Reviewed by Sep 30, 2020| Updated on
Merchant category codes (MCC) are four-digit numbers used by an issuer of a credit card to categorize the purchases that customers complete using a particular card. There are several meanings of merchant category codes. They also decide the incentives that customers earn for using their credit cards, and determine whether they need to report a business transaction. The codes also decide the amount of each purchase that a company has to pay to the credit card processor.
The following examples indicate three common uses of category codes for merchants:
Companies and government entities disclose service expenses to the income tax department so the department can ensure that all income tax dues are charged by those companies. When businesses use a credit card to make such payments, firms can use MCCs to assess which transactions are categorized as services.
A business classified as gas station under the MCC often charges its credit card processor different interchange fees than a company classified for car rental.
Those with reward cards usually get more rewards if they learn their MCCs. Suppose you have a restaurant credit card providing 5 points for every Rs.1,000 spent. The way the credit card company decides whether there were credit card purchases in a restaurant is by looking at the MCCs. When you buy lunch at a small mom-and-pop establishment combining a restaurant with a grocery store, and the MCC is classifying the establishment as a grocery store, you won't earn 5 points per Rs.1,000 on what you assumed was a restaurant purchase.