Merchant Category Code

The Merchant category code (MCC), is a four-digit code used by the banking and payment card industry to categorize providers into specific market segments. Each MCC corresponds to distinct business categories. Payment card brands utilize MCCs to classify businesses and merchants based on their products or services.

When a business accepts payment cards, the acquiring financial institution assigns an MCC to that business based on its primary line of business. MCCs are used by brands, issuers, and acquirers for purposes such as classification, monitoring, and controlling transactions. MCCs also serve important roles in interchange fees, tax reporting, and collecting data on cardholder spending habits.

• The merchant category code, or MCC, is a four-digit code used by the bank card industry to group providers into market categories.
• When a supplier takes payment cards, the acquiring financial institution assigns the MCC. Companies cannot choose their own MCC codes.
• It tracks consumer behavior and spending patterns, analyzes transaction data, and produces reports for various purposes, such as marketing analysis, risk assessment, and compliance.
• During payment card transactions, they assist in determining the kind of business being undertaken. MCCs offer a standard way to classify merchants across industries for accounting and reporting needs.

The merchant category code is primarily used to categorize businesses according to the types of products or services they provide. Major payment card networks like MasterCard, American Express, or Visa issue MCCs to businesses to classify their activities during payment card transactions. MCCs provide a standardized way to categorize merchants across industries, serving accounting and reporting needs.

Payment processing providers assign MCCs to businesses to determine appropriate rates for using their payment services, often based on factors like the level of risk associated with the business. Businesses typically cannot select their own MCC codes but can request a specific MCC designation from their payment processor if they meet the required criteria.

MCCs are crucial for banks, payment processors, and financial organizations in tracking consumer behavior and spending patterns. They are used to analyze transaction data and generate reports for various purposes, including marketing analysis, risk assessment, and compliance. MCCs cover various industries, including retail, dining, transportation, healthcare, entertainment, and more. Each category is assigned a unique MCC to allow precise classification, and payment card networks maintain and update the MCC category list.

When consumers use their credit cards to make purchases, the merchant category code is transmitted to the credit card issuer via the payment processor (such as Visa or Mastercard). The MCC serves as a classification code representing the type of business where the purchase was made. For example, if the merchant is categorized as a "travel" business, the purchase will be categorized as a travel expense. Conversely, if a consumer buys groceries at a supermarket, the MCC will indicate that they shopped at a grocery store.

It's essential to understand that the MCC is based on the type of merchant, not the specific items purchased. This means that even if a consumer buys a few cold drinks at a store located at a gas station, the MCC will still classify it as a gas purchase. Using MCCs, credit card issuers can provide specific rewards or benefits tailored to different merchant categories. For instance, they might offer extra cashback or reward points for transactions at businesses with MCCs indicating they are travel-related merchants.

MCCs are determined solely by the merchant's business type and are not influenced by the specific products or services purchased. This ensures consistency in categorizing transactions and offering relevant rewards to cardholders.

The merchant category code list represents many different types of enterprises and industries. A specific MCC is given to each group, enabling accurate classification. Payment card networks update and maintain the list regularly.

Each card network has a different set of codes for specific merchant categories. For instance, Visa and MasterCard could give the same merchant slightly different codes.

The following are the main MCC categories:

• Agriculture-related services
• Contract services
• Transport services
• Services provided by utilities
• Services provided by retail establishments
• Clothing establishments
• Miscellaneous shops
• Services provided by businesses
• Professional services and membership groups
• Governmental services

Let's look into some of the examples:

Example #1

Dan is a restaurant owner who thinks of using MCC and decides positively. He can benefit by designating a suitable MCC for his eatery. First, the MCC will correctly designate his company as a restaurant when clients use credit cards to make payments. This guarantees that the transactions are accurately categorized as restaurant expenses and reported. Utilizing the MCC can assist Dan's restaurant in being eligible for particular rewards programs. Many credit card companies give rewards or cashback on specific purchases, such as dining or entertainment.

Dan's restaurant expenditures will now be classified as dining expenses because he has MCC, making him eligible for any incentives or advantages connected to that category. It also encourages customers to select Dan's establishment when using their credit cards. The MCC also enables Dan to compile useful spending behavior information. He can utilize this information to understand his customers' spending patterns by analyzing transaction details provided by the MCC, such as the amount spent on eating. He can use this information to inform business decisions, such as changing his menu or establishing marketing strategies.

Example #2

Citibank assigns certain codes to designated service providers under which their payments will be recorded. They also specify the brand under which payment is accepted: MasterCard or Visa cards. Visa users must use Visa merchant category codes, and Master card users must use Mastercard merchant category codes. In case visa merchant category codes are used instead of Mastercard merchant category codes, then there is a chance that the transaction gets rejected.

Some of the categorized codes of its merchant category code list are as follows:

• MCCs 0001–1499 for Agricultural Services
• MCCs 1500–2999 for Contracted Services
• MCCs 4000–4799 for Transportation Services
• MCCs 4800–4999 for Utility Services
• MCCs 5000–5599 for Retail Outlet Services
• MCCs 5600–5699 for Clothes Stores
• MCCs 5700–7299 for Miscellaneous Stores
• MCCs 7300–7999 for Business Services
• MCCs 8000–8999 for Professional Services and Membership Organizations, etc.

They are important because they determine various aspects of transactions. Some of them are the following:

• Spending Controls: MCCs allow businesses to restrict card usage for certain business types or set specific spending controls. For example, travel expense platforms can limit card usage to travel-related MCCs.
• Cardholder Spend Data: MCC data provides valuable insights into cardholder spending habits, including transaction amounts and specific details about card usage.
• Cardholder Rewards: MCCs help in rewarding cardholders. For instance, offering cashback on office supplies would trigger rewards for transactions with MCCs designated for office supplies.
• Risk Assessment: MCCs may have an impact on risk assessment. MCC classification, for instance, may be used by some credit card firms to raise transaction fees and rates for "higher-risk" businesses like airlines.
• Payment Mode: Acceptance of payments may also depend on a merchant code. For instance, a healthcare firm may need a special MCC designating it as a healthcare business to accept payment through a health savings account.
• Tax: Holders of MCCs can choose which payments to include on Form 1099-MISC. Businesses must record payments made for services but not for the acquisition of products, per IRS regulations. Cardholders can use the supplier's MCC to assess reportable payments per IRS revenue procedure. Merchant category codes make it easier for people who use business credit cards to record the purchases they need to record.

This article has been a guide to Merchant Category Code (MCC) and its definition. Here, we explain its category list, how to use it, its examples, and importance. You may also find some useful articles here -

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