To put together an effective chargeback defense strategy, it’s essential that you know your MCC and research the dispute scenarios in which it will come into play. MCCs make it easier to determine whether a transaction needs to be reported, reimbursed, or otherwise subjected to special handling. If you know that your MCC is influencing your sales, costs, or other aspects of your business in some way, you can take steps to mitigate that fact—or use it to your advantage. Below are some MCCs related to travel and transportation excerpted from Citibank.
A cartful of groceries may qualify if you take it through the main checkout. But check out through the store’s garden center—which could have a separate code—and it may not qualify. The merchant’s line of work would be completely different than when the business started. Still, the code would remain the same unless a request to change it is approved. The other tricky thing to be aware of is that some merchants might have multiple codes.
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How Are Merchant Category Codes Assigned?
Finally, no matter how an MCC might classify a business, a card issuer could have its own rules that override the codes. Another example is the Capital One Savor Rewards card, which offers 4% cash back on entertainment, but explains that golf courses or collegiate sporting events are not included. The MCC code has a number of implications for your business, the first of which is the cost of transactions and the risk profile of your account. The risk profile indicates how likely it is for merchants in your category to get consumer complaints, chargebacks, and refunds. However, if you’re paying too much for credit card processing, you can easily see if you’re eligible for lower costs by using this free quote comparison tool.
- For instance, the American Express Blue Cash Preferred provides 6% cash back on groceries.
- However, if you’re paying too much for credit card processing, you can easily see if you’re eligible for lower costs by using this free quote comparison tool.
- Merchants or issuers may offer “rewards” cards, for instance, letting cardholders earn points for certain types of purchases, such as an extra 3% on groceries.
- Did you know your failed payment recovery method can affect the health of your merchant account?
- The payment networks assign the number when the merchant sets up a payment system.
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Prohibited Goods And Services With Square Point Of Sale
Rather than digging through a year’s worth of individual receipts to try and identify reportable information, the merchant can use the contractor’s merchant category code. This lets them quickly and consistently figure out whether business costs are exempt. A merchant MCC can be changed, but such changes are improbable and infrequent.
This is a fee charged to the cardholder when using their credit card. It can only be used for credit cards, not debit cards, and it’s only available for some merchant category codes. This fee can be greatly beneficial for business owners who see a lot of small transactions that would get eaten up by fees. 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. Even so, each credit card network has its own differing list of merchant category codes in use. Your merchant services provider can help you find the right code to use for each network (Visa, Mastercard, American Express) that your business wants to use with your payment gateway.
What do small-business owners and individuals who are looking to maximize credit card rewards have in common? Merchants or issuers may offer “rewards” cards, for instance, letting cardholders earn points for certain types of purchases, such as an extra 3% on groceries. These rewards are commonly managed based on the MCC of the place of purchase. On the other hand, some MCCs can have a positive effect for merchants. Many credit card issuers have reward programs that give their customers points or cash back for purchases at certain merchants, such as travel or groceries. These programs refer to the MCC to determine whether a purchase is eligible for rewards or not. Merchants with these MCCs may benefit from increased sales motivated by these reward programs.
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Originally developed to simplify accounting for the year-end 1099 tax form reporting, the MCC code is now a critical piece in the payments landscape. While the International Organization for Standardization (ISO) sets the MCC codes and meanings, credit card processors nowadays assign the codes to merchants. These credit card merchant codes are then used by acquiring banks and payment service providers to set fees, assess risk, and more. Keep in mind that each card network — Visa, Mastercard, Discover, and American Express — each has its own list of MCCs.
When you’re applying for a merchant account, it certainly is beneficial to you to understand what types of MCCs may apply to your business. Sometimes high-risk businesses are not accepted by a credit card provider at all. For example, if a customer wants to pay for a good or service with their Health Savings Account, or HSA, your business must have the appropriate merchant category code.