As convenient as credit card processing is for both the customers and merchants of a business, convenience does not come easily. Several codes come into play as each credit card transaction takes place. Some of these codes are known by merchants to provide better feedback to customers regarding issues in transactions. While the more complicated codes, such as the Merchant Category Codes (MCC) and the Standard Industrial Classifications (SIC), are not very commonly known to people outside the industry. These codes play a significant role in how credit card processing works. Knowing about them would not only allow you, as a merchant, to better understand your transactions but also to make better financial decisions with payment processors.

What is MCC?

Merchant Category Codes are used as identifiers to categorize the goods and services that a business provides to its customers. These are four-digit codes unique to every type of goods or services. The International Organization for Standardization abbreviated defines them as ISO. At the end of the merchant, the merchant services provider has to assign each code to the goods or services that the merchant is providing. These codes are also available to banks and are often used to give cashback and loyalty rewards.

 Several codes describe unique goods or services. The IRS publishes a complete list of the codes on their website. There are hundreds of codes, and they are specific even down to the subcategories of contractors that someone can hire. A few of the most popular codes are:

  • 5411: For outlets such as grocery stores.
  • 5541: This code is used for service stations.
  • 5812: For places that serve food, such as restaurants or drive-throughs.
  • 5814: This code is also for eating places but is specific to fast food restaurants.
  • 5912: Drug stores and pharmacies are categorized using this code.
  • 5941: this code is for retail outlets that deal in sporting goods.
  • 5942: Book stores fall into this category of MCC.
  • 5999: For specialty stores that sell certain types of products.

If a company wants to be assigned an MCC, they have to contact TC68, a technical committee made by the ISO. Companies that have their own merchant codes are amongst the largest ones in the world today.

What are SIC Codes?

The primary reason for the development of SIC codes was to categorize each industry type present in the U.S when they made transactions. These were developed back in 1937 by the U.S department of commerce. SIC codes have a specific pattern that is followed in each code. The first to one is the industry group, followed by the major group which is followed by the division. SIC codes are four digit codes with first two digits of the code defining the industry’s major group. Combined, the first three digits make up the industry group. The divisions made up by SIC codes are in a range rather than in a fixed number. 

There are a total of 11 divisions based on SIC codes. Furthermore, there are 83 major groups made up of the two digits of each SIC code. When we take the first three digits of the code into account, we can see a total of 416 industry groups. When all of the four digits of the SIC code are considered, a total of 1005 industries can be seen operating in the U.S. The 11 divisions of SIC codes are:

  • 0100-0999: This division is based on farming based activities such as agriculture and fishing.
  • 1000-1499: Mining falls into this division.
  • 1500-1799: The construction division is in this range.
  • 18001999: Unused.
  • 20003999: Manufacturing falls in this range of SIC codes.
  • 40004999: Services such as transportation, electricity, sanitation, gas, and communication fall in this division.
  • 5000-5199: Wholesale trade division.
  • 5200-5999: Retail trade division.
  • 6000-6799: Financial services, insurance, and real estate fall into this range.
  • 7000-8999: Services division is in this range.
  • 9100-9729: Public Administration is in this division of SIC codes.

Non-classifiable codes start with the digits 99.

Importance of Proper Classification

Some many rules and regulations go along with credit card transactions. A lot of these are based on the MCC codes assigned by credit card associations for different kinds of transactions. Even the interchange and wholesale fees charged for credit card-based transactions differ for other MCC codes. The main reason why there is variation in interchange fees is the risk associated with the transactions. Both credit card associations and payment processors charge greater for riskier transactions. These associations use MCC and SIC codes to give special discounts to specific sectors of the industry. An example of this is that supermarkets, gas stations, and hotels receive special pricing on interchange fees compared to clothing brands or other sectors. Therefore, making sure that you are categorized correctly may even help you save on your costs.

Knowing that payment processing can be affected by incorrect classification of SIC and MCC codes, there is no need to explain how crucial it is to ensure that you are categorized correctly as a merchant. If a business does not classify itself using a SIC code, it is assigned a general SIC code of 7299. At times, this code declined by the issuing banks as there is not enough information as to what the customer is spending their money on. Furthermore, there are more interchange fees even if the transaction is approved on a generic SIC code due to the purchase’s ambiguity. Ambiguity leads to a greater chance of fraud or an invalid transaction, and basically, more significant risk.

Finally, as a merchant, you would know how important it is to save costs and maximize profits wherever possible. Taking advantage of interchange discounts if you are eligible for them can add up to many savings in the long run. Make sure that the payment processor you choose is keen to ensure that your business’s MCC and SIC code is thoroughly checked for each transaction you make.


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