MCC codes, or Merchant Category Codes are four-digit numbers that indicate your line of business and the types of goods or services you provide to your customers. While originally conceived of and developed to simplify accounting for year-end 1099 tax form reporting, the MCC code has become a critical piece in the payments landscape.

The International Organization for Standardization (ISO) sets the MCC codes and definition, but credit card processors assign the codes to a merchant. These codes are then used by acquiring banks and payment service providers to set fees, assess risk, and more. Keep in mind that each card association has its own lists of MCCs, and while they are largely similar, there might be some differences for certain types of businesses.

Merchants can request a specific MCC code if they believe their line of business fits a certain category, but it’s the processor who has the final say during your onboarding process. And it’s important to get this code right, at the outset, since you are not allowed to change your code, once assigned.

Why does your MCC code matter?

Reach out to your processor ahead of your code assignment to understand whether your business will be classified as high-risk. If it is high-risk, it might be worth the time and effort to investigate how changing the way you structure your sales and business might allow you to exit the high-risk category.

Your classification will matter to your business for several reasons:

1. Some payment processors do not accept certain merchant categories
2. The card associations use MCC codes to calculate interchange fees and rates, which will matter greatly to your business
3. A high-risk processing classification means some processors will decline your merchant application based on this alone; it will also be harder to find a credit card processor. However, there are certain processors that specialize in high-risk credit card processing
4. Certain MCC codes make it easier for consumers to chargeback and some processors base their chargeback fees on the MCC code. If you have a high-risk MCC you will likely be paying higher chargeback fees
5. Some issuers develop their authorization algorithms around MCC codes, and a high-risk code may reduce your authorization rates. Some issuers limit or reject authorization requests for specific MCCs
6. Medical and healthcare business that accept HSA and FSA cards can only do so if they are correctly classed with a healthcare MCC. Drug stores and pharmacies that sell qualifying products may also accept FSA and HSA cards if they have appropriate MCCs and meet additional requirements

Taking the time to correctly assess your business model, communicate with your processor about possible classifications of your business and generally having a solid understanding of the importance of your MCC classification will pay dividends as time goes on.