Merchant Category Code (MCC): What It Is and Why It Matters

Introduction

If you’ve ever processed a payment through a credit or debit card, you’ve interacted with a Merchant Category Code (MCC)—whether you realized it or not. These four-digit codes categorize businesses based on the types of goods or services they provide. MCC classification plays a critical role in payment processing, card transactions, and even tax implications.

For business owners, understanding MCC is essential because it affects transaction fees, chargebacks, and eligibility for specific financial benefits. Whether you’re a small business owner, an e-commerce retailer, or a service provider, knowing your MCC can help you optimize your payment structure and minimize unnecessary costs.

In this guide, we will explore the fundamentals of Merchant Category Codes, how they are assigned, their importance in the payment ecosystem, and ways to find and change your MCC if needed.

Also Read: Search For Your NIC Code

What is a Merchant Category Code (MCC)?

A Merchant Category Code (MCC) is a four-digit number assigned by credit card networks such as Visa, Mastercard, American Express, and Discover to classify businesses based on the products or services they offer.

For example, a grocery store may have a different MCC than a hotel or an online retailer. MCCs help financial institutions track and categorize card transactions while also influencing how transactions are processed, taxed, and rewarded.

Each MCC falls under a specific industry classification, such as:

• 5411 – Grocery Stores
• 5812 – Restaurants
• 7311 – Advertising Services
• 7997 – Membership Clubs

By using MCCs, payment networks can determine interchange fees, eligibility for rewards programs, and tax reporting requirements.

How is MCC Assigned to Businesses?

The Merchant Category Code classification is determined when a business sets up a merchant account with a payment processor or financial institution. The assignment process involves:

1. Business Registration: When a business applies for a merchant account, it provides details about its operations, products, or services.
2. Processor Evaluation: The payment processor or acquiring bank reviews the business information and assigns the most relevant MCC based on the company’s primary activities.
3. Card Network Approval: Major card networks (Visa, Mastercard, etc.) validate the MCC and ensure it aligns with the industry classification system.
4. Periodic Review: In some cases, businesses can request a review or reclassification if their operations change significantly.

The assigned MCC determines how transactions are processed, taxed, and categorized for rewards or discounts.

What Is The Importance of Merchant Category Code for Payment Processing and Taxes?

The Merchant Category Code is more than just a classification—it directly impacts key aspects of a business’s financial operations.

1. Role in Payment Processing

MCCs affect how businesses handle card transactions. Some payment networks impose restrictions based on MCC classifications. For example:

• High-risk businesses (such as gambling services) may face additional verification requirements.
• Certain MCCs qualify for lower interchange fees, reducing transaction costs.
• MCCs determine whether a business can accept specific card types (e.g., corporate, personal, or prepaid cards).

2. Impact on Taxes and IRS Reporting

The IRS uses Merchant Category Codes to track business transactions and apply proper tax treatments.

• Some MCCs qualify for tax exemptions (e.g., non-profits).
• The IRS uses MCCs to verify deductible expenses for businesses.
• Certain industries must comply with special tax regulations based on their assigned MCC.

Proper MCC classification ensures that businesses are charged the correct tax rates and can accurately report their expenses.

MCC and Its Impact on Credit Card Processing Fees

One of the most crucial aspects of Merchant Category Code classification is its influence on credit card processing costs. Every transaction incurs an interchange fee, which varies based on the business’s MCC.

1. How MCC Determines Interchange Fees

Interchange fees are set by credit card networks and paid by businesses when processing card transactions. These fees depend on:

• MCC classification (some industries have lower fees).
• Transaction risk level (high-risk MCCs may have higher fees).
• Card type used (debit cards typically have lower interchange fees than credit cards).

For example, utility companies (MCC 4900) may have lower processing fees than high-risk businesses like travel agencies (MCC 4722).

2. MCCs and Credit Card Rewards

Certain Merchant Category Codes qualify for special credit card rewards programs. Banks and financial institutions offer cashback, points, or travel benefits for purchases made at specific MCCs.

• Restaurants (MCC 5812) often earn higher cashback rewards.
• Travel agencies (MCC 4722) qualify for airline and hotel points.
• Grocery stores (MCC 5411) may receive supermarket-related rewards.

Choosing the right MCC can help businesses attract customers who benefit from credit card reward programs.

How to Find and Change Your Business’s Merchant Category Code?

If you’re unsure of your Merchant Category Code, you can find it through:

1. Merchant Statements – Your payment processor or acquiring bank lists your MCC on your transaction statements.
2. Credit Card Network Websites – Visa, Mastercard, and other networks publish MCC classifications.
3. Contacting Your Processor – Ask your payment processor or bank to confirm your MCC.

Changing Your MCC

If your assigned MCC is incorrect or no longer aligns with your business activities, you can request a change:

• Step 1: Contact your payment processor and provide updated business details.
• Step 2: Submit supporting documents proving your primary business activities.
• Step 3: Request a reassessment and approval from the card networks.

Changing an MCC can help businesses qualify for better processing rates, reduce tax liabilities, and improve transaction approvals.

Conclusion

Understanding Merchant Category Codes (MCCs) is essential for businesses that accept credit card payments. These codes impact payment processing, card transaction fees, and tax reporting. An accurate MCC classification can help businesses lower costs, qualify for better credit card rewards, and ensure compliance with financial regulations. Additionally, it influences chargeback policies, affects eligibility for specific merchant services, and determines how transactions are categorized by financial institutions. Properly managing MCC classification can also enhance customer trust, improve accounting accuracy, and optimize overall financial management, making it a critical aspect of business operations and strategic planning.

If you’re unsure about your MCC or need assistance with payment processing compliance, Registerkaro provides expert support. Contact us today at support@registerkaro.in to streamline your payment processing and tax compliance.

Frequently Asked Questions (FAQs)

1. Can a business have more than one MCC?

A: Generally, businesses are assigned a single MCC based on their primary operations. However, companies with multiple revenue streams may have different MCCs for different merchant accounts.

2. How does MCC affect chargebacks?

A: Some MCCs are considered high-risk and may have higher chargeback rates. Businesses in travel, gambling, or digital services industries often face stricter chargeback policies.

3. Are MCCs the same for all credit card networks?

A: While Visa, Mastercard, and American Express use similar MCC classification systems, there may be slight variations in specific codes for different networks.

4. How do MCCs affect business loans?

A: Financial institutions may review a company’s MCC when assessing loan applications. Certain industries with high-risk MCCs may have difficulty securing business financing.

5. What happens if my MCC is incorrect?

A: An incorrect MCC can lead to higher processing fees, tax misclassification, or ineligibility for rewards programs. It’s essential to contact your payment processor to correct any errors.