Understanding MCC Payment Error Codes

The MCC, or Merchant Category Code, is a four-digit code that classifies businesses into different categories based on the products or services they offer. These codes play a crucial role in the payment processing ecosystem, influencing factors such as chargeback rates, fraud prevention, and customer rewards. While MCCs are essential for the smooth operation of payments, errors in MCC assignment can lead to declined transactions, increased chargeback risks, and negative customer experiences.

In this article, we’ll explore what MCCs are, how they influence payment processing, and what you can do to address and prevent MCC-related payment errors.

What are Merchant Category Codes (MCCs)?

Merchant Category Codes (MCCs) are four-digit codes used by credit card networks to classify businesses based on the type of goods or services they provide. These codes are essential for payment processing because they help financial institutions and payment processors determine how transactions should be handled, including applying appropriate fees, rewards, and restrictions.

For example, a business that sells airline tickets might have an MCC code specific to travel services, while a grocery store would have a different MCC code. These codes are assigned by acquiring banks when a merchant sets up their payment processing account and are used throughout the payment ecosystem to categorize transactions.

How Merchant Category Codes (MCCs) Work

When a customer makes a purchase, the merchant transmits the transaction data, including the MCC code, to the payment network. The payment network then relays this information to the card issuer, who assesses the transaction and decides on its approval. Card issuers use MCCs to determine how a transaction aligns with their risk profile.

MCCs also play a crucial role in determining the fees merchants pay for payment processing services. For example, merchants in low-risk industries like gas stations or grocery stores typically pay lower transaction fees due to the perceived lower risk. Conversely, high-risk merchants—such as those in the adult entertainment, gambling, and firearms industries—often face higher processing costs or even transaction restrictions or declines, due to stricter risk management strategies imposed by payment networks.

Merchants operating in high-risk categories must work closely with payment networks to understand their MCC classification and take proactive steps to minimize the risk of transaction declines.

Why Merchant Category Codes Matter to Merchants

MCCs are more than just administrative codes—they have a direct impact on the payment process.

1. Interchange Fees: Merchant Category Codes (MCCs) are essential for determining the interchange fees that merchants pay. Correctly categorizing a business ensures that merchants are charged the appropriate fees for their industry. Misclassifying a business can lead to higher interchange fees, resulting in unnecessary costs and impacting the bottom line.
2. Rewards Programs: Credit card issuers often design rewards programs around specific MCCs, offering bonus points or cashback for purchases in certain categories, like dining or fuel. By understanding which MCCs qualify for these rewards, merchants can attract customers eager to maximize their benefits, thereby increasing foot traffic and sales.
3. Payment Acceptance: Some payment processors and acquiring banks impose restrictions or offer specialized services based on MCCs. High-risk industries, for example, might require tailored processing solutions or face additional scrutiny due to regulatory requirements. Merchants who understand their MCC can better navigate these challenges and select payment processing partners that meet their specific needs.
4. Reporting and Analysis: Accurate MCC classification allows merchants to generate precise reports and gain valuable insights into their sales data. MCC-based reporting helps merchants track performance across different categories, identify emerging trends, and make informed decisions to drive business growth.

Common MCC Payment Error Codes

While the specific error codes may vary depending on the payment processor and network, some common MCC-related issues include:

• Issuer Declined MCC: This error occurs when the card issuer declines a transaction due to a mismatch between the MCC and the cardholder’s spending patterns or card restrictions.
• MCC Mismatch: This error indicates that the MCC assigned to the transaction does not accurately reflect the business’s nature.
• Invalid MCC: This error signifies that the MCC code used is not recognized by the payment network.

General MCC Category Codes

Merchant Category Codes (MCCs) lack a standardized global format, presenting challenges for data consistency. However, the general code ranges for each sector are consistent. Here’s a brief summary of the code ranges assigned to each industry, and a couple of examples of MCCs that are usually Googled by Merchants to understand their implications :

• 0001-1499: Agricultural Services
• 1500-2999: Contracted Services
• 4000-4799: Transportation Services
• 4800-4999: Utilities
• 5000-5599: Retail Services
• 5600-5699: Clothing Stores
• 5700-7299: Miscellaneous
  • ie. MCC 5967 is used for Direct Marketing – Inbound Teleservices and other similar services.
  • ie. MCC 6012 is used for Financial Institutions – Merchandise and Services and other similar services.
• 7300-7999: Business Services
  • ie. MCC 7995 is used for online gambling and other gaming activities
• 8000-8999: Professional Services and Associations
• 9000-9999: Government Services

CommerceGate can support merchants within most of the Merchant category codes with strategic payments advice. For the full list of Merchant Category Codes, click here.

Addressing and Preventing MCC Payment Errors

Preventing MCC payment errors is essential for maintaining high authorization rates and a smooth customer experience. Here are some strategies to help you minimize the occurrence of these errors:

• Regularly review MCC assignments

Periodically review your MCC assignments with your acquiring bank or payment processor to ensure they accurately reflect your business’s current operations. As your business evolves, your MCC may need to be updated to match new products or services.

• Educate your team

Ensure that your team, especially those handling payments and customer service, understands the importance of MCCs and how they affect transactions. Training your staff to recognize and troubleshoot common MCC-related issues can reduce the impact on your customers.

• Work with a trusted payment partner

Partnering with an experienced payment provider like CommerceGate ensures that your business is equipped with the best tools and expertise to handle MCC-related challenges. Our solutions are tailored to the LATAM market, helping you navigate the complexities of local regulations and payment behaviors.

• Implement robust error monitoring

Use advanced payment processing systems that provide real-time monitoring and alerts for MCC-related errors. This allows you to address issues as soon as they arise, minimizing disruptions to your business and maintaining customer satisfaction.

Conquering Merchant Category Error Codes with CommerceGate

Merchant Category Codes (MCCs) and the associated payment error codes play a crucial role in the success of your business’s transactions, especially in diverse regions like LATAM and Brazil. Understanding these codes, how they impact your authorization rates, and what you can do to prevent errors is essential for providing a seamless and frictionless customer experience.

CommerceGate, as your trusted and proven payment partner, is here to help you navigate these complexities. With our localized payment solutions and expertise in the LATAM market, we ensure that your transactions are processed smoothly, efficiently, and with the highest possible authorization rates.

Looking to enhance your payment processing and minimize MCC-related errors? Book a free consultation today and discover how we can help your business thrive in LATAM and Brazil with seamless, secure transactions that keep your customers satisfied.