If you’ve set up a card programme before – or any business to accept payments – you’ve likely encountered merchant category codes (MCCs). An MCC is a four-digit number that classifies the type of goods or services that a business offers. MCCs were originally developed for tax-reporting purposes but are now a key piece of payments processing. MCCs also provide a number of other benefits to your card programme, such as helping gather data to understand your cardholders’ spending.
We’ll cover why MCCs are important, how they work in transactions, and how to use them to enhance your card programme.
What's in this article?
- What is an MCC?
- How are MCCs used in the transactions process?
- Why are MCCs important?
- How to view MCC for transactions
- MCC list
What is an MCC?
MCCs and their definitions are set by the International Organization for Standardization (ISO).
Payment-processing providers assign MCCs to businesses to determine which fees to charge for using their payments services, depending on factors such as a business’s level of risk. Most MCCs are recognised by the majority of card issuers, but some card networks have their own set of MCC variations. Businesses cannot assign their own MCC codes but can request a specific MCC designation from their payments processor, which will be granted if the business fits the qualifications for that MCC designation.
How are MCCs used in the transactions process?
Simply put, MCCs tell both issuers and payments processors how to handle transactions from start to finish, including:
Interchange rates are the fees that businesses pay to accept payments. Every time a cardholder makes a purchase with a card issued through your card programme, you can earn money by negotiating to keep a portion of the interchange that a business pays. Interchange rates are always set by the network based on a set of broad guidelines, but depending on the MCC, the rate will differ. Purchases made from businesses that belong to specific categories may generate more or less interchange. For example, MCCs attached to business types that tend to have lower fraud rates and chargeback rates might carry a lower interchange rate. Conversely, MCCs that correspond to higher-risk businesses might incur a higher interchange rate.
Some types of businesses are allowed to charge cardholders a service fee on card payments for certain MCCs, such as government-related transactions.
High-risk merchant identification
Merchant acquirers and payment processors typically assess the relative risk of a business based on the type, which helps determine fees. Although the methodology for Visa’s Advanced Authorisation (VAA) or Mastercard’s Decision Intelligence Score (MDIS) to determine risk scoring isn’t public information, the transaction MCC is likely part of the equation.
Some MCCs don’t receive the same level of fraud protection, especially on card-not-present (CNP) transactions. This usually applies to businesses that have higher fraud rates and therefore higher chargeback ratios. For example, some telemarketing companies and pharmacies are categorised as high risk, so incur higher chargeback fees.
MCCs are also used for tax purposes, indicating to a cardholder if a certain transaction needs to be reported to the IRS. In most cases, businesses are required to report the purchase of services but not goods.
Why are MCCs important?
MCCs have a number of capabilities that can enhance your card programme by:
Setting spending controls
You can use MCCs to either restrict issued cards from being used with certain business types or allow cards to be used only at certain business types. For example, if you’re creating a travel expense platform, you can set spending controls so your cards can only be used for purchases with travel-related MCCs. Some of the Stripe Issuing bank partners require us to block certain high-risk MCCs at a programme level, such as gambling.
Gathering data on cardholder spend
MCC data is available for every transaction and on the Authorisation object, along with other helpful information about the transaction, including the amount, authorisation method and additional details about the business where the card was used.
MCCs help with rewarding cardholders. For example, if you offer cardholders 3% cash back on business supplies, then any transaction with a business that has an MCC designated for office supplies will notify you to dispense that reward.
How to view MCC for transactions
On Stripe Issuing, the MCC for each transaction is provided as a value for
merchant_data.category on Authorisation objects. Some businesses may not fit into a specific category, in which case they’re categorised as miscellaneous.
The MCC is included in the Authorisation object, which provides 20+ details about the transaction.
A frustrating aspect of MCCs is that there is not one universally accepted set of merchant category codes used by all entities and organisations. That said, the category code ranges are consistent. Here’s a rundown of the code ranges for different industries:
- 0001–1499: Agricultural services
- 1500–2999: Contracted services
- 4000–4799: Transportation services
- 4800–4999: Utility services
- 5000–5599: Retail outlet services
- 5600–5699: Clothing shops
- 5700–7299: Miscellaneous shops
- 7300–7999: Business services
- 8000–8999: Professional services and membership organisations
- 9000–9999: Government services
See the Stripe Issuing full list of merchant category codes.