Is your business using the right Merchant Category Code?

Did you know there are more than 700 categories for merchant services transactions? Quite frankly, that’s just too many for you to have memorized to know if you’ve been assigned the best code by your payment processing services provider.  

In this article, we take a look at Merchant Category Codes, and the importance of ensuring your business is using the correct designation.  

What is a Merchant Category Code?  

A Merchant Category Code (MCC) is a four-digit code that is assigned to businesses by credit card companies and payment processors to categorize the type of products or services the business provides. The MCC is used for various purposes, such as determining interchange fees and helping with fraud detection. 

Some examples of the possible categories include bookstores, detective agencies, country clubs, clothing rental services, and more. They can get incredibly specific, and guaranteed, whatever it is your business or organization does, there’s an MCC for that.  

So why would you be on the wrong code? 

Errors happen all the time with business services, and MCC designations are no exception to that.  

For MCC assignments, mistakes can occur for various reasons, including human error during the application process, changes in the nature of the business that are not reflected in the code, or misunderstandings about the products or services offered by the business.  

Does it matter? 

Short answer, yes. It’s crucially important to your payment processing budget, and overall bottom line, that your business is using the correct MCC.  

MCCs give both issuers and payment processors the information they need to handle every aspect of a transaction. For this reason, they bear a substantial role in determining the fees you pay on those transactions.  

One area your MCC influences is your interchange rate – the fees paid by the merchant’s acquiring bank to the cardholder’s issuing bank for each credit card transaction to cover the costs associated with processing transactions. Interchange fees vary based on several factors, but part of that is your MCC. Your MCC helps determine your perceived risk of fraud and chargebacks, and as such, MCC designations that are considered lower risk tend to have lower interchange rates. 

Your MCC also determines whether or not you can charge cardholder fees, what level of chargeback protection you receive – especially on card-not-present (CNP) – transactions, and even how your business is taxed or required to report transactions.  

In conclusion… 

Chances are, unless you have the time to go through every possible MCC from your provider, you’re at risk of missing if you’re on the wrong MCC or interchange rates. 

As a business owner or manager, it’s not your responsibility to be an expert in the intricacies of merchant services rates and designations. You’re already an expert in the work you do every day.  

Working with an expert to ensure your MCC is correct and that your rate structure is fair and competitive is important to prevent overpaying.