Decoding High-Risk Payment MCC Codes

The Purpose of Merchant Codes

Merchant category codes (MCC) are tools used by credit card networks to categorise business transactions. Credit card companies assign these four-digit numbers to classify businesses based on their primary goods or services. Some MCC codes are used to identify merchants classified in high-risk payments categories. These codes serve several important purposes:

• They help credit card issuers determine interchange rates and processing fees for merchants. Higher-risk businesses (e.g. gambling, adult entertainment) are typically assigned higher fees.
• They allow card issuers to track spending patterns and calculate rewards for different purchase categories.
• They help identify transactions that may need to be reported for tax purposes (e.g. contractor payments over $600 require a 1099 form).

Certain sectors fall under high-risk MCCs due to their propensity for higher chargebacks, fraud rates, and brand reputation risks. These industries include gambling, online travel agencies, certain digital goods, pharmaceuticals, adult services, and specific types of marketing and sales operations, which inherently face higher scrutiny and regulatory requirements.

What Makes an MCC High Risk?

Industries classified under high-risk MCCs often deal with goods and services that are either highly regulated or prone to consumer disputes and fraudulent transactions. Factors such as the reversible nature of the services, digital delivery, or the legality and regulatory considerations surrounding the services contribute to their risk profile. For instance, gambling not only attracts stringent regulatory oversight but also pose a higher likelihood of chargeback disputes.

Some businesses are considered high-risk due to the size of the transaction and considerations like the time between when a payment is made and when a service is delivered. For example, travel agencies may take payments months in advance of a flight, and uncontrollable weather conditions can cause cancellations and chargebacks that are outside of the business’s control. These factors contribute to airlines and some other travel businesses being classified as high-risk by card schemes.

Classifying under a high-risk MCC can significantly impact how businesses operate and interact with payment processors and banks. These businesses often encounter challenges in finding payment solutions. High-risk payment processors and high-risk payment gateways typically charge higher fees, have stricter contract terms and increase scrutiny during the transaction and onboarding processes.  

Businesses in these categories might find fewer financial institutions willing to provide merchant services, leading to limited payment processing options.

Mandatory Registration with Card Associations

For some high-risk MCCs, such as 7995 (Betting and Casino Gambling) and 9399 (Government Services – State Lottery), registration with Card Associations for risk monitoring is mandatory. This registration involves adhering to specific regulations and paying annual fees ranging from 480 to 950 EUR. The purpose is to ensure compliance and mitigate risks associated with these operations, providing a safeguarding mechanism for both the service providers and their clients.

High-Risk MCC Codes

Unique Challenges

Industries that fall under the above MCC codes often lack specialised software products that handle payment-adjacent issues effectively, such as identity management for gaming companies or payment reconciliation for telehealth businesses. The standard payment processing solutions available tend to provide clunky experiences with high fees, slow processing, and inadequate support, further complicating the operational landscape for these businesses.