What do small-business owners and individuals who are looking to maximize credit card rewards have in common? They both should pay attention to merchant category codes.
On the business side, merchant category code (also known as an MCC) can affect the interchange rate and credit card processing fees a business pays for the products or goods it sells. It can also affect tax payments and how the Internal Revenue Service (IRS) classifies a business.
On the consumer side, MCCs affect how customers are rewarded for the credit card purchases they make.
What is a merchant category code?
A merchant category code is a four-digit number used by credit card companies to classify businesses. A business MCC indicates the types of services or goods being sold to customers.
If a business sells both services and products, typically the MCC will reflect the business type that makes up the dominant amount of sales. In some cases, a business may be able to request an additional MCC for a different part of a business. For example, a superstore that has a grocery store and a pharmacy in one location may have different MCCs within the same building.
List of merchant category codes
MCCs can vary by card processor, but there are some commonalities. To get an idea of codes, the following is a list of some common merchant categories by Citi:
- MCCs 0001–1499: Agricultural Services
- MCCs 1500–2999: Contracted Services
- MCCs 4000–4799: Transportation Services
- MCCs 4800–4999: Utility Services
- MCCs 5000–5599: Retail Outlet Services
- MCCs 5600–5699: Clothing Stores
- MCCs 5700–7299: Miscellaneous Stores
- MCCs 7300–7999: Business Services
- MCCs 8000–8999: Professional Services and Membership Organizations
- MCCs 9000–9999: Government Services
Credit card providers will typically create detailed individual codes within each category.
Where to find a merchant category code
Merchants can contact their credit card processor (such as Visa or Mastercard) to ask how to find their MCC.
For a list of each credit card network’s MCCs (which can exceed dozens per provider), you can search for merchant category codes on each credit card processor’s website. An online search of “[processor] merchant category codes” should link you to the right place. Or, call the number on the back of your credit card if you have specific questions.
Credit card holders can also look at a bank statement to see how a credit card purchase is classified. With each purchase, there should be a “merchant description” section that shows the merchant category. It might not be the four-digit code, but it will be the name of the category.
Why is it important to know your MCC?
MCCs can matter for business owners, business credit card holders and individuals looking to get the most credit card reward value out of their purchases.
Why it’s important for business owners
MCCs are important for businesses to know because the code influences whether or not a business owner can report certain payments on a Form 1099-MISC. An MCC also affects whether or not a business can charge a convenience fee on credit card payments.
MCCs can also affect risk measurement. For example, some credit card companies may use MCC classification to increase transaction fees and rates for “higher-risk” businesses like pawnshops and airlines. Other organizations with certain codes, like elementary and secondary schools or nonprofit organizations, may qualify for lower interchange fees.
A merchant code can also affect payment acceptance. For example, for a health care business to accept payment from a health savings account, the business may need to have a specific MCC that classifies it as a health care business.
It’s important to get classified correctly to ensure your business is getting a fair interchange rate. In some cases, a misclassification could mean a business is paying more on rates and fees than it should be.
Why it’s important for cardholders
MCCs enable business credit card holders to determine which payments they can report on Form 1099-MISC. The IRS requires businesses to report payments that have been made for services, but not for the purchase of goods. Merchant category codes help those who use business credit cards to identify those purchases they should report.
MCCs are also important because they can result in rewards for consumer card holders. Some credit card companies provide cash back or points for purchases in specific categories, like restaurants or grocery stores.
Knowing the MCC of certain businesses is therefore important for cardholders who want to increase their rewards. For example, lots of places sell food, but not all places are classified as grocery stores or restaurants by credit card companies. Target and Walmart, for instance, are often categorized as “superstores,” rather than grocery stores. You’ll want to know exactly what places qualify as the places you’re able to get rewards for spending there.
Frequently asked questions
How does a high-risk MCC affect a business?
In addition to likely paying higher interchange rates, having a high-risk MCC classification may prevent a business from getting the same e-commerce fraud protections other businesses may get for card-not-present purchases. When a high-risk MCC business encounters individual chargebacks, fees may also be higher. In some cases, high-risk merchants may not be accepted by certain merchants altogether.
Why doesn’t the MCC match up with what I think the store is?
Say you swipe your credit card at a convenience store that has a couple of gas pumps outside, thinking you’ll get gas station purchase points. That may not be the case if the MCC doesn’t classify the business as a gas station. Generally, whatever makes up the majority of the business will influence the MCC.
Can MCC lead to declined transactions?
Yes, but not often. The reason would be if someone’s credit card has an MCC restriction. For example, a health savings account card may only be allowed to be used for health care costs.
The bottom line
Merchant category codes are only four digits, but they’re very important for how businesses operate. Getting the right classification is essential for accurate taxes and interchange rate savings.
Plus, having the wrong classification could cause customers to avoid spending with a business — because it doesn’t have the MCC that will reward them.