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Incorrect Merchant Category Codes (MCCs)

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Incorrect Merchant Category Codes (MCCs)

Five breweries that I frequent do not have the correct MCC and this affects my rewards points. I've read online that the owner of a business applies for this code with their credit card processor. A majority of these breweries use Square, so I contacted Square and they told me that the owner has to change the code if it's incorrect.

 

Is this fraud? Qualifying these businesses for lower interchange fees? Loophole recommended to small business owners by their lawyers? From finextra:

 

Changing Business Format

One way fraudulent merchants cheat KYC efforts and avoid acquirer scrutiny is by establishing a storefront website that falls into a “low-risk” merchant category. After passing the initial KYC checks and establishing their merchant account, these criminals simply change the content on the website and start selling whatever goods, via whatever business methodology they choose. Yet payment providers do not always conduct effective onboarding and continuous content monitoring. This means that they often fail to detect merchants for whom the MCC code does not correspond to actual merchant activity.

I'm interested if anyone has more details or thoughts. Or to tell me "tough luck!" Smiley Tongue


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Message 1 of 13
12 REPLIES 12
Valued Contributor

Re: Incorrect Merchant Category Codes (MCCs)

I would assume you are talking about the Uber and the 4%?  What are these breweries coding as?

 FICO 8
Message 2 of 13
Established Contributor

Re: Incorrect Merchant Category Codes (MCCs)

Issuers can have a single MCC as a reward category or allow many codes.

If Uber only has 5813 (Bar, Nightclub, Disco, Tavern) and the "Brewery" sells food.

It could code as fast food, restaurant or eating establishment.

Maybe fast food  or general eatery does not code for rewards.

 

The business could also have a bad code.

What does it show for category on you purchases ?

 

I have a Gym that coded as something else. I talked to the owner and he changed his MCC code for me.

Now, 5% US-Bank Cash+.

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Message 3 of 13
Moderator

Re: Incorrect Merchant Category Codes (MCCs)

OP, that excerpt from finextra mainly focuses on "questionable" merchants or entities such as those that may attempt to circumvent detection via regulatory or other means of compliance governance.

These can be anything from questionable charity entities or unclassified services, entertainment venues or sites, money transfer entities, etc. The emphasis of course on the "questionable" aspect of the business activities or its legitimate purpose.

Honestly, I don't really think that most merchants, especially entrepreneurial ones, really care about affecting rewards points at the end of the day.

It's not like there's a conspiracy amongst them to withhold such potential earnings for cardholders. They're in the business to make money, unless it's a non-profit organization. So, if the MCC that was selected (to the best of their ability) or assigned based on the type of industry classification, then it is what it is. Otherwise, if there was a material error on their part or reporting, I'm sure they'll have it fixed.
Message 4 of 13
Community Leader
Legendary Contributor

Re: Incorrect Merchant Category Codes (MCCs)

Fraud requires both a showing of violation, and that the violation was knowingly done with an intent to deceive.

That is a legal issue that is only determinable by a court based on review of both their actions and intent.

 

Message 5 of 13
Established Contributor

Re: Incorrect Merchant Category Codes (MCCs)


@FinStar wrote:
OP, that excerpt from finextra mainly focuses on "questionable" merchants or entities such as those that may attempt to circumvent detection via regulatory or other means of compliance governance.

These can be anything from questionable charity entities or unclassified services, entertainment venues or sites, money transfer entities, etc. The emphasis of course on the "questionable" aspect of the business activities or its legitimate purpose.

Honestly, I don't really think that most merchants, especially entrepreneurial ones, really care about affecting rewards points at the end of the day.

It's not like there's a conspiracy amongst them to withhold such potential earnings for cardholders. They're in the business to make money, unless it's a non-profit organization. So, if the MCC that was selected (to the best of their ability) or assigned based on the type of industry classification, then it is what it is. Otherwise, if there was a material error on their part or reporting, I'm sure they'll have it fixed.

The Gym from my post above had been in business for more than 12 years and the owner had no idea that it was coding as something else.

He was happy to change it.

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Message 6 of 13
Mega Contributor

Re: Incorrect Merchant Category Codes (MCCs)


@FinStar wrote:
OP, that excerpt from finextra mainly focuses on "questionable" merchants or entities such as those that may attempt to circumvent detection via regulatory or other means of compliance governance.

These can be anything from questionable charity entities or unclassified services, entertainment venues or sites, money transfer entities, etc. The emphasis of course on the "questionable" aspect of the business activities or its legitimate purpose.

Honestly, I don't really think that most merchants, especially entrepreneurial ones, really care about affecting rewards points at the end of the day.

It's not like there's a conspiracy amongst them to withhold such potential earnings for cardholders. They're in the business to make money, unless it's a non-profit organization. So, if the MCC that was selected (to the best of their ability) or assigned based on the type of industry classification, then it is what it is. Otherwise, if there was a material error on their part or reporting, I'm sure they'll have it fixed.

While I agree in general, swipe fees can vary by MCC.  So nothing to do with rewards, but a "sharp" business owner might decide to shade the MCC description to one with a lower cost to them.

Message 7 of 13
Established Contributor

Re: Incorrect Merchant Category Codes (MCCs)


@longtimelurker wrote:

While I agree in general, swipe fees can vary by MCC.  So nothing to do with rewards, but a "sharp" business owner might decide to shade the MCC description to one with a lower cost to them.


If I owned a Brewery, it would sell sandwiches and t-shirts so I could use a less expensive MCC.

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Ficos : 840 / AAoA : 9 yrs / AoOA : 23 Yrs / AoYA : 3
Message 8 of 13
Valued Contributor

Re: Incorrect Merchant Category Codes (MCCs)

I suspect we will start seeing a lot of effort by the credit card issuers to push the costs of credit card rewards to the merchants.  One way they do this is by charging higher swipe fees for Visa Signature and World Elite MasterCard than regular Visa and regular MasterCard.  Another way they do this is by charging higher swipe fees for merchant category codes that relate to credit card reward categories.  Expect the merchants to push back, and expect the cardholders to be caught in the middle.

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Message 9 of 13
Highlighted
Valued Contributor

Re: Incorrect Merchant Category Codes (MCCs)

Gpops,

 

All of the breweries that I have been to code as 1 of 2 things

5812 - Eating places, restaurants

5813 - Drinking places - bars, taverns, nightclubs

 

It says right on your statement next to each charge what it is coded as(doesn't have the 4 digit code)

 

If you want to check out what something codes, you could try the code search and look it up by address

Visa supplier locator

 

I'm sure there may be a few oddball coders out there but I have never been screwed out of the 4%

 FICO 8
Message 10 of 13
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