September 23, 2024
by David Goodale
What are MCC Codes?
(Slightly edited from video transcript for greater readability)
Key Takeaways
Hello, David here Merchant-Accounts.ca with what should be a quick one today. What are MCC codes? Stay tuned. We'll dig in in one second.
How do Visa and MasterCard categorize businesses through MCC?
I've heard it both ways, Merchant Classification Code and Merchant Category Code. I don't know what the official correct one is, but either way, it's a type of business code that's applied to every merchant account that gets issued.
Now, where can I find a list of MCC codes? You can find a list of MCC codes anywhere by Googling it. It's standard across the industry. I think the most authoritative place to get an up-to-date list is probably the Visa Merchants Data Standards PDF file, which is located on the Visa website. We'll include a link to it in the description, but you can always Google it because eventually this video and the link will go out of date. Try to get it from the Visa website if you can.
Examples of MCC
Now, what are some examples of MCC? You don't want a 20-minute video of me just listing out code types, but here's an example. Code 5691 is for men's and women's clothing. Code 7011 is for lodging, hotels, motels, and resorts. Okay, so why is choosing the right MCC code Important? Visa and MasterCard and card issuing banks try to prevent fraud. They have very complex algorithms that detect and stop suspicious transactions. Now, one of the things that they look at when combating fraud is the MCC code used by the merchant. It should be obvious, but an online casino transaction or a purchase of jewelry or precious metals has a higher probability of fraud than the purchase of wool socks. Nothing against wool socks, it's just that the black-market football socks are not quite as active as gold, I guess.
High risk categories come with increased declines.
The point is, if you have an MCC code that is connected to a higher-risk industry, you're more likely to see declined transactions when you process credit cards from your customers, even from legitimate customers, which can become an issue. We know that card issuers look at two things. One, they look at the MCC code of the merchant. The card issuing bank knows roughly what the customer is purchasing. Secondly, they know the purchase history of that customer. Although an issuer will never come out and explain how their anti-fraud algorithm works, common sense dictates that we know they're looking at these things. If I use the example of an elderly lady who's never used her credit card online before, and suddenly has a transaction with an MCC code for an online casino, that's probably obviously a suspicious transaction.
However, if that same elderly cardholder had a transaction with an MCC code for retirement homes or physiotherapy or something like that, it's probably less suspicious. Now, by the way, I'm not saying that old people shouldn't gamble or old people need physio. When I'm old, I want to be limber, and if I decide to gamble away my life savings, actually I want the bank to block that one. I don't want to gamble away my life savings. Now I'm off on a tangent. Let's dial this back. The result is having an MCC code that's associated with a lower-risk product or service will reduce the likelihood of declining transactions. That's very important. You should make sure that you're using the right one, which takes me to my next point.
Do you have control over your Merchant Category Code?
Well, generally speaking, merchants don't have control over their MCC code, but only because it's the processor's job to deal with it. It's kind of like going to the dentist and saying, hey, you should probably stop on that back right molar, that's not your problem to worry about. You shouldn't have to. Now, that said, it's not a problem. If you start getting a lot of declined transactions, you can always ask your processor, hey, what is the MCC code that you put on my account? I'm seeing more declined transactions than I would expect. That's a good way to tackle it. For the sake of mentioning it at Merchant-Accounts.ca, when we write the business with our sponsor banks, even if we don't usually, no we don't ever accept in exceptional circumstances, sees or decides the MCC code, it's the underwriter that reviews the file and, hey, these guys sell this thing. They are the ones that determine the MCC code that's used for your business. I just recently did another video on Visa HBR (High Business Risk), and MasterCard brand fees.
Some businesses may have to pay a high-risk business registration fee.
This is an extra and very significant cost that some higher-risk businesses need to pay when setting up Visa and MasterCard processing. An example is an online dating service. Let's say that you're some sort of love coach or relationship therapist. You could accidentally be miscoded for online dating, and if that happened, you would have to pay these really expensive high-risk registration fees to the card networks, which could be avoided if you pushed back and found another more applicable MCC code. This isn't something that you have to worry about, but if you're ever told for some reason when you open your merchant account that you'll have to pay high-risk registration fees, that's when you should push back and say, hey, what MCC code are you using? Make sure that it applies to your business. In summary, MCC codes stand for the merchant classification category or merchant classification code.
Conclusion
MCC codes are a four-digit code that Visa and MasterCard use to categorize every type of business that operates. The MCC code used is assigned by your payment processor. However, if you're getting a lot of declined transactions, and especially if you've been told that you need to pay high-risk registration fees, you should push back and find out what MCC code is being used for your business. With that, I think I've tackled MCC codes. If you ever have a question about processing or you want to get a quote for your business, please reach out to us at Merchant-Accounts.ca. We would love to hear from you. Other than that, thanks for watching, and have a nice day. Bye now.
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My name is David Goodale, CEO at Merchant Accounts.ca. I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.
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david.goodale@merchant-accounts.ca