How Your Merchant Category Code (MCC) Affects Your Credit Card Processing Rates

Have you taken a look at your Merchant Category Code or MCC lately? The code can directly influence how much you will spend on interchange fees when accepting credit card payments. The ways how it impacts your spending efforts can be significant.

Understanding the MCC

A Merchant Category Code is a four-digit code that lists the type of business you operate. It may also highlight the kinds of products or services you are selling.

Each type of business has a distinct MCC. A duty-free store will have the MCC of 5309, while a hardware store uses the MCC 5251. A massage parlor’s MCC would be 7297. In short, you will use a unique MCC surrounding whatever you provide to your customers.

The MCC system was originally designed for 1099 tax form reporting purposes. But it has evolved to where credit card issues can use the data to dictate the interchange fees companies will spend. A company may pay a fee based on one’s MCC. It could be higher or lower than what the charges are for a competing MCC.

All card networks use similar MCCs. They are not always willing to be open about what MCCs they offer, but they are mostly the same all over.

How Can You Identify Your MCC?

It isn’t as easy to identify your MCC as you wish, nor is it easy to choose one. Your card processor will mark an MCC for your business when you apply for services.

You may request a different MCC, but you’d have to provide extensive details surrounding what you sell and how much money you rake in from those sales. But there’s no guarantee you will get that MCC you requested.

Your business could also fall under multiple MCCs if you sell an assortment of products or services. For example, a department store might have a food court in its location. A traditional clothing purchase can support one MCC, while a food court purchase will follow a different code.

You can contact your processor for details on your MCC, but not all parties are this receptive.  Visa has a supplier locator to help you find MCCs, and MasterCard has a macro list of MCCs, but they may not always list your precise MCC. You can check earlier payment details surrounding your business to see what MCC your business appears under on credit card statements. The listing may feature an MCC number, or it might list a unique category.

What the MCC Dictates

An MCC will influence your credit card processing rates in many ways. Here are some of the things an MCC can identify surrounding your business, with each of these points impacting your processing charges:

  1. The risks your business holds

The most important point about an MCC involves how it dictates the interchange rates you spend on each transaction you complete. A credit card processor will review your business surrounding its risk for chargebacks, fraud, or other concerns. Companies with the highest risk levels will pay the most substantial interchange rates. They could be one percentage point higher than what another business type might spend.

Whether there are chargeback protections in your industry

Not all MCCs are eligible for chargeback protection. Direct marketing and money order services are among the businesses that don’t qualify for this point. Any group that cannot attain security against potential chargebacks will spend more money on transactions. You will spend more on credit card charges if your business remains vulnerable to potential chargebacks.

Whether your business can charge convenience fees

A convenience fee is a charge added to some payment methods. The customer can pay the cost to offset your interchange rate expenses. Sometimes the charge could be applicable only on credit card purchases, for example.

Some MCCs may suggest that your business is taking in convenience fees, thus prompting you to spend more on each deal. Each processor will have different ideas for which businesses are more likely to charge convenience fees, and your industry could be one of them.

Whether a deal qualifies for rewards

The MCC can also dictate what purchases qualify for unique reward programs. This point is part of why airlines, car rental companies, and lodging entities all have unique MCCs. Some of these parties provide credit cards where people can earn extra rewards through in-company purchases. For example, Fairfield Hotels has an MCC of 3697, while Hampton Inns has a code of 3665.

You could run a business that falls under certain MCCs that link to reward programs. Let’s say that you run a restaurant. A customer might use a credit card that offers reward points on dining purchases. The purchase the person makes at your restaurant will provide reward points. You may spend more on processing costs because the card issuer needs to offset the expenses surrounding the reward scheme.

Possible restrictions over what cards you can accept

Some cards are programmed to where they cannot work at some business sites. There may be MCC restrictions where a card cannot be utilized at businesses that meet certain codes. A credit card used to cover healthcare purchases may not be accepted at dining establishments, for example. These limits encourage people to use their cards only for specific purchases.

This point may influence the processing fees you collect in that you might be subject to a smaller rate if your business can accept a card with such restrictions. The rates for these cards may be minimal because there are fewer places where they can be utilized. The card might not be exposed to many high-risk venues.

Watch For Your MCC

Be certain when looking at your MCC that you understand how it can influence what you’re spending on credit card processing fees. Watch for how you can accept certain cards, and be aware of some of the things you’re doing in your business when reviewing your possible charges.