As a business owner who offers some type of product or service, accepting credit card payments is likely part of your daily operations. Using a credit card to finance company travel, client entertainment or telecommunications services might also factor into your business plan. In either case, you’ll want to have a working knowledge of business Merchant Category Codes and how they might influence your purchasing or payment processing decisions. After all, various merchant category codes can alter the transaction fee you’re charged for accepting payments or impact how you earn rewards.

These codes aren’t always obvious before you make a purchase. The dollars you’re spending on what you thought was an office equipment category may not always turn out to carry an office supplier code. In what follows, we’ll give you a primer on the basics of merchant category codes and how to maximize your reward opportunities.

What is a merchant category code?

A merchant category code is a four-digit code that all the major credit card issuers assign to a particular group of goods and services. Merchant category codes help categorize, track and restrict transactions, and can be used used for tax reporting and gathering information about cardholder purchasing behavior. American Express, Discover, Visa and Mastercard all apply these codes to businesses that accept those particular cards for payment. When you shop online, swipe your card or insert your credit card chip into a terminal for payment, a merchant category code attaches to the purchases and banks can track those transactions for reward purposes. Merchant category codes are further broken down into subcategories. You might get 5% cash back on all dining purchases whether you eat at Wendy’s or a Michelin restaurant, but the four-digit codes will vary.

Here’s a look at some of the most common codes assigned by the two most popular issuers —Mastercard and Visa — that are relevant for business credit card users:

• 4816 — Computer Network/Information Services. Businesses that spend heavily on the internet and network services might see bonus points in this category.
• 4899 — Cable, Satellite and Other Pay Television/Radio/Streaming Services. You can pay for all these entertainment services on one card and rack up cash back rewards.
• 4900 — Utilities — Electric, Gas, Water and Sanitary. Paying for recurring expenses with a credit card is an easy way to accumulate miles or points without much forethought.
• 4511 — Airlines and Air Carriers. This code applies to airlines that are not otherwise classified. Each airline, however, has a unique code for air travel and that categorization matters for carriers that partner with issuers and dole out bonus points to consumers.
• 5411 — Grocery Stores and Supermarkets. This includes many of the places you can shop to get food for stocking the office pantry. It applies to chains, independent stores and smaller convenience stores.

How to look up a business’s merchant category code

The internet is the best resource for finding a merchant category. Merchant code updates can occur frequently with online resources, so what you see in a merchant category code guide or with a merchant might not be necessarily what you get when your monthly card statement comes around. You might buy food at a 7-Eleven, for example, but you may not get credit for a grocery store purchase. At that point, you might be able to address a perceived coding error with the issuer or merchant.

With that in mind, you can navigate to the IRS website for a comprehensive listing of all merchant category codes. If you’re more comfortable turning to your card issuer, Visa, Amex, Discover and Mastercard have their own guides. When you hold a card from more than one of these banks, you may notice some differentiation among codes in the same categories. You may also find that big-box retailers may not be part of the reward equation with some cards, and there may be different merchant category codes (computer equipment, groceries, gasoline, etc.) within the confines of a large merchandiser.

Why merchant category codes matter

A merchant category code is important because card issuers apply different levels of risk to different types of businesses. For example, airlines and outbound telemarketers are considered to bear more risk in operations than a salon or a fitness center. With more risk in a business, there come greater costs. Interchange fees charged by issuers to businesses will typically be higher in terms of scale for an airline rather than a fitness center. This structure is important to an entrepreneur’s business because they’ll need to know at what level transaction fees should be set for customers.

From a marketing perspective, a merchant — whether they’re an e-commerce website or a brick-and-mortar store — will want to accept as many forms of payment as possible to be economically viable. Part of any overall sales strategy involves attracting credit card payers who seek to optimize rewards on their side of the transaction. With that in mind, merchant category codes and their correct application will subsequently be good for the bottom line by helping customers max out their rewards.

The bottom line

Merchant category codes are an important behind-the-scenes component of the credit card industry. It’s a piece of the puzzle you’ll find beneficial to understand if you want to boost revenue or cut costs. Whether you’re a business owner attempting to set fees for credit card transactions or seizing a way to capitalize on the majority of your credit card spending, merchant category codes will impact your business.

Online resources on merchant category codes are plentiful for owners and consumers. And for businesses looking to control expenses, most fees and costs are usually negotiable. Whether you find your business on the buy-side or the sell-side of a transaction, a good understanding of merchant category codes will benefit you in the long run.

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