Merchant Category Code: What is a MCC Code
When it comes to retail financial services, a Merchant Category Code is a four-digit number that is listed in ISO 18245 (ISO standard addressing the issuance of Merchant Category Codes (MCC) in retail financial services.) An MCC is a classification system for businesses that classifies them according to the sorts of goods or services they provide. The assignment of MCC Codes (also known as merchant category codes) to merchant accounts occurs during the account setup process and is used to distinguish between different types of businesses and industries. Each industry has its own set of transaction patterns as well as its own set of risk levels (potential for fraud). MCC codes are used by the issuing bank to decide whether or not they will accept a transaction in question.
Understanding Merchant Category Codes
Merchant category codes serve a variety of functions. They are frequently responsible for determining the benefits that customers earn for using their credit cards, as well as whether a company transaction must be reported to the Internal Revenue Service. Besides that, they decide the proportion of each transaction that a firm is responsible for paying to the credit card processing company. The following are some examples of how merchant category codes are commonly used.
If a consumer has a credit card that gives 5 percent back on airline purchases, the reward should be applied to any purchase that falls under the category of MCC 4511, which is designated for airlines and other air carriers.
Companies and government entities must record purchases of services to the Internal Revenue Service (IRS) so that the IRS can ensure that the services purchased pay all income taxes owing. MCCs can be used by businesses to identify whether transactions are considered as services if they make these purchases using a credit card.
Businesses designated under the MCC for petrol stations pay interchange fees to their credit card processors that are different from businesses classified as car rental companies.
Why it’s important for business owners
Identifying MCCs is critical for company owners to understand since the code has an impact on whether or not they are able to record certain payments on a Form 1099-MISC. In addition, whether or not a firm can impose a convenience fee on credit card payments is determined by the MCC.
MCCs can also have an impact on risk assessment. Some credit card firms, for example, may utilize MCC categorization to boost transaction fees and rates for "higher-risk" enterprises such as pawnshops and airlines, so increasing their profits. Some other institutions, such as primary and secondary schools or charitable groups, may be eligible for cheaper interchange fees if they have specific code numbers.
The acceptance of payments might also be affected by the merchant code. In order to accept funds from a health savings account, for example, a health care business may be required to have a particular MCC that categorizes it as a health care business in order to receive payment from the account.
It is critical that your company is categorized appropriately in order to ensure that it receives a reasonable interchange rate. When a business is misclassified, it may result in the organization having to pay more in rates and fees than it should be required to.
Merchant Accounts with Connected.co
With a large network of high-risk banks both domestically and internationally, Connected.co is constantly expanding its client base and increasing its revenue stream. We have extensive experience in the placement of merchant accounts. We will take use of these ties and our expertise to secure a merchant account for your company in situations where others have failed. Simply put, if your company is lawful, we can help you become authorized! High-risk merchants can also apply for a merchant account with Connected.co, which makes the process simple. We offer a state-of-the-art computerized application procedure that makes applying for a position a simple and painless process.
JW Epply has been a senior executive for over 10 years, during which time he has met and exceeded growth and revenue goals in exceedingly difficult verticals. Epply is recognized as an efficient, dynamic leader with a strong background in sales and sales process, management, and organizational strategy. He holds a Bachelor’s Degree in Organizational Management from the University of Wyoming, and is an accredited Certified Payments Professional (CPP) from the Electronic Transactions Association (ETA).