Merchant Category Codes and their importance in payment acceptance.

Merchant Category Codes and their importance in payment acceptance

Introduction:-

Merchant Category Codes (MCCs) are four-digit numbers that pertain to various types of businesses and are used by card issuers, electronic payment networks, and other electronic payment service providers to classify and identify businesses. MCCs were first created in the 1970s when they were developed by a group of credit card issuers. In 1991, Visa USA established a task force of representatives from the major card brands to help streamline the system. The result was the MCC standardization that we use today.

MCCs are provided by a credit card provider when a merchant begins accepting that card as payment, either by merchant type or by merchant name. Different locations or departments of a store may code credit cards differently.

Uses of Merchant Category Code:

An MCC indicates the principal business category in which a merchant operates and can be used to:

  • To determine the merchant’s interchange fee, with riskier lines of business paying higher fees by credit card companies to provide cash back or reward points for purchasing in specified categories via card, networks can set card transaction rules and constraints (for example, Automated Fuel Dispensers (MCC 5542) have specific criteria for authorization and clearing messages).
  • To assess whether a payment is largely for “services,” which must be reported to the Internal Revenue Service for tax purposes, or for “merchandise,” which does not need reporting to the Internal Revenue Service.
  • Merchant Category Codes (MCCs) are four-digit numbers that pertain to various types of businesses and are used by card issuers, electronic payment networks, and other electronic payment service providers to classify and identify businesses.
  • The MCCs have been a part of the ISO 9362 standard since the 1990s, but they were rarely used by merchants until recently because they weren’t required in transactions between businesses and banks. However, as EMV migration becomes more widespread, merchant account providers will require their customers to implement an MCC solution so they can continue processing payments in compliance with PCI DSS standards.
  • MCCs were first created in the 1970s when they were developed by a group of credit card issuers. The main purpose was to help classify and identify businesses that accept their cards.
  • In 1991, Visa USA established a task force of representatives from the major card brands to help streamline the system. The result was the MCC standardization that we use today.

Reasons for Merchant Category Code include:

Merchant Category Codes (MCCs) are used to standardize the way payments are processed, and they help with fraud prevention. They also help with marketing, regulatory compliance, and business intelligence.

How to Find a Merchant Category Code.

MCCs are assigned by merchant banks, and the list is published by the Internal Revenue Service in the United States. MasterCard, Visa, American Express, and Discover have their own listings as well.

Why Merchants Should Care About MCCs.

The MCC and the credit card processing fees you pay are inextricably linked. Transaction rates and fees are charged by merchant service providers based on their business type. A higher-risk business, such as a credit repair firm, will charge more per transaction than a grocery shop.

Merchant category codes also aid company owners in the fight against chargebacks. If a consumer does not recall a charge but later sees the category “office supply store” and recalls that the purchase was for a business equipment upgrade. If a customer can establish where the charge came from, the retailer can avoid a chargeback.

Other Uses for MCCs.

In certain circumstances, merchant category codes are used by businesses to block cardholders from making certain purchases. Businesses that use corporate credit cards for their workers, for example, may request that credit card networks limit specific travel and hotel options. Businesses may utilize this to cut expenses by prohibiting their staff from booking first-class flights.

Furthermore, merchant category codes frequently impact the incentives clients receive for using specific credit cards. The codes also determine whether a business transaction must be reported to the IRS.

Conclusion:

MCCs are an important part of the payment acceptance system, and there are several reasons why this is the case. They can assist merchants understand their business and run it better. Merchants require these numbers to receive payments from consumers or partners without typical credit cards (such as debit cards). MCCs may not be the only payment processing option for your company.

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