Merchant Category Codes (MCC)

Reviewed by Sujaini | Updated on Aug 27, 2020

What is Merchant Category Codes (MCC)?

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.

Breaking Down Merchant Category Codes (MCC)

The following examples indicate three common uses of category codes for merchants:

  1. If a customer holds a credit card that offers 5% cash back on airlines, they will receive the discount on any transaction listed under MCC 4511, which is for airlines and air carriers.

  2. 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.

  3. 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.

MCCs Can Boost Credit Card Rewards

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.