MCC Codes (or merchant category codes) are assigned to merchant accounts during the set up process and are used to differentiate between types of business & industries. Each industry has different transaction patterns and differing levels of risk (potential for fraud). MCC codes are used by issuing bank to determine if they will except the transaction. For example online gambling is only permitted in the states of Delaware, New Jersey and Nevada. The code 7995 can be used to prevent transactions coming from states that don’t allow online gaming.
MCC codes can also effect the merchants processing rates. An improper classification could cause a merchant to pay higher than necessary processing fees. The are approximately 500 different MCC Codes used by Visa and it is important for a merchant to make sure they are assigned to the appropriate code.
Payment brands use merchant category codes to classify merchants and businesses by the type of goods or services provided in order to track and restrict transactions. MCCs can be used for tax reporting, interchange promotion, and gathering information about cardholder purchasing behavior.
Understanding Merchant Category Codes #
Merchant category codes have several purposes. They often determine the rewards consumers receive for using their credit cards, and determine whether a business transaction needs to be reported to the IRS. Moreover, they determine the percentage of each transaction a business needs to pay to the credit card processor. The following examples are common uses for merchant category codes.
- If a consumer holds a credit card that offers 5 percent back on airlines, they should receive the reward on any purchase that is classified under MCC 4511, which is for airlines and air carriers.
- Companies and government agencies report purchases of services to the IRS so the IRS can make sure those services pay all income taxes owed. If businesses make these purchases using a credit card, firms can use MCCs to determine which transactions are classified as services.
- A business classified under the MCC for gas stations sometimes pays different interchange fees to its credit card processor than a business classified as a car rental company.
When you’re applying for a merchant account, it certainly is beneficial to you to understand what types of MCCs may apply to your business. However, there are specific criteria to qualify for these MCCs. Some merchants may blur the line between categories but don’t quite make the cut for the lower interchange rates of a particular merchant category code because of the particulars of their day-to-day business, and that’s okay.
If you want to know what your specific code is, we recommend contacting your processor and asking them to find out what MCC code has been assigned to your business.
A great source of information about merchant categories and related policies and guidelines is the Visa Merchant Data Standards Manual. Here you can see that even under a general blanket (e.g., repair shops), the codes get a lot more specific depending on the products and services a merchant provides.