If you’ve set up a card program 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 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 an issuer’s card program, such as helping gather data to understand cardholders’ spending.

We’ll cover why MCCs are important, how they work in transactions, and how to use them to enhance your card program.

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 recognized 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 rate
  Interchange rates are the fees businesses pay to accept card payments. 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 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.

• Cardholder fees
  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 Authorization (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.

• Chargeback protection
  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 drug stores are categorized as high-risk, so incur higher chargeback fees.

• Tax purposes
  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 are important for the payment process for a number of reasons, including:

• Setting spending controls
  Issuers 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 program level, such as gambling.

• Gathering data on cardholder spend
  MCC data is available for every transaction and on the Authorization object, along with other helpful information about the transaction, including the amount, authorization method, and additional details about the business where the card was used.

• Rewarding cardholders
  MCCs help with rewarding cardholders. For example, if an issuer offers cardholders 3% cash back on business supplies, then any transaction with a merchant that has an MCC designated for office supplies will notify the issuer to dispense that reward.

• Determining interchange fees
  MCCs identify the transaction type, which determines the applicable interchange fee for a transaction. High-risk businesses often pay higher interchange rates, which cuts down on the profit a business earns from each transaction.

• Cross-border transactions
  MCCs can influence how transactions are processed across borders, including currency conversion fees and acceptance rules, with transactions involving high-risk businesses receiving higher fees.

How to view MCC for transactions

On Stripe Issuing, the MCC for each transaction is provided as a value for merchant_data.category on Authorization objects. Some businesses may not fit into a specific category, in which case they’re categorized as miscellaneous.

The MCC is included in the Authorization object, which provides 20+ details about the transaction.

MCC list

A frustrating aspect of MCCs is that there is not one universally accepted set of merchant category codes used by all entities and organizations. 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 stores
  
• 5700–7299: Miscellaneous stores
  
• 7300–7999: Business services
  
• 8000–8999: Professional services and membership organizations
  
• 9000–9999: Government services
  

See the Stripe Issuing full list of merchant category codes.