What is a MCC?
MCC is the Merchant Category Code.
Every merchant needs a merchant account to process transactions, and every merchant account has a Merchant Category Code (MCC) assigned to it. Sadly, most merchants are not aware of it and weren’t told about it when they applied for a merchant account – even though it can have a bigger impact on your business than anything else you do.
Merchant Category Codes are defined by ISO 18245:2003 (ISO is the International Organization for Standardization). They are responsible for identifying every type of merchant and ensuring they have a 4-digit code assigned to them. A difficult task, to be sure!
As for the actual list of codes, anyone is free to purchase the complete list from iso.org directly. If you prefer not to spend the $150, you can visit Visa or Mastercard’s reference documents instead. Ultimately, there are a few thousand codes that vary from specific ones (Tropicana Resort & Casino has their own code – 3738) to very generic ones (all merchants that have a recurring subscription are supposed to go under 5968)¹.
Are They Important?
Yes, there are several reasons why these category codes are important. The most pertinent are:
- Businesses have a variety of ‘typical customers’, so to help banks understand what types of transactions they should expect from a merchant (mostly online, or prepaid cards, or recurring, etc.), they look at their MCC.
- Various businesses (like gambling or marijuana) may have their sale restricted in a region, and so the credit card issuer will block the transaction on that basis. Without an MCC to identify the business type, it would be much more difficult.
- Company credit cards can be restricted only to allow certain types of purchases (for example, only gas stations).
- Some categories of merchants have their transactions automatically reported to their country’s revenue service.
Who Decides the Merchant Category Code?
When a merchant applies for a merchant account, there should always be a section for MCC. This section is generally determined by the merchant account provider, based on the information the merchant provides. The merchant can make an argument for why a different MCC matches their business more closely, but in the end, the issuer decides the MCC.
This can lead to unintended consequences. One FlexPay merchant discovered their MCC wasn’t 5968, which it should’ve been. There was a typo, causing them to be 5698, a Wig and Toupee Shop!
The Future of Merchant Category Codes
What does the future hold for MCC? Well, on September 6th, 2019, the proposal to begin drafting ISO/AWI 18245, a replacement for the current MCCs, was approved. When ISO 18245:2003 was started, it took just shy of 3½ years to be published, and even more to be adopted. So, don’t expect those MCCs to change until the mid-2020s, at the earliest!
Did you know your failed payment recovery method can affect the health of your merchant account? Reach out to our team for details.
¹MCC tend to be very negotiable. Netflix, for example, isn’t under 5968, but 4899 instead (Cable & Other Pay Television Services).
