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What is a merchant category code (MCC)?

mer - chant cat - e - go - ry code
noun

A Merchant Category Code (MCC) is a four-digit numerical classification used to group businesses according to the type of products or services they offer. This code system aids in organizing payment transactions, ensuring correct pricing and regulations are applied to different sectors of business activity. By utilizing MCCs, financial institutions, and payment networks can streamline payment processing effectively.
 

How does a merchant category code work?

To illustrate, various MCCs can differentiate between various businesses like restaurants, retail stores, and travel services. This distinction is vital as it influences interchange fees, the charges paid by the merchant's bank to the cardholder's bank for transaction processing.

The MCC holds a substantial role in ensuring accurate transaction categorization and adherence to industry norms and rules. It aids financial institutions, merchants, and payment processors in effectively handling transactions, analyzing spending trends, and providing suitable rewards and perks to cardholders based on their spending behaviors.