Have you ever noticed that some credit card purchases earn cashback or rewards, but others do not? Similarly, have you wondered why certain transactions come with higher fees? The answer lies in merchant category codes (MCCs).
These four-digit numbers group businesses by their industry. As a result, they affect transaction fees, who can get incentives, and tax forms.
For this reason, understanding merchant category codes is essential for business owners. An incorrect MCC can lead to higher transaction fees, lower conversion rates, lost reward opportunities, or unnecessary tax complications. At CardCorp, we help businesses verify their MCC and ensure they are set up for cost-effective 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. In addition, consumers can benefit by understanding how their purchases are categorised, which helps them optimise credit card rewards.
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. Each business that accepts cards gets an MCC code.
For example, a restaurant, a travel agency, and a supermarket all have different merchant category codes. Consequently, these codes help banks and credit card companies track transactions, determine fees, and decide which purchases qualify 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.
Some high-risk areas, like travel or subscription services, may have more disputes. Therefore, this can lead to stricter fraud prevention measures from payment processors. Understanding this can help businesses implement better fraud prevention strategies.
How Are MCC Codes Assigned?
When a business starts accepting card payments, its payment processor assigns an MCC based on its main activity, payment collection flow, and associated risk. For instance, a phone payment is considered a higher risk than an e-commerce payment. The goal is to ensure the business falls into the correct industry category. Nevertheless, errors can occur, and these mistakes can be costly.
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
The MCC code list includes all possible categories assigned to businesses. Thus, having the correct MCC is essential for accurate fee assessments and reward processing.
From a business perspective, checking your merchant category code list to ensure you aren’t overpaying on fees is vital. Even a small MCC mistake 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
Many banks and payment processors provide a merchant category code list to help businesses determine their classification. However, not all of them make it easy to find.
If you’re unsure about your MCC, you can:
- Check with your payment processor – They should provide your MCC upon request.
- Look at your transaction statements – Some banks list MCCs in billing reports.
- 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 MCC code directly affects your expenses. If misclassified, it can lead to:
- 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:
- Contact your payment processor – Request a review and provide supporting documentation about your business type.
- Gather proof – Invoices, website details, and business licences can help show the correct categorisation.
- 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. Whether you’re a business owner trying to reduce fees or a consumer looking to maximise credit card perks, MCCs play a major role in every transaction.
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 use your card, remember – there’s more happening behind the scenes than just swiping or tapping!