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What Is A Merchant Category Code? And How Does It Affect Your Rates?

As a business owner, your operations are assigned a unique Merchant Category Code (MCC), which is critical in the payment processing world. This code not only categorizes your business type but also influences the processing rates you’ll pay.

What is an MCC?

An MCC is a four-digit code used by card brands like Visa and processors to categorize a business. It’s determined by the International Organization for Standardization (ISO) and assigned during your merchant account application. The MCC affects various aspects of your business dealings, including processing rates and risk assessment.

Impact of MCC on Your Business

  • Processing Rates: MCCs play a crucial role in determining the fees you pay per transaction. Different business categories attract varying rates.
  • Risk Assessment: Certain MCCs are considered high-risk, affecting the terms and availability of merchant accounts.
  • IRS Reporting: MCCs help the IRS differentiate between service and goods transactions for tax purposes.
  • Rewards and Cashback: Banks use MCCs to allocate rewards to consumers for specific purchases.

Identifying Your MCC

Knowing your MCC is essential. It’s usually not listed on merchant statements, so contact your processor or refer to the ISO’s list. Ensure it accurately reflects your primary business activity to avoid mis-coding risks.

Consequences of Incorrect MCC

An incorrect MCC can lead to higher processing rates, missed rewards, or even legal troubles. It’s crucial to have the correct code for optimal interchange rates and compliance.

Special Rules and Restrictions

Certain MCCs entail specific rules, such as eligibility for lower interchange rates or restrictions on the types of cards accepted. For example, healthcare providers can accept HSA cards, a privilege not available to all business types.

High-Risk MCCs and Processing Challenges

High-risk MCCs can result in higher rates and limited chargeback protections. It’s vital to ensure your MCC aligns with your business to avoid unnecessary costs or restrictions.

The Role of Experienced MSPs

An experienced Merchant Service Provider (MSP) like Bankcard International Group can ensure you’re assigned the correct MCC. Our ETA Certified Payment Professionals focus on understanding your business to advise on the best payment solutions and maximize interchange rates legitimately.

Conclusion: Your Merchant Category Code significantly impacts your business’s payment processing landscape. Understanding and verifying your MCC can help optimize your operations and avoid potential pitfalls. Reach out to us for any clarifications or assistance regarding your MCC and payment processing needs.

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