In the world of payment processing, Merchant Category Codes (MCC codes) play a crucial role in categorizing businesses based on the products or services they offer. These codes are assigned by credit card networks, such as Visa, Mastercard, and American Express, to classify merchants into specific industry segments. For high-risk businesses, understanding and navigating the common MCC codes is essential to ensure smooth payment processing and avoid potential issues.

In this comprehensive guide, we will delve into the world of MCC codes for high-risk businesses, exploring their significance and providing detailed explanations of the most common codes.

What are MCC Codes and How Do They Work?

Merchant Category Codes (MCC codes) are four-digit numbers assigned to businesses to classify their industry segment. These codes provide a standardized way for credit card networks and payment processors to identify and categorize merchants. When a customer makes a purchase, the MCC code associated with the merchant is transmitted along with the transaction details, allowing the payment processor to determine the appropriate fees and risk factors associated with that particular business.

MCC codes are crucial for high-risk businesses as they help payment processors assess the level of risk involved in processing transactions for these merchants. High-risk businesses typically operate in industries that are prone to chargebacks, fraud, or legal and regulatory issues. By categorizing these businesses with specific MCC codes,

processors can apply appropriate risk management strategies and ensure compliance with industry regulations.

Common MCC Codes for High-Risk Businesses: Explained

1. MCC Code 5967: Direct Marketing – Inbound Telemarketing Merchants

Direct marketing through inbound telemarketing is a popular strategy for many businesses. However, this method is often associated with higher chargeback rates and potential fraud. MCC code 5967 is assigned to merchants engaged in inbound telemarketing activities, allowing payment processors to identify and manage the associated risks effectively. Businesses in this category should be prepared for stricter underwriting requirements and potentially higher processing fees.

2. MCC Code 7995: Betting, including Lottery Tickets, Casino Gaming Chips, Off-Track Betting, and Wagers

The gambling industry is considered high-risk due to its association with potential fraud and chargebacks. MCC code 7995 is assigned to businesses involved in betting activities, including lottery tickets, casino gaming chips, off-track betting, and wagers. Payment processors closely monitor transactions from merchants with this MCC code to mitigate the risks associated with gambling-related activities.

3. MCC Code 5962: Direct Marketing – Travel-Related Arrangement Services

Travel-related arrangement services, such as travel agencies and tour operators, often fall under the high-risk category due to the potential for chargebacks and fraud. MCC code 5962 is assigned to businesses offering these services, allowing payment processors to implement appropriate risk management strategies. Merchants in this category should be prepared for additional scrutiny during the underwriting process and may face higher processing fees.

4. MCC Code 7841: Video Game Arcades

Video game arcades, although popular among gamers, are considered high-risk businesses due to the potential for fraudulent transactions and chargebacks. MCC code 7841 is assigned to merchants operating video game arcades, enabling payment processors to apply specific risk management measures. Merchants in this category should be aware of the potential challenges they may face when seeking payment processing solutions.

5. MCC Code 5966: Direct Marketing – Outbound Telemarketing Merchants

Similar to inbound telemarketing, outbound telemarketing is also associated with higher chargeback rates and potential fraud. MCC code 5966 is assigned to merchants engaged in outbound telemarketing activities, allowing payment processors to identify and manage the associated risks effectively. Businesses in this category should be prepared for stricter underwriting requirements and potentially higher processing fees.

6. MCC Code 7273: Dating and Escort Services

Dating and escort services are considered high-risk due to the potential for fraudulent transactions and chargebacks. MCC code 7273 is assigned to businesses operating in this industry, enabling payment processors to implement specific risk management strategies. Merchants in this category should be aware of the challenges they may face when seeking payment processing solutions and should be prepared for additional scrutiny during the underwriting process.

7. MCC Code 5968: Direct Marketing – Continuity/Subscription Merchants

Continuity/subscription merchants, who offer products or services on a recurring basis, often face higher chargeback rates and potential fraud. MCC code 5968 is assigned to businesses engaged in continuity/subscription marketing, allowing payment processors to apply appropriate risk management measures. Merchants in this category should be prepared for stricter underwriting requirements and potentially higher processing fees.

FAQ’s

Q.1: What is the significance of MCC codes for high-risk businesses?

MCC codes play a crucial role in categorizing businesses based on the products or services they offer. For high-risk businesses, understanding and navigating the common MCC codes is essential to ensure smooth payment processing and avoid potential issues. These codes help payment processors assess the level of risk involved in processing transactions for high-risk merchants and apply appropriate risk management strategies.

Q.2: How are MCC codes assigned to businesses?

MCC codes are assigned by credit card networks, such as Visa, Mastercard, and American Express, to classify merchants into specific industry segments. These codes provide a standardized way for payment processors to identify and categorize merchants based on their business activities.

Q.3: What challenges do high-risk businesses face when seeking payment processing solutions?

High-risk businesses often face challenges when seeking payment processing solutions due to the potential for chargebacks, fraud, or legal and regulatory issues. Payment processors may impose stricter underwriting requirements, higher processing fees, or even decline to provide services to high-risk merchants altogether.

Q.4: How can high-risk businesses mitigate the risks associated with MCC codes?

High-risk businesses can mitigate the risks associated with MCC codes by implementing robust risk management strategies. This may include implementing fraud prevention measures, closely monitoring transactions, and maintaining strong customer relationships to minimize chargebacks.

Q.5: Are there alternative payment processing solutions for high-risk businesses?

Yes, there are alternative payment processing solutions available for high-risk businesses. These solutions may include specialized high-risk payment processors or offshore merchant accounts. However, it is important for high-risk merchants to carefully evaluate the terms and conditions, fees, and reputation of these alternative solutions before making a decision.

Conclusion

Understanding MCC codes and their significance is crucial for high-risk businesses seeking payment processing solutions. By familiarizing themselves with the common MCC codes associated with their industry, high-risk merchants can navigate the payment processing landscape more effectively. It is important for these businesses to be prepared for stricter underwriting requirements, potentially higher processing fees, and additional scrutiny during the underwriting process.

By implementing robust risk management strategies and exploring alternative payment processing solutions, high-risk businesses can ensure smooth payment processing and mitigate the risks associated with their industry segment.