If you are an ecommerce business accepting payments by card, then sooner or later you’re going to need to know a little about Merchant Category Codes, or MCCs. These four-digit codes help your ecommerce payment gateway to understand a bit about your business. Understanding MCCs, and what they do, may be of vital importance when it comes to payment processing.
What is an MCC?
So you know what it’s short for, but what is an MCC? What does it do? Well, it is a code set by the International Organization for Standardization and it defines the type of business you are, primarily by industry. When it comes to operating your virtual terminal, the MCC of your business will help automatically calculate fees for each payment. These fees are calculated based on factors including risk, with some kinds of business considered to be inherently riskier and therefore subject to higher fees.
Your MCC will be decided by the payment processor you sign up with based on information you give them.
The role of MCCs in transactions.
In order to accept a payment, a business must pay an interchange fee, and MCCs define these fees based upon risk of fraud. Typically, transactions for services and products such as adult entertainment, pharmaceuticals, and gaming will incur higher fees. Some businesses, meanwhile, may be entitled to charge the cardholder a fee for paying by card. Your MCC will also define how much you can be protected against chargebacks in cases of fraud; if a transaction is found to be fraudulent, the nature of your business as defined by an MCC will govern what type of fees you may need to pay in case of chargebacks.
Additionally, MCCs may decide whether you pay tax on a transaction. If a transaction is for a service, it will usually incur a tax liability, whereas transactions made for products tend not to be taxable.
Why are MCCs crucial for your ecommerce business?
MCCs have multiple potential benefits and warnings for businesses. For example, an issuing bank or lender may prevent their cards being used for certain purposes or levy higher fees, which may then mean that merchants choose not to accept them. On the other hand, they can allow a business to make smarter accounting decisions. If you have multiple MCCs because your business offers a variety of products and services, your ecommerce payment gateway will collect information that allows you to target special offers at areas of the business that are more lucrative. You can look at each transaction and see its MCC, allowing you to note specific patterns.
Also, when businesses offer multi-buy or money-off deals in a certain segment of their store, it’s MCCs that control those deals; products that fall under a specific MCC will be automatically earmarked by your virtual terminal for the special offer.
In conclusion, MCCs control so much more than many people realize. They are fundamental to how your business accepts payments and what your responsibilities are with regard to these payments. That’s why it’s useful to know all you can about them.
