Many operating in the card-not-present space are confused by the fluidity and complexity of banking terminology… and for good reason.

There are often dozens of internal banking terms that merchants aren’t apprised of until an issue arises. Aside from this, there are plenty of rules, counter rules, and codes to remember. Helping clients understand their merchant category code, or MCC, can be a fundamental step toward wiser business practices and spending.

What is a Merchant Category Code (MCC)?

A Merchant Category Code, or MCC, is a four-digit identifier that describes the type of goods or services provided by a business. The International Organization for Standardization sets the MCC meanings and classifications, and card processors are responsible for assigning an MCC to a merchant at the start of the relationship.

MCCs are generally tied to the variety of products and/or services a merchant provides. However, it’s important to note that the assignment of MCCs isn’t an exact science.

Merchants sometimes operate with codes that don’t precisely align with their business. This has been known to cause problems at the payment level. For instance, only companies classified as healthcare-based organizations can accept health-savings-account cards. Supposing a company is categorized as a grocery store, despite having a convenient pharmacy, a customer’s card might be rejected for pharmaceutical purchases made through a grocery lane.

Additionally, codes used by tax agencies don’t always match those of the card networks, and card networks don’t always match each other. Thus, merchants may have one MCC classification with Visa, and a different MCC with Mastercard.

List of Merchant Category Codes

The ISO has published hundreds of MCCs, and these are not allocated randomly. Instead, codes fall into broad, general ranges based on the first digit of the MCC.
Merchant Category Code listings for these code ranges are as follows:

• 0001–1499: Agricultural Services
• 1500–2999: Contracted Services
• 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 Services and Membership Organizations
• 9000–9999: Government Services

Where to Find Merchant Category Codes

The simplest way merchants can find their MCC code is to examine the billing descriptor appearing on a customer’s statement post-transaction. The billing descriptor could display the four-digit code, or it might simply list the category’s name. If the latter, the merchant could then cross-reference the category name with the numeric MCC.

The Necessity of Merchant Category Codes

MCC codes were initially introduced by the Internal Revenue Service to simplify 1099 accounting, particularly to record payments made to contractors and other miscellaneous income.
Having evolved, MCCs now encompass a variety of subcategories that profoundly affect the way merchants and cardholders interact with banks and processors. For instance, merchant category codes influence the following:

• Tax Reporting
• Interchange Fees
• Consumer Cash Back & Rewards
• High-Risk Merchant Categories

Of additional concern is the MCC’s influence on merchant status. Many processors use merchant codes to identify “high-risk” industries that they may prohibit from their services altogether.

MCCs, Declines, & Chargebacks

Merchant category codes have been known to lead to declines. This happens primarily when a cardholder attempts to use a card restricted to only specific merchant category codes. EBT cards, reward cards, or health care savings cards fall under this mantle.

An additional factor to consider is if the merchant in question has any restrictions placed on them due to their MCC code or if they have recently changed merchant status, these situations can be read as MCC code errors.

Finally, with regard to chargebacks, depending on the merchant’s status, higher chargeback fees and penalties may apply. A general rule of thumb for clients in these categories is to lower their chargeback ratios as much as conceivably possible, and execute due diligence with effective chargeback management.

A merchant category code is more an organizational tool than a merchant guideline. Regardless, it does behoove merchants to be aware of its purpose and uses to prevent issues like declines and chargebacks.