What are merchant category codes (MCCs) when it comes to selling digital goods

What are merchant category codes

Merchant Category Codes, commonly referred to as MCCs, are standardized identifiers used in payment processing. These four-digit codes categorize merchants who accept card payments, either online or at point-of-sale (POS) terminals. Assigned by the acquiring bank in the payment processing chain, each MCC signifies the specific products or services a merchant offers. For instance, the MCC for grocery stores and supermarkets is 5411.

If a commercial enterprise operates in several areas, one code is selected as the main one. For example, a petrol station may have a shop or a café, but payments will be made under the code 5541 (“Petrol stations”), 5542 (“Automatic petrol stations”) or, less frequently, 5172 (“Petroleum and petroleum products”).

The opposite situation also occurs, when customers find different MCCs at the same trading site. This may be due to the fact that:

• Some banks set several codes for a retail outlet not only according to its range of products, but also depending on which payment system card is used for payments. This is typical of online shops. Paying with cards there, you will see the transaction code 5300 (“Wholesalers”), Visa — 5262 (“Marketplaces”), Mastercard — 5964 (“Catalog Merchants”). On Aliexpress, you may also see 5311 (“Department Stores”), 5399 (“Miscellaneous General Merchandise”), and other MCCs.
• The code of e-wallets and payment services may depend on the amount or nature of the transaction. The MCC of e-wallets and payment services may depend on the amount or nature of the transaction. The retail outlets that are part of the consumer services ecosystem may have their own MCC or a common code for the whole system.
• Different branches of a large retail chain or even different checkouts of one hypermarket may have different MCCs. For example, in IKEA it may be 5200 (“Home Goods”) or 5261 (“Garden Accessories”).

What is MCC used for?

Understanding MCC coding helps the business owner and cardholders to more effectively utilize the benefits of the banking product.

Interchange fees

Companies pay interchange fees for accepting bank card payments. Their amount depends on the code and even the type of risk. For example, if you make a purchase from a company that is a low-fraud and chargeback business, the interchange fees will be lower. Conversely, for businesses with high risk and frequent chargebacks, the fees will be high.

Risk analysis

The risk increases depending on the type of business. The more frequently the company encounters fraud and chargebacks, the higher its risk level and the higher its interchange fees. There is no available information on how payment systems like Visa and Mastercard calculate scores when analyzing risk. However, it is likely that MCCs have an important influence on this.

Tax purposes

With the help of codes, companies can obtain tax exemptions and apply different rates when calculating taxes. For this purpose, the tax authorities classify transactions using MCCs.

Cardholder fees

Codes affect not only businesses but also cardholders. For example, if a bank cardholder often makes purchases in a category that is high risk (frequent fraud, chargebacks), they will have to pay a higher transaction fee.

Fraud prevention

Internal security checks are also conducted using MCCs. They allow governmental authorities to stop fraud and suspend suspicious transactions.

Why are MCCs important

Codes have several undeniable advantages that protect the business of both the merchant and the one who processes transactions:

• protection from fraudsters;
• accurate accounting of payments;
• favorable transaction fees;
• convenience in financial reporting;
• simplified taxation.

In addition, a business can use MCCs to control card usage. For example, the owner of a taxi booking service can restrict the use of cards for codes related to taxis and limousines. MCCs are also actively used to track cardholder spending, since in addition to the code, each transaction contains information about the payment. With the help of the codes, a business can reward its customers. For example, by giving them cashback for purchases or awarding bonus points.

Why are merchant category codes important for digital goods selling

The code is used by banks to identify the main activity of a business and to categorize its industry type. So basically, it is needed for the bank to understand what kind of goods and services you provide online.

Every time a customer makes a transaction through your online shop, the bank receives the payment details along with the assigned MCC code. This is how the financial institution can analyze the risk profile of the business. Sending the wrong code can result in a delay in the transfer.

No matter which digital product you opt for, managing taxes and legal matters is essential. Number X will automatically gather taxes from your sales, monitor them, and remit them to the appropriate tax authorities on your behalf. Additionally, it will ensure compliance with local laws and regulations, keeping you out of legal trouble. With Number X, you can protect yourself from scams and efficiently manage any chargeback inquiries that may arise.

Who sets the MCCs

The codes are derived from the International Organization for Standardization (ISO) and the Standard Industrial Classification (SIC) codes for various business types. However, payment networks like American Express, Mastercard, and Visa may adapt these codes for their specific needs. This results in variations in MCCs depending on the card issuer.

A business receives its MCC when it establishes an account with a payment system. Therefore, it is crucial for companies to verify their codes independently to ensure they remain current, as these codes can change over time.

How are MCCs used in the transactions process

When consumers make purchases using their credit cards, the merchant category code (MCC) is transmitted to the card issuer, such as Visa or Mastercard, during the transaction. This code helps identify the type of business where the purchase occurred. For instance, a transaction at a clothing store will be classified under apparel purchases, while a meal at a restaurant will be tagged with a dining category code.

It’s important to note that the MCC reflects the type of retailer rather than the specific items bought. For example, if someone buys electronics at a department store, the transaction may still be categorized under general retail rather than electronics specifically.

MCC list of digital goods selling

The compilation of merchant category codes encompasses a vast array of classifications for various industries and business types. With a specific set of numbers, it becomes straightforward to accurately identify the MCC associated with a particular business.

For instance, codes ranging from 0001 to 1499 are designated for companies offering agricultural services, while those from 9000 to 9999 pertain to public services, among others. Below is a table featuring some merchant category codes; however, this is just a small sample, as there are thousands of MCCs in existence. A comprehensive list can be accessed on the official websites of various banks, for example Citibank.

We have already told you that different payment systems may have different codes. You can check this information on the official websites of Visa, Mastercard, American Express, and other card issuers.

The merchant category codes are periodically updated, so it is important for businesses to keep track of changes.

How business can find the merchant category code for digital goods

Consumers can find the merchant category codes on their monthly credit card statements, which may reveal how each transaction was classified. Typically, instead of displaying the MCC itself, the statement will show the corresponding category name, such as “grocery stores” or “pharmacies”.

The MCC for each transaction is included as a value under merchant_data.category in the authorization objects. In cases where a business does not clearly fit into a specific category, it is classified as miscellaneous.

Additionally, the MCC is part of the Authorization object, which contains over 20 details regarding the transaction.

Merchants who are not sure which MCC they have been assigned can find out by contacting the bank where they have an account. Alternatively, they can look up the code on their own on the bank's website or on the website of the payment system.

Conclusion

Every time a customer uses a bank card to pay for goods or services, the card processor assigns an MCC number to the transaction, depending on the type of merchant.

Although this happens automatically, it is best to know which code is assigned to which business in order to properly file tax returns, counter fraud, and receive benefits.

MCCs indicate which products or services the company provides. The same refers to online businesses.

The codes can be checked on the official websites of financial services providers.

The MCC for a certain transaction is shown as a merchant_data.category value in the authorisation objects.