MCCs are numerical codes given to retailers to classify different types of businesses. It’s an acronym for Merchant Category Codes, which are four-digit numbers that classify the type of services provided.
Merchant Category Codes are particularly important for SMBs. That’s because your MCC helps to determine what you pay for credit card processing. It can also influence what rewards your customers are eligible for when they make purchases at your store.
So, what does MCC mean for SMBs and why do you need to know yours? We’ll answer all these questions and more in the article below.
What Does MCC Stand For?
The meaning of the abbreviation MCC is pretty simple. Merchant Category codes are unique numbers given to retailers by credit card networks––Visa, Mastercard, American Express, and Discover. They’re standardized codes used to identify the type of business. Although MCCs are often communicated to merchants via their merchant bank, they’re determined by the credit card networks.
Merchant Category Codes Explained
MCCs are assigned in two ways: by merchant type or by merchant name. But merchant name classifications pertain more to megalith travel businesses than SMBs. So, for the purpose of this article, we’ll focus on merchant type classifications.
In 2004, MCCs became a requirement for all businesses that process credit card transactions. MCCs are also generally standardized across credit card networks. This means that whether your customer uses a Visa, AmEx, Discover, etc., your business’s MCC will remain the same.
Retailers can have more than one MCC that pertains to different aspects of their business. If a store sells home furnishings and lottery cards, for instance, that business might have two different MCCs for the different facets of the business and the risk they entail.
MCCs are separated by merchant classification, not by customer purchases. Say a customer who has a rewards card offering 3% cashback on travel, rents a car from a private business that is under a retail MCC (not travel). The customer won’t actually get cashback on that purchase, since the merchant’s MCC isn’t categorized correctly.
This phenomenon is why some customers have become so diligent about asking about MCCs for their rewards card purchases.
How MCCs Work
You don’t have to worry about adding your MCC to customers’ receipts or credit card statements. They’re added automatically by your customers’ credit card company. Fortunately, since MCCs are standardized, you don’t have to worry about your customers’ credit card issuer miscategorizing your business.
At times, customers have rewards cards that increase benefits for certain transaction categories. An airline rewards card, for instance, may only offer rewards on travel, hotel, or car rental purchases. MCCs will be particularly important for this type of customer. In fact, they’ll often ask for your business’s merchant category code to ensure they’re getting the right benefits on their purchase.
MCCs are also how credit card issuers categorize the risk of doing business with a specific merchant. The higher risk your industry, the more you’ll pay to process customer transactions.
In some cases, your MCC won’t even match the majority of the inventory you’re selling. This can happen if your store moves into a new merchandise category and you don’t update your MCC.
Say you move from selling mostly high-risk inventory to a lower risk inventory category. You’ll want to update your MCC to ensure you aren’t paying more than necessary for credit card processing.
What are the Different MCCs?
When businesses sell multiple types of inventory, the MCC will describe the classification that fits most of the businesses’ inventory. Although MCCs are generally standardized, different card companies can define purchases differently. All MCCs aren’t charged equally.
The credit card issuer determines the category that your inventory falls under. The groupings for rewards point programs are also determined by the credit card issuer. Because of this, you may want to take a look at a few different issuers’ classification categories. Here’s Visa and Mastercard’s list. The IRS also publishes a full list of MCCs on its official website.
Why Should Merchants Care About MCCs?
You should care about your MCC because it impacts your bottom line. The MCC your business falls under helps determine what you pay your credit card processor for interchange fees.
Customer purchases are automatically categorized as they happen. Since credit card processing comprises one of the biggest monthly expenses of most businesses, it can be a competitive advantage to know your MCC.
Knowing your MCC can also help your bottom line by preventing chargebacks. Chargebacks happen when customers decline or dispute a purchase. Oftentimes, they’ll happen when your customers don’t recognize a merchant category code on their bank statement or credit card bill.
Your customers also may not recognize the MCC on their bank statement, which could cause them to dispute the purchase. This could result in chargebacks, which are one of the most expensive mistakes you can make in credit card processing.
Say you’re operating a greeting card business, but you used to sell lottery cards. If your business is still classified as a high-risk MCC, you’ll pay more than necessary for credit card processing. So, you’ll want to keep your MCC up to date to avoid customer confusion and unnecessary fees.
Customers with rewards cards may also expect you to know your MCC so that they can get benefits from their purchases. This is particularly true if you’re in the travel industry or own a non-profit business.
The Bottom Line
The MCCs your business operates under, play a big role in what your SMB pays for credit card processing. Once you’ve confirmed your MCCs, you may be wondering how else you can save money on credit card processing. How does a savings of $400 a month sound?
Payment Depot helps SMB owners like you save an average of $400 or more on credit card processing. We use a membership model fee structure, so there are no surprises on your monthly bill. Just affordable, award-winning credit card processing you can trust. Contact us today to learn more.
Quick FAQs about Merchant Category Codes
Q: What are Merchant Category Codes (MCCs)?
Merchant Category Codes (MCCs) are four-digit numbers assigned to businesses to classify different types of services or products offered. They are used by credit card networks to identify the type of business.
Q: Who assigns the MCCs?
MCCs are assigned by credit card networks such as Visa, Mastercard, American Express, and Discover. The merchant’s bank usually communicates the MCC to them.
Q: How are MCCs assigned to businesses?
MCCs are assigned in two ways: by the merchant type or by the merchant name. However, for most small and medium-sized businesses (SMBs), classification by merchant type is more relevant.
Q: Are MCCs the same across different credit card networks?
Yes, MCCs are generally standardized across credit card networks. This means that regardless of whether a customer uses a Visa, AmEx, Discover, etc., the business’s MCC will remain the same.
Q: Can a business have more than one MCC?
Yes, retailers can have more than one MCC that pertains to different aspects of their business. For instance, a store that sells home furnishings and lottery cards might have two different MCCs for the different facets of the business and the risk they entail.
Q: How do MCCs affect customer rewards?
MCCs can influence the rewards customers receive from their credit card company. For example, if a customer has a rewards card offering cashback on travel, but rents a car from a business classified under retail, not travel, they won’t receive that cashback.
Q: Do businesses have to manually add their MCC to customer receipts?
No, MCCs are automatically added to customers’ receipts or credit card statements by their credit card company.
Q: How do MCCs impact credit card processing fees?
MCCs help credit card issuers categorize the risk of doing business with a specific merchant. The higher risk your industry, the more you’ll pay to process customer transactions.
Q: What happens if a business changes its inventory but doesn’t update its MCC?
If a business shifts to a new merchandise category and doesn’t update their MCC, it may lead to higher than necessary credit card processing fees. This is because the MCC still represents the previous, potentially higher-risk inventory.
Q: Where can businesses find a list of MCCs?
Businesses can find a list of MCCs on the official websites of Visa, Mastercard, and the IRS.
Q: Why should businesses care about their MCC?
Businesses should care about their MCC because it impacts their bottom line. The MCC helps determine what a business pays their credit card processor for interchange fees. It can also prevent chargebacks, which occur when customers dispute a purchase due to unrecognized MCCs on their statement.
Q: Can customers ask for a business’s MCC?
Yes, customers with rewards cards may ask for your business’s MCC to ensure they’re getting the right benefits on their purchases. This is particularly common in the travel industry or with non-profit businesses.
Q: How can businesses save money on credit card processing?
Businesses can potentially save on credit card processing fees by understanding their MCC and ensuring it’s up to date with their current inventory or services. They can also consider using a membership model fee structure for credit card processing, as suggested by companies like Payment Depot.
