What's a Merchant Category Code (MCC)? The Complete Guide

Find out what a merchant category code is, how credit card companies determine it, and how it can affect your business and your bottom line.

Credit card networks use merchant category codes (MCCs) to classify business merchant accounts, so banks can quickly identify which industry the business operates in. MCCs help issuers understand a transaction’s risk level, but can also affect processing fees.

Your 4-digit MCC can disqualify certain transactions in some cases. It can also lead to higher fees, especially if your industry is considered high-risk.

In this guide, I’ll explain how MCCs work, where you can find yours, and how exactly your MCC can affect your day-to-day operations.

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What Are Merchant Category Codes and How Do They Work?

A merchant category code is a 4-digit identifier that’s attached to your business, according to your industry and the services or goods you offer. It’s mostly for the benefit of payment service providers and banks, as they use the MCC as a quick way of calculating fees and risk levels for various transactions.

What was once a simple identifier for 1099 tax forms, the MCC has become essential for credit card payment processing. Each credit card network has its own MCCs according to policy, so if one network considers an industry to be high-risk, this might not be the case for another.

Aside from using MCCs to set fees, banks and payment service providers can use them to prevent transactions from taking place. Financial institutions can refuse to handle transactions for so-called ‘high-risk industries’.

Card networks can remove or change MCCs, too, so it’s important to keep your MCC up-to-date so you don’t run the risk of paying more in fees than you need to.

How Can You Find Your Merchant Category Code?

You need to know your MCC so you can understand the fees you’re paying on transactions. It’s not immediately obvious what your MCC is, since it doesn’t appear on your statement.

While you could request an MCC that you feel reflects your industry and the services you offer, there’s no guarantee that you'll get it unless you meet the strict criteria.

To find your MCC, reach out to your credit card processor and they should be able to tell you what code you’ve been assigned.

How Does Your Merchant Category Code Affect Your Business?

There are various ways an MCC can affect your business, including the following:

Payment Service Provider Application

If you’re yet to choose your payment service provider, knowing your MCC can save you a lot of time. Payment service providers may decide not to work with you if you fall into a certain MCC which they deem to be high-risk.

If you do have a high-risk MCC, then you should limit your search to payment service providers that provide high-risk merchant accounts.

Credit Card Rewards

While it may not directly affect you as a merchant, your customers pick up credit card rewards according to MCCs. As a result, it’s possible to incentivize credit card purchases when you branch out in your business and open up a store or restaurant for example.

Fee Rates

One of the main reasons you should know your MCC is to understand what rate you pay transaction fees at. For example, credit card networks set their own interchange fees based on MCCs.

It’s important to make sure your MCC accurately reflects your business activity, because if it doesn’t, you could be paying higher interchange fees than you need to.

Convenience Fees

Convenience fees are similar to surcharges: they allow you to add a fee to nonstandard payment methods to recoup money lost to processing fees. Since this type of charge isn’t available to every business type, you need to know your MCC if you want to add them to transactions.

Chargeback Security

Chargebacks are when customers dispute a charge to their account, and can affect your risk level in the eyes of payment service providers which could result in higher fees.

Certain MCCs will provide more protection from chargebacks for CNP transactions. Generally, the higher the risk level of the MCC, the greater the fees will be for each chargeback.

Should You Update Your Merchant Category Code?

Since MCCs can change, it’s worth staying on top of recent changes and updating your code when necessary.

The nature of your business could change over time, in which case you should update your MCC so it reflects your current business activities. If you offer different services or products, contact your payment service provider to see if you need to change your MCC.

If you find that a lot of your transactions are getting declined, this could also mean that it’s time to change your MCC. If this is the case, there’s a good chance that your MCC is incorrect, so to avoid losing money on potential sales you should update it as soon as possible.

To give you an idea of whether you qualify for lower interchange rates, here a few types of businesses and sectors that do:

  • B2B businesses
  • Healthcare
  • Education
  • Nonprofits

Card networks like Mastercard and Visa also provide more affordable interchange rates in what they consider emerging markets. That means if your business operates in an industry that has only recently started accepting credit card payments, you could update your MCC for more affordable fees.

The Bottom Line: Merchant Category Codes 

Not knowing your MCC could mean you’re paying higher fees than necessary, having some transactions blocked, or missing out on opportunities to make more money from your customer base.

Find out your MCC by contacting your credit card processor, and you'll have more transparency with some of the fees you’re paying on credit card transactions.

You can use Pay.com to receive payments online. Our rates are completely transparent, so you know exactly what you’re paying on each transaction. Flat-rate per-transaction pricing allows you to calculate risks in advance as you know you won’t be surprised by hidden costs.

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FAQs

Who assigns merchant category codes?

Credit card networks assign merchant category codes according to their policy. Each network has its own views on what a high-risk industry is and how to classify various products and services businesses can offer.

How does a high-risk merchant category code affect your business?

A high-risk merchant category code in most cases will lead to higher fees. It can also negatively impact your application to acquirers for a merchant account or with a payment service provider, since it’s a risk for them to work with your business.

Can an MCC lead to a declined transaction?

Yes, an MCC can lead to a declined transaction in some cases. For example, if you run a gambling agency, and a customer from a country or state in which gambling is prohibited attempts to make a purchase form you, it can be turned down.

How can my business accept payments?

Pay.com is the best way to accept payments online. You can choose to accept a wide variety of payment methods, and we use 3D Secure 2.0 (3DS2) authentication to protect you from fraudulent transactions.

Meet the author

Sam Dixon

A writer with a keen interest in software and finance, Sam has spent the past several years producing content out of Seville, Spain. He keeps up to date with all things tech and enjoys reading when he has a spare minute.

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