How a Merchant Category Code (MCC) Works

Every business is unique, like a snowflake gently falling to the ground. But there are similarities between various industries, and we need a proper way to separate business types; otherwise, there would be chaos for card issuers. That’s where the Merchant Category Code (MCC) comes into play.

What is a Merchant Category Code (MCC)?

Merchant category codes are four-digit numbers listed by the International Organization for Standardization (ISO) to classify different business types that accept credit card payments. For example, the MCC “18245” is classified as retail financial services. They became mandatory by the IRS in 2004.

In general, the purpose of MCC is to organize and classify a business by the types of goods or services it provides.

Who Uses MCCs?

Card issuers and networks (Visa, Mastercard, AMEX, etc.) use MCCs for a variety of reasons. One primary aim is to track purchases for reward programs. If you’ve ever seen benefits like 3% cashback for gas purchases, then you’ll understand the importance that this data has over the entire credit card industry.

Security is another reason card issuers use the MCC system. If a transaction from an unusual MCC occurs, the issuer could include that as a factor in automatic fraud alerts for their customers.

If you’ve ever used the free budgetary platform, Mint, then you’ve seen a breakdown of all your purchases placed into a donut graph that lists your spending habits. While their lists employ more user-friendly categories like “Entertainment” or “Auto,” their algorithms start with MCCs.

How MCCs Affect Your Business

Okay, so how does this impact your business?

While this might seem like an arbitrary system, it’s essential when it comes to card transactions in general.

Depending on your MCC, the rates you pay to process card payments could be much higher than other industries because some industries come with a higher risk than others. For example, travel, due to the nature of cancellations, has higher rates than your average grocery store.

It makes sense that card issuers would want to mitigate the expected loss of higher-risk industries.


MCCs play a significant role in the payment processing industry, even if you’ve never heard the term before. Some of the thing’s businesses use Merchant Category Codes for are:

  • Rewards Programs
  • Security
  • Behavioral Analysis
  • Interchange Rates/Fees
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