Merchant Category Codes: What Are They And How Do They Affect My Business?
Are you a business owner? Do you accept credit cards? Then you have a Merchant Category Code (MCC). Check out our handy guide below to learn more.
What is a Merchant Category Code?
Merchant Category Codes (MCCs) are used to classify a business by the types of goods that they sell or the services that they provide. A MCC is a four-digit code assigned my credit card companies such as Visa, MasterCard, etc. These codes are based on the type of merchant the company is, for example grocery stores, clothing stores, office stores, airlines, etc.
How Is A MCC Assigned To A Business?
The MCC is assigned based on what makes up the majority of the business. A Merchant Category Code is given to a business when they first begin accepting credit cards as a form of payment.
But What If My Business Sells More Than One Kind of Thing?
This can be confusing and frustrating, because a code may only represent a part of a business. Also, retailers with multiple branches may be categorized differently.
Do Certain Stores Have More Than One MCC?
Yes, large retailers, such as as Wal-Mart, will have several different codes in the same store, depending on which department items are found or purchased in. In Wal-Mart’s case, there are grocery departments, electronic departments, home improvement departments, etc., so items purchased in those areas will be categorized by that MCC.
So Do Merchant Category Code Matter, And Will My Customer Care?
Yes, it can make a big difference!
- The Merchant Category Code helps determine the fees paid by the merchant. Certain types of businesses that are considered “riskier” must pay higher fees. Industries like Airlines and Ticket Sales are usually considered higher risk. These industries are considered higher risk because there is typically a long period of time between the actual purchase of the product and usage/delivery, ex. Airline tickets are usually booked weeks or months in advance, so there is a high potential of something happening in-between the purchase and the actual flight.
- Merchant Category Codes play a crucial role in rewards points and cash-back rewards. Credit card companies will often offer higher rewards for making purchases in specific categories.
- Companies that offer employee expense cards will often only allow certain MCC codes to be used for purchases.
- In the United States, a payment that falls under the MCC for “services” needs to be reported by the payer to the Internal Revenue Service for tax purposes, or for “merchandise”, which does not.
- Different rules and restrictions apply for difference industries. For example, convenience pricing, i.e. the act of passing on the processing fee to a customer, is only allowed in certain industries.
What About Rewards Points? Do Merchant Category Codes Matter?
Absolutely. Merchant Category Codes are used to determine whether or not the purchases you make receive rewards (or additional rewards). Tune in to part #2 of our MCC series for additional information on how you can make the most of Merchant Category Codes and earn the most rewards points.
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