MCC Codes (Merchant Category Codes)Why Merchants & Cardholders Alike Can Benefit From Understanding Merchant Category Codes

Ben Scrancher Ben Scrancher | October 11, 2023 | 12 min read

This image was created by artificial intelligence using the following prompts:

Shopping cart riding along on a tablet, ecommerce, in the style of digital mixed media, social media icons, Mark Arian, caffenol developing, Yuumei, website, precisionist, in the style of red and teal.

Merchant Category Code MCC Code

In a Nutshell

Credit card processing can be very complicated. There are lots of rules, counter rules, and codes to remember. Your MCC, or merchant category code, is a good example of this. In this article, we’ll explain where merchant category codes fit in, why they’re important, and where to find them. We’ll also discuss how they affect cardholders and merchants.

Decoding Your MCC Code: How Merchant Category Codes Determine Merchant Status & More

Did you know that 41% of Americans have at least one credit card that offers travel rewards?

Millions more have credit cards that offer rewards in different categories. Gas, groceries, gym memberships... you’ve got 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 your statement and manually decide which purchases count and which dont’t?

Of course not. The decision is based on the seller’s merchant category code.

What is a Merchant Category Code?

Merchant Category Code

[noun]/mər • chənt • kadə • gôr• ē • kōd/

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.

You can think of a merchant category code — commonly known as an MCC or MCC code — as a four-digit identifier that neatly classifies the type of goods or services a business provides.

MCC codes were originally developed for tax reporting purposes. They’re still crucial here; certain product categories might be subject to specific tax rules or deductions, as determined by the MCC. But, they’ve taken on a much broader role in the payments space over the years.

MCCs offer valuable insights into cardholders' spending habits, and allow for special promotions based on a merchant’s product vertical. Like we discussed above, they let card issuers offer bonus cashback or other rewards for buying certain products.

A merchant’s MCC can also influence the fees they pay for card transactions. They can help merchants segment different facets of their business and insulate them against losses, and ensure they’re paying the right amount for processing services.

It's worth noting that, while many MCCs are standardized across card issuers and networks, some variations might crop up. Businesses that sell a broad spectrum of goods might have multiple MCCs, for example.

How Are Merchant Category Codes Used?

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:

  • You possess a credit card that offers 2% cash back on dining. Therefore, any transaction with a merchant designated with MCC code 5812, representing restaurants, should earn you that reward.
  • The interchange fee that a business pays can be influenced by its MCC. For instance, a business flagged under the gas station MCC, but also involved in car rentals, might pay different fee structures compared to a pure-play car rental company.
  • Companies often contract services from freelancers or external entities. It's the company's duty to notify the IRS and provide a 1099 form to the service provider. During credit card dealings, the MCC becomes a handy tool to discern if the transaction merits reporting.

The aim is to categorize businesses accurately (obviously). But, MCCs aren’t always a perfect match. Some merchants might find their MCC doesn't 100% fit their primary operations. This can sometimes lead to complications, as we’ll see below.

Common MCC Code Mixups

In theory, a merchant category code identifies the specific category that best describes the business. MCCs are assigned based on merchant products at the time of the request, though. A change in business direction could leave the merchant with a code that doesn’t really describe what they do.

Here’s an 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. But then, over time, your work evolves to specialize more on installing sprinkler systems.

What do you do then? And, when that leads you to start offering other lawn care services, and the business eventually morphs into a landscaping company — then what happens? Your services would be completely different, but the code would remain the same unless a request to change it gets submitted and approved.

For another example, think about companies classified as healthcare-based organizations. They can accept health-savings cards. But, what if the supermarket where you shop is categorized as a grocery store only, despite having a pharmacy in the front? Your health-savings card might not work if the store doesn’t have a distinct MCC for the pharmacy side of the business.

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:

MCC Codes (Merchant Category Codes)

0001–1499

Agricultural Services

MCC Codes (Merchant Category Codes)

1500–2999

Contracted Services

MCC Codes (Merchant Category Codes)

4000–4799

Transportation Services

MCC Codes (Merchant Category Codes)

4800–4999

Utility Services

MCC Codes (Merchant Category Codes)

5000–5599

Retail Outlet Services

MCC Codes (Merchant Category Codes)

5600–5699

Clothing Stores

MCC Codes (Merchant Category Codes)

5700–7299

Miscellaneous Stores

MCC Codes (Merchant Category Codes)

7300–7999

Business Services

MCC Codes (Merchant Category Codes)

8000–8999

Professional/Membership Organizations

MCC Codes (Merchant Category Codes)

9000–9999

Government Services

Merchant category codes are pretty consistent across the board. That said, the codes used by the IRS don’t always match those of the card networks. Those codes used by the card networks don’t always match each other, either. A merchant can have one code with Visa and a different code with Mastercard (as if this wasn’t already confusing, right?).

Different locations of the same store could have different MCCs. Or, the store may have multiple MCCs for different products. Think about the example we mentioned above of the grocery store with a pharmacy component.

A merchant MCC can be changed, but changes are improbable and infrequent. Merchants are usually stuck with whatever code they’re initially assigned. Since MCC codes serve more than one function, particularly in eCommerce, it’s still important to look at and understand the effects specific codes can have on a business.

How To Lookup a Merchant Category Code

This is trickier than it seems, as this code may not be visible on the merchant’s statement.

The easiest way to find a merchant’s MCC 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.

Another option is to search for the merchant category based on the merchant. This tool allows you to search for merchants individually and look up their associated MCC. You can focus your search according to location or a specific company name.

To search, you should only need to enter the company’s zip code. You have to make sure that the company name is entered correctly, though. Lots of businesses have similar names. There are also franchise businesses. Either of these could lead to erroneous results if you’re not careful.

Ready to reduce your chargeback risk? The first step is just a click away.REQUEST A DEMO

Why are MCCs Necessary?

We touched on this a little up above. but, let’s get into a little more detail.

The Internal Revenue Service introduced merchant category codes to simplify 1099 accounting. This involves reporting payments made to contractors and other miscellaneous income.

In the years since implementation, MCC codes have taken on additional functions that affect the way merchants and cardholders interact with banks and processors. Some providers can offer specialized features to businesses with specific MCCs, for instance. As another example, deciding whether the business has the option to charge a convenience fee for credit card purchases could depend on the MCC assigned to them.

Merchant category codes influence:

Tax Reporting

Only certain items need to be reported via a 1099 form in the US. For example, the IRS doesn’t tax the qualifying products a merchant purchases. They only tax the services. If a business owner buys a new computer, it won’t need to be reported. But, if that same merchant calls a maintenance specialist to fix the computer, it needs a 1099.

Rather than digging through a year’s worth of individual receipts to try and find reportable information, the merchant can use the contractor’s merchant category code. This makes it quick and easy to figure out whether business costs are exempt.

Interchange Fees

Merchants pay interchange fees on a per-transaction basis to cover the cost of accepting credit cards. Those fees make up a large percentage of a merchant’s overall card processing costs.

Having the correct code can benefit the merchant here, because certain MCC codes qualify for reduced fees. Non-profits, schools, and grocery stores, for example, may get lower-than-average interchange rates.

Consumer Cash Back & Rewards

MCCs determine how credit card issuers allocate cashback rewards. Merchants or issuers may offer “rewards” cards, for instance, letting cardholders earn points for certain types of purchases, like an extra 3% on groceries. Gas or travel reward cards are other common examples. These rewards are commonly managed based on the MCC of the place of purchase.

This could be a huge factor for the user, as the points are awarded based on the location of purchase, not the purchase itself. Think about a big box store or wholesale club with more than one MCC code. 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.

High-Risk Merchant Categories

Another thing to note is the MCC’s influence on merchant status. Some processors will use merchant codes to identify high-risk industries. Businesses with high-risk MCC codes have to work with high-risk payment processors. This will almost always involve increased processing fees. These merchants may also be subject to monthly sales amount caps or other restrictions.

Merchants with specific merchant category codes are considered a liability because the products or services they offer are associated with high chargeback rates. MCC codes can make the situation even more complex for high-risk merchants, which we’ll discuss in more detail in the next section.

MCC Codes, Declines, & Chargebacks

Transaction declines and chargebacks are two of the primary ways in which a merchant’s MCC code may negatively impact their business.

Transaction declines can happen if a cardholder tried to use a card restricted to only 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.

Or, maybe 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.

Merchant category codes directly impact chargeback management, too. As many merchants are already aware, chargebacks take a lot of time and effort to manage. They also represent a substantial drain on the merchant’s finances.

Effective chargeback management can help stop a lot of chargebacks that push merchants over the high-risk threshold. If a merchant is locked into a high-risk MCC, though, there may not be much they can do to convince the bank that they don’t represent an elevated risk.

Businesses assigned high-risk MCC codes 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.

Have Additional Questions?

Understanding how merchant MCC codes affect operations can help sellers decide whether or not to register as a nonprofit, for instance. It also helps determine whether to request additional MCC codes that apply to an expanding part of the business.

Beyond reaching out to a credit card processor, however, there isn’t much a merchant can do to make the final decision about their MCC code. The decision is based on criteria identified by the credit card processor at the time of application.

At Chargebacks911®, it’s our business to understand the dynamics of the eCommerce business, including how MCCs relate to chargeback issuances. Contact us today to see what we can do to ease the burden of chargebacks.

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.

Ben Scrancher

Author

Ben Scrancher

SVP, Business Development

Ben Scrancher is the Senior Vice President of Business Development at Chargebacks911. Since joining Chargebacks911 in 2014, he has played an integral role in fostering the company's substantial strategic revenue expansion in the North American, European, and Asian markets, elevating Chargebacks911 as the leading brand in dispute management and merchant revenue recovery.

Like What You're Reading? Join our newsletter and stay up to date on the latest in payments and eCommerce trends.
Newsletter Signup
We’ll run the numbers; You’ll see the savings.
Please share a few details and we'll connect with you!
Over 18,000 companies recovered revenue with products from Chargebacks911
Close Form