a variety of payment methods, including debit and credit cards that use your MCC code for processing and recurring billing systems for subscription-based businesses.

Revolv3 also uses advanced technology, such as dynamic routing, to ensure your payments are processed successfully the first time. To prove our commitment to high-quality payment processing, we only charge for successful payments (whereas other platforms will charge for both successful and failed payments). Contact us today to learn how Revolv3 can help your business streamline payments, MCC processing, and more.

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