What are merchant category codes and how do you find one?

Key takeaways:

• A merchant category code (MCC) is a four-digit number that credit card companies and other financial institutions use to classify a business by the type of goods or services it provides.

• MCCs are important for businesses to understand, as they affect the interchange rates and card processing fees a retailer pays to accept credit and debit payments. They also impact the taxes a business must pay, and, from the consumer side, the way cardholders are rewarded for their purchases.

• MCCs can help businesses manage their company's spending and expenses. They make it easier to reconcile company spending by linking transactions to certain MCCs.

Want to know what a merchant category code is, how to find one, and how they influence credit card transactions? Read on.

What are merchant category codes?

A merchant category code (MCC) is a four-digit number that credit card companies and other financial institutions use to classify a business by the type of goods or services it provides.

They’re also used to set interchange rates, determine rewards points for customers in loyalty programmes, and help payment processors categorise and gather information about cardholder purchases.

Why are merchant category codes important for businesses?

Merchant category codes are significant to both businesses and cardholders for a variety of reasons.

🔸 Setting corporate spend controls

Issuers (the financial provider that issued the card being used) can use merchant category codes to either restrict issued cards from being used with certain types of businesses or, conversely, allow cards to be used only at certain types of businesses. The best spend management platforms for businesses will allow you gain control over spending by setting MCC controls. For example, so your cards can only be used for purchases with certain travel-related companies.

🔸 Classifying transactions

Using merchant category codes simplifies the process of tracking and reporting different types of transactions. For example, an MCC for a petrol station would be different from an airline. This classification helps financial institutions understand what a business offers and how to handle the payments and fees. For businesses, transaction classification can also help with expense reconciliation. Transactions can often be categorised automatically by spend management software through using the merchant category codes.

🔸 Collecting data on how cardholders are shopping

Merchant category code data can be seen for every transaction, providing helpful information such as the transaction amount, authorisation method, and business details of where the card was used.

🔸 Managing cardholder reward schemes

Merchant category codes make certain strategies for rewarding cardholders possible, such as cashback and points offerings. For example, if an issuer offers cardholders 3% cashback on business travel bookings, any transaction with a merchant that has an MCC designated for travel made using a corporate card or business prepaid card will notify the issuer to give that reward. Conversely, credit card reward programmes often exclude certain spend categories from earning points, such as spend on healthcare or government services such as paying tax bills.

🔸 Determining interchange fees

Some payment gateways use MCCs to determine the fees they charge merchants. Merchant category codes identify the transaction type, which then determines the correct interchange fee (the fees that merchants pay to accept credit card payments). High-risk businesses (such as eCommerce, travel, and gaming) often pay higher interchange fees due to an increased risk of chargebacks and fraudulent activity. On the other hand, business types that tend to have lower fraud rates and chargeback rates (such as restaurants, retail, and financial services) might carry a lower interchange rate.

🔸 Supporting cross-border transactions

Merchant category codes can also influence how transactions are processed cross-border. ‌Businesses are subject to fees when operating internationally, including currency conversion fees and global acceptance rules.

🔸 Analysing marketing insights

Merchant category codes offer insights into spending patterns, customer preferences, and business performance. Analysing the data that’s tied to specific MCCs can help businesses ‌understand trends in how customers are spending with them so they can adjust their strategies or product offerings.

How do merchant category codes work?

The mechanics behind MCCs are fairly simple. Businesses are automatically assigned an MCC when they first set up their merchant account with a payment processor, based on the primary goods or services that they provide. When a payment is made, the MCCs role is that it tells the issuing financial institution and payment gateway providers how to handle the transaction from start to finish. Merchant category codes impact interchange rates, cardholder fees, identify high-risk merchants, and level of chargeback protection.

Here’s more information on the aspects of the financial process that MCCs play a role in:

Interchange rates

Interchange rates are fees that merchants pay to accept credit card payments. They’re usually a percentage of the transaction amount plus a flat fee. The portion of the fee that goes to the card issuer is called the interchange‌ fee.

Cardholder fees

Some businesses can charge cardholders a service fee when they make transactions with certain MCCs, such as transactions related to government business.

Chargeback protection

Card companies don't provide fraud protection to certain MCCs as much as others because of the risk of chargebacks. This is especially true for ‘card-not-present' transactions, like online purchases. This is because the card isn't available to be physically verified, so the card company deems it a riskier transaction.

How to find a merchant category code?

You can find a merchant category code through a variety of methods, including searching online, contacting your payment processor, or reviewing your credit statements.

• Searching online: You can look below in this article for a list of merchant category codes by industry, or check your card processor’s website where there may be a list.

• Contact your payment processor: They may be able to provide clarification on the MCC you’re looking for.

• Review your credit statements: MCCs will often be listed with transaction details; just look for the four-digit number.

Merchant category codes by industry

Below are merchant category code ranges listed by industry, as well as a few more specific examples.

Control and understand business spend with Airwallex

Just like how merchant category codes can help you categorise and understand individual transactions, Airwallex’s suite of spend management solutions helps you understand and reconcile company spending in its totality.

Over 100,000 businesses are using Airwallex solutions, such as Borderless Cards and Expense Management to take back control of their spend, and gain visibility into where their money is going.

With Borderless Cards, employee and company Visa cards are created in minutes. Stay in control of all purchases from a single dashboard, in real-time, while also managing expenses and reimbursements in the same place. Accounting software integrations help you reconcile expenses automatically, making use of merchant category codes to support automated spend categorisation.

Gain greater visibility of spend across your global business with Airwallex Spend solutions.