Merchant Category Code with High Risk


Merchant category code is a four-digit code which is used for classifying business on the basis of services and products provided by the merchant company. MCC is a criterion which aims at organizing different types of businesses. International Organization for Standardization (ISO) is an organization which sets these codes, the classification and their meaning. However, these codes are basically assigned by credit card networks or the payment brands to categorize, track and at times restrict certain types of transactions. MCCs are commonly shared by four significant credit cards networks- Visa, Mastercard, Discover, and American Express.  MCC serves various purposes. It ascertains the reward which a consumer gets for using a particular credit card for their transaction. It decides whether a certain business transaction requires to be reported to the IRS (Internal Revenue Service). Businesses need to pay a certain percentage of their transaction to credit card processors which is determined by MCC. Merchant Category Codes facilitates the system of Credit Card Rewards. If a certain credit card offers 7 percent back on Telecom Services, every time consumer who holds that card makes a purchase of telecom services which is classified under MCC 4814, he/she will get the reward of 7 percent back on that transaction. When a business uses credit cards for making their purchase, high risk mcc codes helps firms in ascertaining whether to classify that transaction as services.

Credit card networks while assigning MCC to merchants group all related business together under one category such as ‘dining’, ‘Travel’, and the likes. This grouping facilitates the determination of reward points and cash back to be given to the customer on each transaction. This explains why the awareness of MCC is important for consumers to ask for the cash back or reward point they deserve on each transaction. In businesses, MCC shares a direct relationship with credit card processing rates. The processing fee of the transaction fee of any business is determined by the type of industry its process is in. It means, for high risk industry, the business process is in the higher processing fee and transaction rate.

There are certain businesses which are considered riskier because of their poor credit score, higher chargeback disputes, frauds, reputational risk to the bank. Also, there is a certain business which accepts the Card Not Present (CNP) transaction. In such transaction, when the order is placed and payment is effected, the cardholder does not or cannot present the card for visual examination by the Merchant. CNP transactions present a higher risk of chargebacks and frauds and thus the merchants who accept such transaction are considered riskier by the bank than merchants who accept cards present (CP) transaction.

Few high- risk MCC categories and their descriptions-

  • 4722 (Travel agencies and tour operators) – It includes tours, charters, travel booking, and arrangements.
  • 4812 (Telecommunication Equipment) – It includes telephone sales.
  • 4814 (Telecom Services)- It includes cable and telephonic services.
  • 4816 (Computer Services) – It includes Internet Service Providers.

The list is long, but all these MCC is considered businesses of high-risk by acquirers and payment providers and impose higher processing fee and stricter approval terms on these high-risk MCC. Bank underwrites certain guidelines to access the risk related to certain businesses and keeps risk monitoring tools when supporting such high-risk MCC business.