Decoding Merchant Category Code (MCC) 5122: Drugs, Proprietaries, and Sundries

What is MCC 5122?

Merchant Category Code (MCC) 5122 is designated for businesses primarily engaged in the wholesale distribution of pharmaceuticals, health and beauty aids, and related sundries. Credit card companies use this MCC to categorise transactions at establishments specialising in these products. MCC 5122 covers a variety of businesses, such as retail pharmacies, drugstores, and merchants selling prescription and over-the-counter drugs, medications, and pharmaceutical products. It also covers merchants selling non-medicinal items commonly found in drugstores, like cosmetics, toiletries, first-aid supplies, and other health-related products

Types of Businesses Under MCC 5122

Businesses under this MCC typically include:

• Retail Pharmacies and Drugstores: Merchants that sell prescription and over-the-counter drugs, medications, and pharmaceutical products, such as retail pharmacies and drugstores.
• Drug Proprietors: Businesses that manufacture, distribute, or sell proprietary drugs and pharmaceutical products.
• Merchants Selling Druggist Sundries: Merchants selling non-medicinal products commonly found in drugstores, such as cosmetics, toiletries, first-aid supplies, and other health-related items.
• Online Pharmaceutical Retailers: eCommerce merchants that operate online pharmacies or sell pharmaceutical products over the internet would also fall under MCC 5122.

It’s important to note that MCC 5122 is often considered a riskier category by payment processors and card networks due to the potential risks associated with the sale of controlled substances and prescription drugs. As a result, merchants under this MCC may face additional scrutiny, enhanced due diligence requirements, and potentially higher processing fees to mitigate the associated risks.

Implications of MCC 5122

For merchants operating under MCC 5122, the correct classification has several implications:

• Tax Reporting and Compliance: Accurate use of MCC 5122 aids in tax reporting and compliance for drugstores, pharmacies, and pharmaceutical merchants by identifying transactions subject to IRS reporting requirements.
• Risk Assessment: MCC 5122 is often deemed a high-risk category by payment processors and card networks due to the potential dangers linked with selling controlled substances and prescription drugs. As a result, this risk assessment may lead to additional scrutiny during merchant onboarding processes, enhanced due diligence requirements, and potentially higher processing fees to mitigate the associated risks.
• Chargeback Prevention: Transactions that are accurately coded under MCC 5122 help prevent chargebacks by reminding customers of the nature of the purchase when they see the MCC description on their statement.
• Payment Acceptance: Certain payment types, such as health savings account (HSA) cards, may require merchants to have specific MCCs like 5122 to accept those forms of payment. Accurate MCC assignment ensures merchants can process relevant payment methods for their industry.

While MCC 5122 is considered a higher-risk category, its accurate assignment is crucial for tax compliance, risk management, chargeback prevention, interchange rate determination, payment acceptance, and data analysis for merchants operating in the pharmaceutical and drugstore industry.

Businesses within this sector must ensure that they are accurately classified under this MCC to facilitate proper transaction processing and regulatory compliance.