Merchant Category Codes are an important identifier used in the payment processing industry to segment transactions into specific categories. Although this is done automatically by most payment processors, merchants need to understand what the codes represent and what they mean for each business.
MCCs affect your business in a variety of ways. They help with risk management and fraud prevention by ensuring that specific merchant activities are identified correctly for taxation, reporting, and compliance purposes. Additionally, having accurate MCCs helps payment processors assess the credit risk associated with your business.
Mastering your MCC knowledge will help you make the best-informed decisions for your business. And it can also provide you with insight into how your payments are being classified and used by payment processors.
Let’s take a closer look at Merchant Category Codes (MCC) and why they matter for merchants.
TL;DR
- Credit card networks use Merchant Category Codes (MCCs) to categorize the type of business a merchant operates.
- MCCs help processors determine applicable interchange fees, simplify invoicing and reporting, and reduce the risk of fraud through additional security measures.
- Understanding these codes and reviewing what you are assigned will ensure you’re accurately charged and compliant for your industry.
What Are Merchant Category Codes (MCCs)?
MCCs are standard codes used by the payment processing industry, specifically merchants, banks, and credit card companies. This four-digit number provides a way of categorizing goods, services, and the types of transactions that businesses conduct on a regular basis.
For example, your MCC might be classified as 5691 (Men’s and Women’s Clothing Stores) if you’re selling clothing online. By using this code, your payment processor will know how to classify, categorize and process the transaction for accounting purposes.
It’s also helpful for your customers, so they can easily identify what type of business they’re making a payment to. When reviewing their credit card transactions, the MCC code will help refresh their memory as to the type of business that payment was to.
Who Sets the MCCs?
The card networks (Visa, Mastercard, American Express, and Discover) set the MCC codes to ensure that merchants are classified correctly. Each code corresponds with a specific type of merchant activity. However, frustratingly, the codes are not always consistent across the different networks.
For example, one credit card company may assign a merchant an MCC code of 7999 for recreation services, while another credit card network may give them a different code instead. This means merchants must be aware of each network’s code to ensure accuracy and compliance.
Thankfully, MCC codes are applied to businesses by credit card processing companies. It is their job to identify the right code. However, as a merchant, you should always be aware of what codes are being used and ensure that they accurately reflect your business type. Incorrect codes may lead to higher processing fees, incorrect taxation of your transactions, and other problems.
Let your payment processor do the groundwork but take it upon yourself to review their code assignments.
How Do You Get a Merchant Category Code Applied to Your Business?
The MCC is assigned to a business when it first sets up its merchant account with a payment processor.
When signing up, the processor will either assign a code or provide a list of codes that can be used to classify different types of businesses. It’s important to go through the list carefully and make sure that your code is correctly assigned and accurately reflects the type of business you are conducting.
It’s also important to note that MCCs may change over time. Regularly check with the processor to make sure that your MCC is up-to-date.
Examples of MCC codes
The list below is by no means complete, but it will help to give you an idea of just how specific the MCCs are to ensure they account for the nuance of each business category.
- 4121 – Taxi cabs and Limousines
- 4131 – Bus Lines
- 4215 – Courier Services and Ground Freight Forwarders
- 4468 – Marinas & Marine Service/Supplies
- 4722 – Travel agencies and tour operators
- 4784 – Bridge and Road Fees and Tolls
- 4829 – Money Orders – Wire Transfer
- 5094 – Precious Stones and Metals, Watches and Jewelry
- 5122 – Drugs, Drug Proprietors, and Druggist’s Sundries
- 5211 – Lumber and Building Materials Stores
- 5310 – Discount Stores
- 5411 – Grocery Stores and Supermarkets
- 5441 – Confectionery Stores
- 5499 – Misc. Food Stores – Convenience Stores and Specialty Markets
- 5533 – Automotive Parts, Accessories Stores
- 5541 – Service Stations ( with or without ancillary services)
- 5542 – Automated Fuel Dispensers
- 5722 – Household Appliance Stores
- 5734 – Computer Software Stores
- 5812 – Eating Places and Restaurants
- 5814 – Fast Food Restaurants
- 5912 – Drug Stores and Pharmacies
- 5932 – Antique Shops – Sales, Repairs, and Restoration Services
- 5933 – Pawn Shops and Salvage Yards
- 5940 – Bicycle Shops – Sales and Service
- 5941 – Sporting Goods Stores
- 5942 – Book Stores
- 5943 – Stationery Stores, Office and School Supply Stores
- 5944 – Watch, Clock, Jewelry, and Silverware Stores
- 5945 – Hobby, Toy, and Game Shops
- 5966 – Direct Marketing – Outbound telemarketing
- 5967 – Direct Marketing -Inbound Teleservices Merchant
- 5992 – Florists
- 5993 – Cigar Stores and Stands
- 5996 – Swimming Pools – Sales, Service, and Supplies
- 6012 – Financial Institutions – Merchandise and Services
- 6300 – Insurance Sales, Underwriting, and Premiums
- 7011 – Lodging – Hotels, Motels, Resorts, Central Reservation Services (not elsewhere classified)
- 7033 – Trailer Parks and Camp Grounds
- 7217 – Carpet and Upholstery Cleaning
- 7230 – Barber and Beauty Shops
- 7261 – Funeral Service and Crematories
- 7394 – Equipment Rental and Leasing Services, Tool Rental, Furniture Rental, and Appliance Rental
- 7512 – Car Rental Companies
- 7523 – Automobile Parking Lots and Garages
- 7699 – Repair Shops and Related Services, Not Elsewhere Classified
- 7995 – Gambling and Betting (Lottery Tickets, Casino Gaming Chips, Off–track Betting and Wagers)
- 8099 – Medical Services and Health Practitioners (Not Elsewhere Classified)
- 8021 – Dentists and Orthodontists
- 8699 – Membership Organizations
- 8999 – Professional Services
- 9311 – Tax Payments
- 9399 – Government Services.
Generally speaking, codes 7300–7999 refer to business services, while codes 4000–4899 are for goods, including transportation services. Letter prefixes may also be used to identify specific types of services or businesses – such as S (service) and R (retail). The letters, however, are not on all networks’ MCCs. You will need to visit the websites of Visa, Mastercard, American Express, or Discover to check how they write the codes. You can find Visa’s MCCs here and Mastercard’s MCCs here.
While there are some differences in the codes between the networks, they are most often the same or similar.
Why Do Merchant Category Codes Matter?
MCCs help payment processors and merchants protect their businesses.
For payment processors, MCCs are used to assess the credit risk associated with specific merchants. Using MCC codes, payment processors can quickly identify high-risk transactions and businesses that require additional security measures or stricter checks before payments are processed.
For merchants, MCCs ensure they get the best rates and most favorable terms for their payment processing services. By having accurate MCC codes, merchants can be sure they’re getting the proper rate and fee structure for their transactions.
Key benefits include:
- Improved fraud protection
- Easier compliance with tax and financial reporting regulations
- Better rates and fees for payment processing services
- More accurate accounting of transactions
- Richer insights into payment processing data.
Accurately categorizing transactions makes it easier to identify suspicious activity or fraudulent payments. It helps merchants to comply with reporting requirements, and MCC codes make it easier to analyze payment data, giving merchants valuable insights into their business.
With accurate MCCs, merchants are best positioned to get paid accurately and on time – without any issues or delays. It also helps to reduce the risk of chargebacks and non-payment issues down the line.
How Are MCCs Used in Credit Card Processing?
MCCs have an interesting history. Initially designed to simplify year-end accounting for the 1099 tax form, they have become a staple for setting fees and assessing risk. While the card networks set them, they are assigned by the credit card processors and used by every institution in between.
But how are they used more practically? Some practical examples include:
Credit card rewards programs
Many credit card rewards programs use MCCs to determine which transactions qualify for points or other rewards. For example, cardholders may get additional rewards or cash back for purchases at restaurants or retailers with a certain MCC code.
Determining interchange fees
As we’ve mentioned above, MCCs are used to identify the type of transaction, which in turn helps to determine the applicable interchange fee. This is determined by the card issuer and is a fee that the merchant pays to the processor for processing a credit card transaction.
Invoicing and reporting
Useful for merchants, many accounting systems will use a merchant’s MCC code to categorize transactions automatically for easier invoicing and reporting. This helps to streamline quarterly or annual reporting processes to leave merchants with more time to focus on the day-to-day running of the business.
ISR (Internal Security Reviews) and other fraud prevention measures
MCCs are used in ISRs, and other additional security measures or stricter checks before payments are processed. This helps to reduce the risk of fraud by making it easier to identify suspicious activity or transactions.
Setting Up Your Merchant Account and MCC
Although all payment processors assign MCCs, they do not all offer the same benefits that MCCs afford. For example, MCCs help merchants to streamline reporting and analyze business performance. However, not all processors have back-end solutions that allow merchants to access these insights.
Stax Payments does. We offer a range of features that enable merchants to track, analyze and report on transactions easily. This information helps you to reach larger audiences and streamline day-to-day operations. Our MCCs are regularly updated to ensure that they best reflect our clients’ businesses and our powerful reporting dashboard allows merchants to get an overview of their performance and make data-driven decisions.
Moreover, we offer the industry’s first flat-rate subscription pricing with no lock-in contract or hidden fees. This allows members to save up to 40% on credit card processing.
Contact Stax Payments today to learn how we can save you money on credit card processing fees and boost performance with MCC data and insights.
FAQs about Merchant Category Codes
Q: What are Merchant Category Codes (MCCs)?
Merchant Category Codes (MCCs) are four-digit identification codes used in the payment processing industry to segment and categorize different types of transactions. It ensures that merchant activities are correctly identified for taxation, reporting, and compliance purposes.
Q: Who assigns the MCCs?
Merchant Category Codes are assigned by credit card networks (Visa, Mastercard, American Express, and Discover) to make sure that merchants and their transactions are classified correctly.
Q: Are the MCCs the same across all credit card networks?
No, MCCs may vary between different credit card networks. For example, a merchant may be assigned one MCC code for recreation services by one credit card company and a different code by another card network. Hence, businesses must stay aware of the codes assigned by different networks to maintain accuracy and compliance.
Q: How can a business have an MCC applied to it?
An MCC is assigned to a business when it sets up its merchant account with a payment processor. The processor either assigns a code or provides a list of codes for the business to choose from to correctly represent their operations. It’s crucial that businesses periodically check their MCC to ensure it stays up-to-date.
Q: Why do Merchant Category Codes matter?
For payment processors, MCCs assist in assessing the credit risk associated with different merchants and transactions. This enables them to identify high-risk activities requiring stringent checks before processing payments. For merchants, accurate MCCs help obtain better rates and fee structures for their transactions, and they improve fraud protection, ensure easier tax compliance, facilitate more robust financial reporting, and provide useful insights into payment processing data.
Q: How are MCCs used in Credit Card Processing?
MCCs are critical in the operation of credit card rewards programs, determination of interchange fees, invoicing, reporting, and the implementation of internal security reviews and other fraud prevention measures. The seamless and efficient use of MCCs ensures timely payments, reduction of chargebacks, and the smooth running of the business.
Q: Can MCCs change over time?
Yes, MCCs may change over time, and businesses are advised to regularly check with their payment processor to ensure that their MCCs remain current and accurate.
Q: What are the consequences of having inaccurate MCCs for a business?
Incorrect MCCs can have several consequences, including higher processing fees and incorrect taxation of transactions. It may also lead to compliance issues; hence, businesses are advised to regularly review and verify their MCCs.
Q: How can a business verify its MCC?
Businesses can verify their MCC by visiting the websites of their credit card networks. Each network provides a list of their MCCs for businesses to cross-check.
Q: What was the original purpose of Merchant Category Codes?
MCCs were originally designed to streamline annual accounting for the 1099 tax form. They have now evolved to serve multiple purposes, including setting fees, assessing risk, and aiding in various aspects of transaction processing.
