Today there are more and more online sellers. It can be one person who ships goods from home or a large company that sells all sorts of product groups. Despite the size of the business and the turnover, all sellers sooner or later have to deal with chargebacks and the problems that come with them. To make it easier for banks, card networks, and other financial institutions to handle such processes, it’s important for each merchant to report what kind of business they are doing.

To avoid confusion, merchant category codes have been created. With these codes, it’s easy to identify the type of business the seller is doing. But what value do these codes have for the seller himself?

In fact, sellers rarely consider what kind of merchant category code or MCC they have. This code was assigned to them when they opened their merchant account. And this code is only important to the IRS and the payment processors. Nevertheless, some MCC assignments can have limitations or, conversely, advantages for sellers. If you know the facts that your MCC has an impact on your business, you can use that data to your advantage.

What are Merchant Category Codes?

A merchant category code is a four-digit number that is assigned to each merchant account during the registration process. This number identifies the type of goods or services being sold. By understanding the value of the MCC, card networks get complete information about the transaction and how to process it. For example, by recognizing the type of goods or services with the MCC, tax authorities can understand what taxes to charge on a particular transaction.

How are Merchant Category Codes assigned?

Credit card networks determine merchant category codes. A merchant account may have more than one MCC, depending on the products or services they sell. Different networks may define merchant services differently and assign other merchant category codes accordingly. For example, a small online store might have MCC 5945 (Hobby, Toy, and Game Shops) to Visa and MCC 5970 (Artist Supply Stores, Craft Shops) to Mastercard.

Because card networks have different standards and rules, a merchant may have difficulty if he needs to assign more than one MCC to classify multiple parts of his business. It may happen that Visa has assigned two MCCs, while MasterCard has assigned only one MCC.

Once an MCC is assigned to a merchant, that code stays with the merchant, even if its business type changes and it becomes completely different. Some merchants try to change the MCC, but this process can be quite time-consuming on the part of the card networks. It will require them to conduct an investigation to see if they have a reason to change the merchant classification code. Therefore, if the MCC does not affect business and profitability, most merchants do not update the MCC.

Many companies in the travel or hotel business have unique MCCs for customer service centers. Large retail chains with many divisions may also have different vendor category codes. However, in most cases, card chains assign the MCC that best suits the particular activity.

Why do Merchant Category Codes matter?

There are several cases where MCC has an impact on business. Card networks may classify some codes as “high risk,” and sellers whose merchant accounts are assigned such codes must pay higher interchange fees because of the higher fraud and dispute rates that sellers typically face.

While the list of high-risk businesses is the same for all card networks, each has its list of MCCs, that it believes may be most at risk. Here, for example, are some of the businesses on Visa’s high-risk MCC list:

  • 5962 – Direct Marketing-Travel-Related Arrangement Services
  • 5966 – Direct Marketing-Outbound Telemarketing Merchants
  • 5967 – Direct Marketing-Inbound Teleservices Merchants (This can include digital content and adult content)
  • 7995 – Betting, including Lottery Tickets, Casino Gaming Chips, Off-Track Betting, and Wagers at Race Tracks
  • 5912 – Drug Stores, Pharmacies
  • 5122 – Drugs, Drug Proprietaries, Druggist Sundries
  • 5993 – Cigar Stores and Stands (Only merchants conducting card-not-present cigarette sales are considered high risk)

Moreover, some banks and payment systems do not want to do business with companies with certain vendor category codes. This is probably due to the fact that they do not want to do business with merchants that fall into high-risk categories so as not to ruin their reputation and be associated with such businesses.

However, having certain MCCs can have a positive effect on merchants. Many credit card issuers offer loyalty programs and other rewards that give customers back points, money, or other bonuses when they buy goods or services from companies with certain merchant category codes.

Do Merchant Category Codes affect chargebacks?

Although every seller of goods or services has encountered chargebacks at least once, a particular MCC can be an important factor in determining which chargeback reason codes will be used for your company and what evidence you can use to fight them.

In order to effectively manage the chargeback process, it’s important to know your MCC, research possible dispute scenarios, and use a chargeback management company that helps substantially reduce the risk of chargebacks. It’s a unique software that helps increase the effectiveness and ROI of chargeback avoidance. (

The Bottom Line

Many merchants have exact MCCs that are not included in the high-risk code lists for card networks. It is important to make sure that the merchant category code assigned to your merchant account is in the safe group. You should also find out if there are any special rules or conditions for using your MCC, increased interchange fees, etc. This will help you work more efficiently and deal more effectively with chargebacks.

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