Better Understand Merchant Category Codes (MCC) as a Merchant
As a merchant, it's essential to have a solid understanding of the various systems and tools that govern the payment processing landscape. One such system that plays a crucial role in payment transactions is the Merchant Category Code (MCC). In this article, we will delve into what MCCs are, how they work, and why they matter to merchants.
What are Merchant Category Codes (MCCs)?
Merchant Category Codes (MCCs) are four-digit numerical codes used to classify businesses into specific industry categories based on the types of goods or services they provide.
MCCs were introduced by the International Organization for Standardization (ISO) and are now managed by the payment card networks, such as Visa, Mastercard, American Express, and Discover. Each card network maintains its own MCC system.
How do Merchant Category Codes work?
When a customer makes a purchase using a credit or debit card, the MCC associated with the merchant is transmitted as part of the payment information. The MCC helps the card issuer or payment processor identify the nature of the transaction and apply the appropriate interchange fees or rewards programs.
The MCCs play a significant role in determining how much the merchant pays in interchange fees, which are fees charged by the card networks to cover the cost of processing transactions. Interchange fees can vary based on the risk associated with a particular industry or the type of transaction.
For example, businesses in high-risk industries, such as gambling or adult entertainment, often have higher interchange fees compared to lower-risk industries like retail or groceries.
Why do Merchant Category Codes matter to merchants?
1. Interchange Fees: As we have mentioned above, MCCs are crucial for merchants because they directly impact the interchange fees they pay. By correctly categorizing their business, merchants can ensure they are charged the appropriate fees for their industry. Misclassifying a business can result in higher interchange fees, leading to increased costs.
2. Rewards Programs: Many credit card issuers offer rewards programs to their cardholders based on MCCs. For example, a credit card may offer bonus rewards points for spending at restaurants or gas stations. By knowing which MCCs are eligible for these rewards programs, merchants can attract customers who are looking to maximize their rewards by shopping within specific categories.
3. Payment Acceptance: Some payment processors or acquiring banks may have restrictions or specialized services based on MCCs. For instance, certain high-risk industries may require specialized processing solutions or face additional scrutiny due to regulatory requirements. Understanding the MCCs associated with their business helps merchants find the right payment processing partners and solutions tailored to their needs.
4. Reporting and Analysis: Proper classification of business transactions using MCCs allows merchants to generate accurate reports and gain insights into their sales data. MCC-based reporting helps merchants track their performance across different categories, identify trends, and make informed business decisions.
How can merchants ensure accurate MCC classification?
To ensure accurate MCC classification, merchants should:
1. Consult with your payment processor: Merchants should consult with their payment processor or acquiring bank to understand the MCC associated with their business and confirm it is correctly categorized. It is important to review and update the MCC periodically, especially if there are any changes to the nature of the business.
If you have any questions regarding your MCC, please contact our team.
2. Review Transaction Data: Merchants should review their transaction data regularly to identify any discrepancies in MCCs. If they notice any inconsistencies or errors, they should contact their payment processor to rectify the issue.
3. Stay Informed: As the payment processing landscape evolves, new MCCs may be introduced, and existing ones may be modified. Merchants should stay informed about any updates related to MCCs and ensure their business remains properly classified.
Examples of MCC categories:
Local and suburban commuter passenger transportation, including ferries
Duty free shops
Digital Goods: Games
Jewelry, watch, clock and silverware shops
Camera and photographic supply shops
Cosmetic shops
Carpet and upholstery cleaning
Advertising services
Computer programming, data processing and integrated systems design services
Miscellaneous food shops — convenience and speciality retail outlets
Package shops — beer, wine and liquor
Conclusion:
Merchant Category Codes (MCCs) are an essential component of the payment processing ecosystem. By understanding and accurately categorizing their business using MCCs, merchants can ensure they are charged appropriate interchange fees, attract customers through rewards programs, find suitable payment processing solutions, and leverage data for informed decision-making. It is vital for merchants to stay informed and regularly review their MCC classification to optimize their payment processing operations.
About the author: Silkpay
Based in Paris, Silkpay provides omnichannel and secure payment solutions to help physical stores and e-commerce in Europe accept more than 30 of the world's most popular payment methods: Visa, Mastercard, CB, UnionPay, Alipay+, WeChat Pay as well as Asia-Pacific’s major e-wallets.
Silkpay is a winner of the LVMH Innovation Award. The company was also selected as a finalist for the "Money 20/20" Best Startup and in the "MPE Berlin” Startup Awards. Silkpay also won the "Best Fintech" awards from Capgemini and BPCE.
Silkpay helps merchants deliver the smoothest payment experience to their customers. We are a talented and international team driven by a single goal: to improve the customer experience and make payments simple and secure.