Merchant Category Codes (MCC) Explained: A Complete Guide

Merchant category codes affects both merchants and consumers. What is this mystery number and how does it affect your business or you personally? It’s a number that’s more important than you may realize. It affects merchants and consumers. Keep reading to learn why you should understand MCCs, whether you own a business, or just love to use reward-based credit cards.

What is a Merchant Category Code?

A merchant category code is an IRS required 4-digit code that classifies a business. Even if a business sells more than one item (most do), the business will have a classification that signifies the majority of what they sell. In other words, stores have just one code, even if they sell multiple items. For example, a grocery store that sells other ‘unique items’ will still classify as a grocery store, in most cases.

The payment networks assign businesses the merchant category codes (Visa, MasterCard, American Express, and Discover). Each network may have their own ‘tweaks’ to the codes, but they are all similar in the end. The payment networks assign the number when the merchant sets up a payment system. The banks that issue the cards don’t assign the codes and have no control over them, so it doesn’t help to ask your bank what code they’ll assign you.

There are literally hundreds of merchant category codes, but some of the most common include:

• 5411 – Grocery stores
• 5541 – Service stations
• 5812 – Restaurants
• 5942 – Book stores

Again, there are hundreds of codes, some of which are a derivative of the larger codes. How a network classifies you depends on what the majority of your business consists of and how you manage it.

Why Should Merchants Care About Merchant Category Codes?

Payment networks assign the codes, but they affect merchants in big ways. The acquiring banks and PSPs use the codes to determine your risk level, which in turn, determines how much the bank and/or PSP charges you for payment processing.

More specifically, merchant category codes affect your business in the following ways:

• Your merchant category code determines your interchange rate. This is the wholesale price charged to process credit cards. The ‘riskier’ your business, meaning the higher risk of chargebacks and fraud, the higher the interchange rate you pay. This is just the start of what you pay for credit card processing.
• If they categorize you as a ‘risky’ business with the given merchant category codes, certain acquiring banks may turn down your application for credit card processing. Not all businesses can have credit card processing, especially those involved in anything illegal or incredibly risky.
• You may have higher ‘add-on’ fees to the interchange rate if your MCC signifies you are in a high-risk category, especially one with high chances of fraud. Credit card processors take take on credit liability when approving you for credit card processing, so they must be careful.
• You may want a different classification for credit card reward purposes. Even though it’s consumers that benefit from the credit card rewards, as the merchant, you may get more traffic if they classify your business as a certain category that many consumers earn rewards for (such as a grocery store or gas station).
• You may qualify for special rates with the right merchant category codes, such as charity and non-profit programs, large ticket processing programs, or special business to business and purchasing card interchangecategories.

While you can’t arbitrarily change your merchant category code, the more informed you are, the better opportunity you have to make sure it is correct. If you know ahead of time that you’re classified as a ‘risky business’ you can prepare yourself. Maybe you can change how you structure your sales, or emphasize a certain line of business so that the networks don’t see your business as risky.

Your credit card processing fees directly affect your bottom line. It doesn’t matter if you bring in more sales by offering credit cards, if the processing costs more than expected it can hurt your company, so it pays to know.

How to Find your Business’s Merchant Category Code

If you didn’t ask the network what your MCC is when you opened your account, you may not know what it is and that’s okay. You can still find it by calling your payment services provider and asking what it is. If you don’t agree with it or wonder why, ask questions. You may be able to petition to have it changed, but the requirements vary by provider. Ask for details regarding how you can change it or what must change for you to get the ‘better’ code.

Here is a list of all the important Merchant Category Codes (Alphabetically)

How Does the MCC Affect Payment Processing?

What it comes down to is the price you pay for processing. As a merchant, you want the lowest processing costs, right? If you’re lumped into a category that’s high risk, you may not get the best processing fees available. Businesses should know and care about the merchant category code and inquire how to get it changed if you don’t agree with it. Your processor can tell you exactly why your business is in a specific category, and if it’s something you can fix, go ahead and do that so you can get the lower rates.

At Host Merchant Services, we always do our best to apply the most advantageous code allowed for your business, and will offer advice if small changes can make a big difference for your business. Don’t forget if your business changes direction, but remains open with the same processor, your code remains the same. If you change direction, consult with your processor about your MCC. Should it change? Will it benefit you to change the code? Will you get lower fees?

Why Should Consumers Care About Merchant Category Codes?

It makes sense why businesses should care about their merchant category code, but what’s in it for consumers? It comes down to credit card rewards. If you use credit cards often to earn rewards, such as cash back, airline miles, or travel benefits, you want the most for your spending, right? Sometimes you may spend at a store that you think earns you rewards when it actually doesn’t. That’s a problem.

Here’s how to fix it.

Find out the Store’s MCC

Here’s how it works. Your credit card rewards you 3% back for every dollar you spend on groceries. You go to a store that isn’t categorized as a grocery store, but you buy groceries. You assume you’re getting your 3% cash back only to find out you didn’t. Why? The store must have a different merchant category code than a grocery store. Because credit card rewards rely on the merchant category codes, you won’t get rewarded even though you bought what you thought fit into the category. So how do you find out a store’s MCC before spending money?

You can try the Visa Supplier Locator. After you enter your location and the type of category or the name of the store you’re looking for, you’ll see the code. If the code doesn’t coincide with the rewards, you won’t earn your rewards no matter what you buy there.

Problems Consumers Have with Credit Card Rewards and MCCs

Even shopping at a store with the correct MCC may not give you the rewards you expect. What gives? It could be for a few reasons:

• The store has multiple locations. Think of a store like Target. There are ‘regular’ Target stores and then there are ‘super’ Target stores. The ‘super’ stores are grocery stores and the regular stores aren’t. How do the payment networks classify each location? Are they both grocery stores is one a discount store? This could vary by location too; it’s not a blanket policy countrywide.
• Certain purchases may be excluded. Credit card companies can exclude certain purchases from their rewards, even if the purchase is at a store within the right category. It sounds complicated but read the fine print. For example, buying groceries at a store that really isn’t a grocery store may be excluded.
• You misunderstood the rewards. It happens. Sometimes we just misunderstand what we need to buy or do to get the rewards. Sometimes something as simple as buying a product through a third party rather than directly through the store is enough to knock off your rewards. For example, buying your groceries through Instacart rather than right from the grocery store may not trigger the rewards.

The merchant category code affects everyone involved in the credit card transaction, not just the merchant or just the consumer. The merchant is affected by the credit card processing rates and the consumer is affected by the credit card rewards or lack thereof depending on the code.