What do small business owners and individuals looking to maximize credit card rewards have in common? Both should pay attention to the merchant class codes.
On the business side, the Merchant Class Code (also known as the MCC) can affect the exchange rate and credit card processing fees a business pays for the products or merchandise they sell. It can also affect tax payments and how the Internal Revenue Service (IRS) classifies a business.
On the consumer side, MCC influences how customers are rewarded for their credit card purchases.
What is the merchant class code?
The merchant category code is a four-digit number that credit card companies use to classify businesses. MCC for business refers to the types of services or merchandise that are sold to customers.
If a business sells both services and products, my MCC usually reflects the type of business that makes up the predominant amount of sales. In some cases, a business may be able to request an additional MCC for a different part of the business. For example, a large supermarket with a grocery store and pharmacy in one location might have different CMCs within the same building.
List of merchant class codes
Engine control centers can vary by card processor, but there are some commonalities. To get an idea of the tokens, here is a list of some of the merchant categories popular by Citi:
- Millennium Challenge Centers 0001-1499: Agricultural Services
- MCCs 1500-2999: Contracted Services
- MCC 4799-4,000: Transportation Services
- MCC 4800-4999: Facility Services
- MCC 5000-5599: Retail Outlet Services
- MCC 5600–5699: Clothing Stores
- MCCs 5700-7299: Various Stores
- MCC 7300-7999: Business Services
- MCC 8000 – 8999: Professional Services and Membership Organizations
- MCC 9000-9999: Government Services
Credit card providers usually generate individual codes that are detailed within each category.
Where to find the merchant class code
Merchants can contact their credit card processor (such as Visa or Mastercard) to inquire about how to find their MCC.
For a list of MCCs for each credit card network (which can exceed dozens for each provider), you can look up the merchant category codes on each credit card processor’s website. Search online for “[processor] Merchant category codes should link you to the correct 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 every purchase, there should be a “Merchant Description” section showing the merchant category. It might not be the four digit code, but it will be the class name.
Why is it important to know your MCC?
My Client Centers can be of interest to business owners, business credit card holders, and individuals looking to get the most credit card equivalent value out of their purchases.
Why is it important to business owners
MCCs are important for businesses to know because the code affects whether or not an employer can report certain payments on a 1099-MISC form. The MCC account also affects whether or not a company can charge a convenience fee on credit card payments.
MCCs can also affect the measurement of risk. For example, some credit card companies may use the MCC rating to increase transaction fees and rates for “high-risk” companies such as pawnshops and airlines. Other institutions with certain codes, such as elementary and secondary schools or nonprofit organizations, may qualify for lower exchange fees.
The merchant code can also affect payment acceptance. For example, for a health care company to accept payment from a health savings account, the company may need to have a specific CCC that classifies it as a health care company.
It is important to be properly graded to ensure that your business receives a fair exchange rate. In some cases, a poor rating could mean the company is paying more on rates and fees than it should.
Why is it important to cardholders
MCCs enable business credit card holders to specify which payments they can report on Form 1099-MISC. The IRS requires businesses to report payments made for services, but not for purchases of goods. Merchant class codes help those who use merchant credit cards decide which purchases they should report.
MCCs are also important because they can lead to rewards for customer card holders. Some credit card companies offer cash back or points for purchases in certain categories, such as restaurants or groceries.
So knowing the MCC of some companies is important for cardholders who want to increase their rewards. For example, a lot of places sell food, but not all places are classified as grocery stores or restaurants by credit card companies. Target and Walmart, for example, are often categorized as “supermarkets,” rather than grocery stores. You’ll want to know exactly which places qualify as places you can get rewarded for spending there.
Frequently Asked Questions
How does a high-risk MCC affect business?
In addition to potentially paying higher exchange rates, having a high-risk MCC rating may prevent a company from getting the same e-commerce fraud protection that other companies might get for non-card purchases. When a high-risk MCC faces single chargebacks, the fees may be higher as well. In some cases, high-risk traders may not be accepted by some traders completely.
Why doesn’t my MCC match what I think the store is?
Let’s say you swipe your credit card at a convenience store with several gas pumps outside, thinking you’ll get points for purchasing at a gas station. This may not be the case if the MCC did not classify the business as a gas station. In general, whatever comprises the majority of the business will affect my MCC.
Can my MCC cause transactions to be rejected?
Yes, but not too much. The reason may be if someone’s credit card has MCC restrictions. For example, a health savings account card may only be used to cover health care costs.
Merchant class codes are only four digits long, but they are very important to how businesses operate. Getting the right classification is essential for accurate taxation and exchange rate savings.
In addition, having a wrong rating may cause customers to avoid spending with a company – because it does not have a “MCC” that rewards them.