Merchant Category Codes

What is a Merchant Category Code?

There’s a good chance you’ve never even heard of them, but behind the scenes of every credit card transaction is an associated “merchant category code” or “MCC”. It affects everything from what processing fees credit card companies charge businesses to potential taxes based on how the IRS categorizes those businesses. But more importantly for credit card holders, it’s the driving factor behind how credit card rewards are calculated. Card issuers group various MCC’s together into categories (i.e. restaurants, grocery stores, hotels, etc.) and offer specific reward earning rates based on those categories.

Where do they come from?

Merchant category codes were essentially mandated by the IRS back in 2004 as a way of classifying businesses based on the product or service they provide. Credit card processors (Visa, Mastercard, Amex, etc.) are technically the ones who designate how a business is coded though. When a business initially signs onto a processor’s network, the processor works with that business to determine which category code best suits them given the particular goods or services that they provide.

MCC’s are four-digit codes categorized very specifically according to standards set by the International Organization for Standardization (ISO). There are hundreds of different MCC’s and some businesses even have their own specific codes like individual airlines, hotel chains, rental car companies, etc. Other merchants can even have different codes for different aspects of their businesses. And to take it one step further, since payment processors individually assign MCC’s to merchants that join their networks, MCC’s can actually vary across networks for the same merchants too. If this all sounds confusing, you’re not alone…

The world of MCC’s is opaque and it’s like a pandora’s box trying to figure out what code a business technically falls under. But the good news is you don’t have to worry about it when you’re using Kiwii. We leveraged a variety of our sources and worked directly with merchants to make sure that we have all of the merchants on our platform classified down to their actual MCC.

Why they Matter

Although card processors like Visa or Mastercard technically assign MCC’s to businesses, credit card issuers (Bank of America, Chase, Citi, CapitalOne, etc.) are the ones who decide how rewards are categorized and earned by cardholders. Card issuers group various MCC’s together into specific categories with various earnings rates for different categories. This is how you can earn 3x at one store and 1x at another even though they’re similar stores. It all boils down to what MCC’s that card company has grouped under “Supermarkets” or “Travel” and how the individual merchants are coded within those categories. This is important to you as a card user because it’s the driving factor behind how you earn credit card rewards with your purchases. It can get complicated quickly though when you start considering businesses that could fall into multiple categories.

Just because you bought groceries at Target doesn’t necessarily mean your transaction will get coded as “Groceries”. It all comes back to the actual merchant level regardless of what you actually purchased.

Side note: Target can actually fall under a number of different MCC’s depending on the type of store (but you get the idea).

These things happen all the time and can add up to serious lost points or rewards over time if you’re not paying attention. Another example is convenience and vitamin stores. They code as groceries with Chase and Bank of America, but not with a lot of other credit card issuers. It’s impossible to keep track of all of this, but that’s why we have you covered! We did all the hard work already…every single merchant on the Kiwii platform is categorized down to its MCC, so you don’t have to worry about any purchases slipping through the cracks. We’ve matched every merchant against the various categorical earning rates for all of the different credit cards on Kiwii so you can be sure that when Kiwii pops up, it’s telling you exactly what you’ll earn on that purchase.

Now that you have some background on merchant category codes, you can rest easy knowing you don’t ever have to worry about them again!