Risk & Compliance
MCC Code (Merchant Category Code)
Definition
MCC Code (Merchant Category Code) a four-digit code assigned by acquirers to classify merchants by business type. MCCs determine interchange rates, acquirer appetite, monitoring thresholds, and rewards eligibility. Some MCCs are restricted (gambling 7995, adult 5967) and require specialized acquirers. Misclassification can result in account termination. MCC assignment happens during underwriting based on business description.
Related Terms
High-Risk Merchant
A classification by acquirers for merchants perceived as having elevated risk of chargebacks, fraud, or regulatory issues. Common high-risk verticals: gambling, forex, adult, nutraceuticals, crypto, travel, and subscription billing. Consequences include higher rates (1-3% premium), rolling reserves, volume limits, and limited acquirer options. Classification is risk assessment, not legitimacy judgment.
Interchange Fee
The fee paid by the acquiring bank to the issuing bank each time a card transaction is processed. Set by card networks (Visa, Mastercard), interchange varies based on card type (debit vs credit, rewards vs standard), merchant category code, transaction type (card-present vs card-not-present), and geography. Interchange typically represents the largest component of payment processing costs, ranging from 0.2% for regulated debit to 2%+ for premium rewards cards.
Underwriting
The risk assessment process acquirers use to evaluate merchant applications. Examines business model, financials, processing history, chargeback rates, industry risk, and compliance status. Determines whether to approve the merchant and on what terms (rates, reserves, limits). High-risk merchants face enhanced due diligence. Strong applications include clean history, audited financials, and compliance documentation.
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