Let’s explore what MCC codes are and how they affect high-risk merchants like you.
MCC stands for merchant category code. It’s a four-digit number that banks and credit card networks assign merchants based on specific merchant categories—and these codes reflect what type of business or service a company offers.
An MCC code is sent through the payment network on every transaction, so a customer's bank knows what industry charged their card.
Every business has MCC codes assigned to them by various payment networks.
An MCC code gets assigned by various credit card networks because they use them to categorize businesses and track purchases.
While a transaction processes, the customer’s issuing bank will see the 4-digit MMC code and use it as one of the many factors to decide whether to approve the sale.
Some issuing banks will block transactions from various industries. Therefore, it’s essential that you know your MCC code—and ensure that you have the right MCC code—so your business can accept payments as smoothly as possible.
If your business is suffering from low card transaction approval rates, it could be because you have a misassigned MCC code—which we’ll discuss shortly.
When your MID (merchant ID number) gets approved, you’ll be sent a VAR sheet—a document with all the technical aspects of your merchant account—by the acquiring bank that approved your account. This document contains all the information you need to set up the MID in the gateway—and your business’ MCC code should be in there.
Essentially, acquiring banks issue merchant accounts to merchants, assigning them their MCC code in the process. So, you can ask the rep you work with to ask the merchant bank what code they’ll issue—or have issued—to your business type.
MCC codes can be changed, but they’re not just changed out of nowhere. Instead, they remain static after the acquiring bank assigns them unless the merchant requests a change (which requires a new application process) or the acquiring bank makes a change—which they’d need to communicate with the merchant.
Certain MCC codes are assigned to high-risk industries due to their history of higher fraud rates and chargeback ratios. These industries and billing models are already determined by credit card associations to be high-risk before the merchant bank evaluates them.
high-risk just means you might have to work with a specialized payment processor, so it’s not a huge cause for concern. If you’re unsure about what high-risk means for you and your business, feel free to contact one of our payment experts, who’ll be more than happy to assist you.
As many high-risk merchants are in the online or subscription business, customers will likely complete transactions with these businesses using credit cards. Therefore, your MCC code will determine how much you will pay in fees to process credit cards. And because you’re high-risk, you’ll likely be paying higher fees.
MCC codes can lead to declined transactions. This is especially a problem if your business has been assigned the wrong code because various customers may get declined from purchasing your goods or services when their transaction would otherwise have been successful.
Although declines resulting from a certain MCC code aren’t all that frequent, they still happen. For example, according to FlexPay, an MCC code of 5968 is 259% more likely to decline than the same transaction under the MCC code 5734.
The most common reason an issuing bank will decline transactions will be based on the industry associated with the MCC code—and businesses with high-risk MCC codes are likely to be declined more often.
If a customer’s card declines when they try to make a transaction with your business, you can advise them to call the number on the reverse side of their credit card. You don’t want unnecessary card declines damage to your bottom line.
It is possible to get assigned the wrong MCC code. Remember that each merchant type has an MCC code, and credit card issuers may make mistakes. Here’s a full list of all MCC codes.
Furthermore, there are certain catch-all MCC codes, which could lead to terrible throughput. For example, as referenced above, 5968 is an MCC code notorious for its low approval rates. These rates are partly because they’re used on a wide array of continuity and negative-option billing.
If you’ve been given a high-risk MCC code—and you think it’s incorrect—make sure you do something to change it. To do so, contact your rep or acquiring bank and let them know why you feel the code doesn’t fit your business. They may require further info, so call them prepared.
However, if you’ve been given a high-risk code and it’s warranted, have no fear. Being high-risk doesn’t mean you can’t carry out business.
high-risk businesses include:
If you suspect your company is high-risk and you’re unsure about what this entails, feel free to contact one of our experts at L3.
Although it’s rare, you may get coded as a low-risk merchant when you are, in fact, a high-risk merchant. This miscoding is almost always done by mistake by the acquiring bank, but merchants mustn’t attempt to deceive or mislead banks into miscoding them.
A business considered low-risk by a bank, despite engaging in high-risk transactions, may be subjected to less monitoring due to the miscoding.
Merchants remaining known as low-risk but doing high-risk transactions are “transaction launderers.”
If a bank deems you a low-risk merchant, you tend not to be scrutinized as closely. However, even if a merchant or acquiring bank is ignorant of transaction laundering, they are still both deemed responsible by the card associations, and this can lead to fines, merchant account closure, and being added to the MATCH List/Terminated Merchant File (TMF).
Therefore, being miscoded and even unwillingly engaging in transaction laundering can put you in a whole heap of trouble. The liabilities of misrepresenting your business are huge, so make sure you have the right MCC code.
To help mitigate your risk of fraud and unknowingly participating in transaction laundering, feel free to reach out to an L3 payments expert who can help walk you through the steps to ensure that your business is operating under the correct MCC code.
We hope this article helped you understand what MCC codes are and how and why you have them assigned to your business.
If you’re unsure about what your MCC code assignment is, we recommend that you reach out to your merchant account representative and simply ask them what your code is. They’ll generally be able to offer guidance.
However, if you have any additional questions or concerns, we’re always available to assist. Please feel free to reach out to one of our experts.