You know how different credit cards offer rewards in different categories? Gas, groceries, gym memberships... cardholders have abundant opportunities to earn cash back bonuses and other rewards.
But... how do credit card companies know which purchases fall under the corresponding category? Do they look at a cardholder’s statement and manually decide which purchases count and which don’t?
Of course not. The decision is based on the seller’s merchant category code.
What is a Merchant Category Code?
- Merchant Category Code
A merchant category code, or MCC code, is a four-digit identifier that describes the type of goods or services provided by a business. The International Organization for Standardization (ISO) sets MCC meanings and classifications, and card processors are responsible for assigning an MCC to a merchant at the start of their relationship.
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Banks use MCCs to classify merchants based on the products or services they offer. In turn, this lets card issuers provide category bonuses to cardholders, and helps acquiring banks assess merchant risk and determine the interchange rates that the merchant will pay. MCCs are also used to determine how a transaction should be reported for tax purposes.
MCCs are standardized under ISO 18245, a set of guidelines developed by the International Organization for Standardization (ISO). For example, merchants that are categorized as “Professional Services and Membership Organizations” are assigned MCCs in the 8XXX range, while “Government Services” merchants are assigned MCCs in the 9XXX range.
Unlike merchant identification numbers, or MIDs, which are 15-digit alphanumeric codes that are unique to every merchant, multiple merchants can be assigned the same MCC.
List of MCC Code Ranges
There are hundreds of MCCs published by the ISO. They’re not allocated at random; instead, they fall into broad, general ranges based on the first digit of the MCC.
The merchant category code listings for these code ranges are as follows:
0001–1499
Agricultural Services
1500–2999
Contracted Services
3000–3299
Airlines
3300–3499
Car Rental
3500–3999
Lodging
4000–4799
Transportation Services
4800–4999
Utility Services
5000–5599
Retail Outlet Services
5600–5699
Clothing Stores
5700–7299
Miscellaneous Stores
7300–7999
Business Services
8000–8999
Professional/Membership Organizations
9000–9999
Government Services
The MCC codes used by the card networks don’t always match one another. A merchant can have one code with Visa, but a different MCC with Mastercard, for example.
Why are MCCs Necessary?
We touched on this a little up above. but, let’s get into a little more detail.
Merchant category codes were introduced by the Internal Revenue Service in 2004. The purpose was to simplify 1099 tax reporting, which involves reporting payments made to contractors and other miscellaneous income. Today, MCCs are used in a much broader range of situations, and they impact merchant operations throughout the year (not just at tax time).
Merchant category codes influence:
One store may have multiple MCCs for different products, and reward points are awarded based on the location of purchase, not the purchase itself. Think about a big box store or wholesale club, for example. A cartful of groceries may qualify if you take it through the main checkout. But check out through the store’s garden center, which could have a separate code, and it may not qualify.
Real-World Examples
MCC codes have roots in the International Organization for Standardization (ISO) codes and the Standard Industrial Classification (SIC) system. However, card networks sometimes tailor these codes to better fit their needs.
Here are a few examples of how MCC codes can come into play:
Getting Cash-Back Rewards On Purchases
Let’s say you’re a cardholder, and you have a credit card that offers 2% cash back on dining. Any transactions you make with a merchant designated with MCC code 5812, representing “restaurants,” should earn you that extra 2% reward.
Differing Fees For Different Operations
The interchange fee that a business pays can be influenced by its MCC. For instance, say you’re running a business flagged under the “gas station” MCC. But, you’re also involved in car rentals. You might pay different swipe fees compared to a company that only handles car rentals.
You Hire A Freelancer
Companies often contract services from freelancers or external entities. If you hire freelancers, then you might have a duty to notify the IRS and provide a 1099 form to the service provider. MCC can be a handy tool to determine if the transaction merits reporting in each case.
We should also point out that a change in business direction could leave a merchant with a code that doesn’t really describe what they do. For example, let’s say you’re a plumber, and you open up your own shop. You’re probably gonna be assigned MCC code 1711: Heating, Plumbing, A/C.
Over time, though, your work evolves to specialize more on installing sprinkler systems. What do you do then? And, what about when that leads you to start offering other lawn care services, and the business eventually morphs into a landscaping company? Your services would be completely different, but the code would remain the same unless a request to change it gets submitted and approved.
How To Lookup a Merchant Category Code
A merchant’s MCC may — or may not — be visible on the merchant’s statement.
The easiest way to find one's merchant category code is to look at the billing descriptor that appears on a customer's statement after a transaction. It might show the four-digit code, or it might simply list the category's name. You can then cross-reference the category name with the numeric MCC.
But, how can you make sure that the MCC assigned accurately reflects the merchant’s business? You can use our handy MCC tool above to look up MCC codes individually, and make sure they fit your core business:
Merchant Category Code Lookup Tool
MCC Codes, Declines, & Chargebacks
Transaction declines can happen if a cardholder tried to use a card that’s restricted to specific merchant category codes. EBT cards, reward cards, or health care savings cards fall under this mantle. So, if a cardholder tries to use these cards for purchases that are not authorized for that card type, the decline will show up as an MCC code error.
Issues could also arise if the merchant in question has restrictions placed on them due to their MCC code, or they recently changed their merchant status. These situations can be read as MCC code errors, too. Ideally, the merchant and their staff should recognize cards that may not be approved for transactions at their establishment.
Plus, like we mentioned above, merchant category codes directly impact chargeback management, too. Businesses assigned a high-risk MCC code are subject to higher fees for individual chargebacks. They can become fee-eligible more quickly than other merchants. And, regardless of the merchant’s actual track record with chargebacks, they may be required to set aside funds in a designated reserve account to cover potential future chargebacks.
Align Your MCC With Your Business Goals
Typically, merchants have little say when it comes to their MCCs. Payment networks assign merchants to MCCs during signup. That said, merchants may be able to request specific MCCs or ask to be re-assigned a different MCC, if they believe their current assignment doesn’t fit their core business.
If you're interested in learning how to use merchant category codes to your advantage, reach out to Chargebacks911® today. Our payment industry experts can help you navigate opportunities and avoid pitfalls when it comes to MCCs.
FAQs
How do I find my MCC code?
You can find your Merchant Category Code (MCC) by contacting your payment processor or acquiring bank. Alternatively, you can search online databases or tools provided by credit card networks like Visa or MasterCard.
What is the MCC industry code?
The MCC is typically a four-digit number used to classify the type of business based on its primary products or services.
What is an example of a MCC code?
There are hundreds of distinct or MCC codes. It gets rather granular; for example, the MCC for bookstores is 5942. This four-digit number helps classify businesses that primarily sell books.
How do I get a merchant ID number?
A Merchant ID number (MID) is assigned to a business when they set up a merchant account with a payment processor or acquiring bank. This unique identifier distinguishes each merchant within the processing system. The MID is essential for transaction processing and reporting purposes.
What is the difference between MCC and merchant ID?
An MCC is a four-digit number classifying a business based on its primary products or services, helping in transaction categorization and rewards programs. On the other hand, an MID is a unique identifier given to a specific merchant by their payment processor or acquiring bank for transaction processing and reporting. While MCC categorizes the type of business, MID specifically identifies an individual merchant.
What are MCC numbers?
An MCC number, known officially as a merchant category code, is a four-digit number that credit card issuers and card payment networks use to categorize businesses based on the goods or services they provide. Issuers and networks use MCC codes to set interchange rates, determine cardholder rewards, and assess merchant risks.
How to choose an MCC code
Merchants cannot choose an MCC code. Instead, the merchant’s payment processor will assign the merchant an MCC code during the setup process.
How many MCC codes are there?
There are roughly 500 different MCC codes.
What is the difference between merchant ID and MCC?
A merchant ID, or MID, is a unique identifier that acquiring banks and card payment networks use to keep track of a specific merchant. Meanwhile, a merchant category code (MCC) is used to categorize merchants based on the goods or services they sell. Unlike MIDs, which are distinct for every merchant, MCCs can be assigned to more than one merchant at the same time.
