For small and medium-sized enterprises (SMEs) in Singapore, understanding how payment processing works is crucial to managing costs effectively. One element that can significantly impact transaction fees is the Merchant Category Code (MCC). These four-digit codes, assigned by credit card networks, play an important role in determining the fees you pay for processing payments. In this post, we’ll break down what MCCs are, how they affect your payment processing fees, and how you can manage these costs as a small business owner.Â
A Merchant Category Code (MCC) is a four-digit code used to classify a business based on the type of goods or services it provides. These codes are assigned by major credit card networks like Visa, Mastercard, and American Express.
MCCs help payment processors understand your business type, allowing them to apply the appropriate fees and policies for your transactions. For example, an online retailer will have a different MCC than a hotel or a restaurant, which will impact the fees they pay for credit card transactions.
MCCs are a key factor in determining the payment processing fees charged to your business. These fees vary based on several factors, including the nature of your business and the risk associated with it. Let’s explore how MCCs can affect your SME:
Different MCCs can lead to different fee structures. For example:
The MCC assigned to your business can affect both the transaction fees and the interchange rates. Higher-risk MCCs may incur higher interchange fees, which are fees set by the credit card issuer. On the other hand, businesses in lower-risk categories often benefit from more favourable interchange rates, reducing overall costs.
Credit card networks sometimes categorise certain business types with stricter rules. For instance, a business classified under an MCC related to e-commerce might be subject to higher security requirements for payment processing. Payment processors may also offer different services depending on the MCC, which could influence your choice of service providers.
Here are a few examples of MCCs and how they affect payment processing:
It’s essential for SMEs to know their MCC and understand the fees associated with their business type, as this can have a significant impact on their overall payment processing costs.
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While you can’t change your MCC, there are several steps you can take to manage payment processing fees more effectively:
Not all payment processors treat MCCs the same. Some payment processors may offer lower fees for certain MCCs or provide services tailored to specific industries. Shop around to find the processor that offers the best rates for your business type.
If you are in a higher-risk category, don’t be afraid to negotiate with your payment processor. Some providers may be willing to reduce fees based on your transaction volume or history of low chargebacks.
Mistakes happen, and you may find that your business has been assigned the wrong MCC. If you believe the MCC assigned to your business does not reflect your operations, contact your payment processor to request a reclassification.
Adopting fraud prevention tools such as 3D Secure or tokenisation can help lower your risk profile, potentially reducing your fees. Lowering your business’s fraud risk can improve your standing with processors and lead to lower transaction costs.
Merchant Category Codes are an essential aspect of payment processing, and they can significantly affect the fees SMEs pay. By understanding how your MCC impacts your business’s payment fees, you can take proactive steps to manage costs, reduce your risk exposure, and ensure that your payment processing is as efficient and cost-effective as possible.
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