How Updating Your MCC Code can Impact Credit Card Decline Rates (in a Good Way)

Starting a business is no easy task. You have to pay taxes regularly, may need specific permits, and must master a wide range of skills to survive.

If that’s not enough, there are factors at play behind the scenes which affect one of your most important functions – the ability to process credit cards.

I’m talking about your MCC code. The wrong code can increase your decline rates and get you flagged as a high-risk business. The right code can help things move along more smoothly.

If you’ve been wondering what an MCC code is and how it can impact your business then you’re in the right place. This article looks at what an MCC code is, how to find it, and how it changing it can impact your card decline rates.

What is an MCC code

A merchant category code (MCC code) is a four-digit code that identifies the kind of business you engage in. A business can have or qualify for more than one MCC code because it’s determined by multiple things.

• Your line of business
• The way you market your business
• Whether your business has a physical location or not

For example, two clothing brands can operate in fundamentally different ways. Clothing brand A sells online and uses SEO to generate new business. Clothing brand B sells through a physical location and online and uses direct marketing to generate new business.

Clothing brand A and B would qualify for different MCC codes even if they’re selling similar items.

MCC codes were originally used for tax reporting at the end of the year but have since become an integral part of the payment processing landscape. Credit card processors assign the codes to a merchant. Banks and payment processors use it to set fees, assess risks associated with a merchant, and more.

It’s also important to note that each card network has its own MCC code list. They’re all similar but there may be specific differences that can affect certain business types. 

How to find your MCC Code

For starters, the IRS publishes its own list of merchant category codes. It may be the best place to start. Unfortunately, each card issuer also has its own set of MCC codes. These codes are applied when you, the merchant, applies for payment processing services.

The best way to find your MCC code is to contact your payment processor and ask. They have the most accurate information available. If that’s not an option you may need to take advantage of the lists available online. Here are a few to get you started:

• https://www.visa.com/supplierlocator-app/app/#/home/supplier-locator (Visa supplier locator)
• https://www.mastercard.us/content/dam/mccom/en-us/documents/rules/quick-reference-booklet-merchant-edition.pdf (MasterCard reference booklet)
• https://www.web-payment-software.com/online-merchant-accounts/mcc-codes/ (aggregated list)

There are many other resources online so if the ones here don’t meet your needs, a Google search with your industry may yield fruits. Keep in mind that MCC codes are specific so a specific search query will serve you well here. Instead of looking for furniture supplier MCC code, you’ll search for office furniture supplier MCC code or home furniture supplier MCC code.

It may take a few variations to get it right but it’s worth it if you can qualify for a better MCC code.

How your MCC Code affects credit card processing

Many people don’t realize what their merchant category code is or how it can impact their business. I’ve hinted at the repercussions throughout this guide. Now, I want to drill a bit deeper so you can see how updating it can have an impact on your credit card decline rates.

Identify risky businesses/industries

The financial industry is heavily regulated because there’s a lot at stake. If banks or payment processors were able to use shady practices without consequences, people would lose faith in it all. Because of this, they’ve become risk-averse.

The MCC code is a simple way for them to identify high-risk businesses and treat them accordingly. If they see your assigned MCC code is on a prohibited list, it’ll be much harder to get a payment processor or merchant bank to work with you.

If they do accept a high-risk business, the decline rates will be higher across the board. Of course, a merchant’s decline rate isn’t only due to the MCC code. It can be affected by the acquiring bank (especially in international transactions) and the merchant’s history.

Impact interchange rates

Interchange rates are the fees a card issuer like MasterCard or Visa charges a merchant when processing payments. Your merchant category code will affect this rate. Some businesses are considered lower risk and tend to have a good standing with card issuers which translates to a lower interchange rate.

On the other hand, higher-risk businesses, as identified by the MCC code, with a higher average chargeback rate will have higher interchange rates.

For example, a gas station is a type of business with relatively low risk for acquiring banks and card issuers. There are few, if any, chargebacks, there’s a physical location, and transactions are generally small.

An online casino is a business with relatively high risk. All of the transactions qualify as card not present, there’s a comparatively higher number of chargebacks, and there’s no physical location.

Ability to get a payment service provider

Your MCC code will also affect your ability to get a merchant account or payment processor. Whether you’re approved or not comes down to the specific financial institution but it can be more difficult with certain types of businesses.

For example, many payment processors won’t support online casinos or betting services. They may also shy away from services like online health consulting and tarot card reading.

Should you update your MCC code?

This is a tough question and it depends on many factors. First, you should check whether you qualify for a different MCC code – which many businesses do. After you’ve confirmed that, look at whether your MCC code is impacting your credit card decline rates.

If you fulfill the above criteria, it may be worth getting it changed. That seemingly small decision can impact your credit card decline rates in a good way.

Conclusion

The MCC code is something that’s applied to your business behind the scenes and can affect you for years to come. It’s important to understand how your business is being classified. If that grouping isn’t accurate or you qualify for a better category then it may be worth your time to get it changed.

It can improve your credit card decline rate and open up more opportunities to work with reputable payment processors. Whatever the case, take the time to understand your current situation and act accordingly.

Let me know what you think of MCC codes in the comments and don’t forget to share. 

Daniel Ndukwu

Daniel Ndukwu is a regular contributor to the PayKickstart blog. He has extensive experience with online businesses, conversion optimization, and subscription revenue models. When he's not writing insightful content, he works with other entrepreneurs to help them grow their bottom line.

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