Merchant Category Code: What It Means for Your Business

Have you ever observed that while some credit card purchases result in rewards or cashback, others do not? In a similar vein, have you ever wondered why some transactions have higher fees? Merchant category codes (MCCs) hold the key to the solution.

Businesses are grouped by industry using these four-digit numbers. They therefore have an impact on tax forms, transaction fees, and who is eligible for incentives.

Because of this, it is important for business owners to understand merchant category codes. Higher transaction fees, decreased conversion rates, missed reward opportunities, or needless tax complications can result from an incorrect MCC. At CardCorp, we assist companies in confirming their MCC and making sure they are configured for economical payment processing.

Whether you’re a small business owner or a large enterprise, knowing how MCC codes work can save you money and streamline your payment processing. Additionally, customers can maximise their credit card rewards by comprehending how their purchases are categorised.

Now, let’s break down what MCCs are, how they work, and why they matter.

What is a Merchant Category Code?

The term “merchant category” means a system used by payment networks to classify businesses by their products. Every company that takes cards is assigned an MCC code.

A supermarket, a restaurant, and a travel agency, for instance, all have distinct merchant category codes. As a result, banks and credit card companies use these codes to keep track of transactions, calculate fees, and identify which purchases are eligible for rewards.

However, if a business has the wrong MCC code, it can affect its bottom line. Some providers may not be a good fit for your MCC – here are 5 red flags to watch when evaluating your payment processor. Higher fees, incorrect reward categorisation, and even tax misreporting can all result from an incorrect code. That’s why CardCorp helps businesses confirm they have the right merchant category to avoid these issues.

What’s more, many merchants don’t realise that their assigned MCC can also impact chargeback rates. Certain MCCs are considered high-risk due to frequent disputes – here’s how to prevent fraudulent chargebacks and reduce your exposure.

There may be more disputes in some high-risk industries, such as travel or subscription services. As a result, payment processors may implement more stringent fraud prevention measures. Businesses can use improved fraud prevention techniques if they have a better understanding of this.

How Are MCC Codes Assigned?

An MCC is assigned by the payment processor to a business when it begins to accept card payments. This is determined by the business’s primary activity, payment collection flow, and related risk. For example, a payment made over the phone is regarded as more risky than one made online. Making sure the company belongs to the appropriate industry category is the aim. However, mistakes can happen, and they can be expensive.

Specifically, your MCC code affects several key areas:

• Processing fees – Some industries pay higher transaction fees because of perceived risk. For instance, gambling businesses usually pay more than grocery stores.
• Conversion rates – Payment processors decline more transactions with a higher risk level, so incorrect categorisation can lead to lost revenue.
• Credit card rewards – Many credit card issuers give bonus points or cashback for specific MCC codes. Thus, if someone misclassifies a restaurant as a retail store, customers may miss out on dining-related rewards.
• Tax reporting – Some MCCs determine whether transactions qualify for tax deductions. As a result, using the wrong code can make financial reporting more complicated.

Equally important, choosing the right high-risk merchant account is just as important as having the correct MCC. This ensures lower fees and better payment processing terms.

Banks and payment processors may review MCC classifications from time to time to make sure they are correct. If that happens, businesses that change their services may need to update their MCC code. Therefore, regularly reviewing this can help businesses maintain the most cost-efficient categorisation.

Why the MCC Code List Matters

Every category that could be applied to a business is included in the MCC code list. Therefore, accurate fee assessments and reward processing depend on having the correct MCC.

Verifying your merchant category code list is essential from a business standpoint to make sure you aren’t paying excessive fees. A minor MCC error could cost you thousands each year.

Likewise, customers can make the most of their credit card rewards by understanding merchant category codes. Knowing how a transaction is classified helps you maximise perks. For instance, travel credit cards give extra points for airlines and hotels – but only if the purchase is categorised correctly.

At CardCorp, we help businesses navigate the MCC code list to make sure they’re in the best category for their industry. Additionally, we ensure that businesses understand what MCC means, what a merchant code is, and what MCC stands for to prevent costly mistakes.

On the other hand, keeping an updated MCC list is also crucial for businesses that deal with multiple revenue streams. A company offering both retail and online services, for example, may require different MCCs depending on how transactions are processed. By understanding this complexity, businesses can avoid unnecessary disputes with payment processors.

Where to Find the Merchant Code List

To assist businesses in determining their classification, a number of banks and payment processors offer a list of merchant category codes. Not all of them, though, make it simple to locate.

To find out your MCC, you can:

1. Check with your payment processor – They should provide your MCC upon request.
2. Look at your transaction statements – Some banks list MCCs in billing reports.
3. Contact CardCorp – We can review your MCC and help you switch to the most cost-effective category.

Ultimately, getting the correct merchant category is essential for avoiding unnecessary costs. For businesses handling multiple payment channels, payment orchestration can help centralise and optimise processing across all MCCs. With CardCorp’s merchant services, you can ensure your business is properly categorised and optimise your payment processing setup.

The Impact of MCC Codes on Business Costs

Your expenses are directly impacted by your MCC code. Misclassification may result in:

• Higher interchange fees – Credit card companies charge different fees based on business type.
• Lost rewards for customers – If your business is misclassified, cardholders may not earn the rewards they expect.
• Compliance issues – Some industries have strict regulations. The wrong MCC could lead to compliance headaches.

In many cases, businesses working with an independent sales organization often benefit from expert support in reviewing their MCC. ISOs can help negotiate better rates and assist in reclassification if needed.

Many business owners don’t realise they can request an MCC review. At CardCorp, we specialise in correcting MCC errors, ensuring businesses get the best rates and avoid unnecessary fees.

How to Change Your MCC Code

If your business has the wrong MCC code, you may be able to change it. To do this, follow these steps:

1. Contact your payment processor – Request a review and provide supporting documentation about your business type.
2. Gather proof – Invoices, website details, and business licences can help show the correct categorisation.
3. Work with a payment expert – CardCorp assists businesses in reclassifying their MCC to ensure the lowest fees and best reward eligibility.

Additionally, businesses operating in regulated industries should ensure compliance with industry security mandates in addition to PCI security standards when processing payments. Proper classification and adherence to security protocols can help prevent fraud and reduce risk.

Changing your MCC is never simple, but in the long run, it can save you a lot of money. So, if you suspect you’re in the wrong category, it’s worth looking into.

Conclusion

Understanding merchant category codes is key to managing payment processing costs, earning rewards, and staying compliant with tax regulations. MCCs are essential to every transaction, whether you’re a consumer trying to maximize credit card benefits or a business owner trying to cut costs.

At CardCorp, we help businesses navigate the merchant category code list, ensuring they get the best payment terms. If needed, we can help you fix incorrect MCC classifications.

The next time you swipe or tap your card, keep in mind that more is going on behind the scenes!