How Merchant Category Codes Can Help Credit Card Rewards

Whenever you make a purchase using your credit card, the transaction is automatically assigned a Merchant Category Code (MCC) based on the type of business you are buying from. This MCC is then reported to your card issuer and payment processor, guiding them on how to handle the transaction from start to finish, including fees, risk assessment, and even rewards eligibility.

Beyond rewards, MCCs also influence several key aspects of payment processing:

1. Interchange rates

Interchange rates are the fees that businesses pay to accept card payments. These rates are set by the card network according to broad guidelines, but they vary depending on the MCC. Businesses in categories with lower fraud and chargeback rates typically enjoy lower interchange fees, while those in higher-risk categories face higher costs.

2. Cardholder fees

Certain types of businesses, such as government agencies, are permitted to charge cardholders a service fee for transactions linked to specific MCCs.

3. High-risk merchant identification

Payment processors and acquiring banks use MCCs to gauge a business’s risk level, which in turn helps determine applicable fees. While the precise algorithms behind systems like Visa’s Advanced Authorisation (VAA) or Mastercard’s Decision Intelligence Score (MDIS) remain undisclosed, the MCC likely plays a role in risk scoring.

4. Chargeback protection

MCCs also affect a business’s level of fraud and chargeback protection. High-risk merchants, such as telemarketing companies, may receive less protection and face higher chargeback fees, particularly for card-not-present (CNP) transactions.

5. Tax purposes

Finally, MCCs serve tax-reporting functions. They indicate whether a particular transaction must be reported to tax authorities. Generally, service purchases are reportable, whereas purchases of goods are not.

If you use a flat-rate rewards credit card that earns the same percentage on every purchase, MCCs might not make much difference. However, if your card offers bonus rewards for specific spending categories such as groceries, dining, or online shopping, MCCs become highly relevant.

For example, a supermarket typically falls under the MCC for “grocery stores,” so you’ll earn bonus rewards when shopping there. But if you pick up a carton of milk from a convenience store, which may fall under “convenience retailers,” you might not receive the same level of cashback or miles.

Beyond transaction processing, MCCs also play a vital role in how businesses and card issuers manage spending, risk, and rewards.

>> MORE: Current credit card bonus categories in Singapore

Setting spending controls

Issuers can use MCCs to restrict or allow transactions at specific types of merchants. For instance, a corporate travel card programme might permit spending only at travel-related businesses. Likewise, banks and platforms such as Stripe may be required to block certain high-risk MCCs — like gambling — at a programme level.

Gathering spending data

Each MCC provides useful data about cardholder behaviour. This data appears on authorisation records alongside details such as transaction amount, payment method, and merchant information, allowing issuers and businesses to analyse spending trends more effectively.

Rewarding cardholders

MCCs help credit card issuers determine when to award cashback, points, or miles. For example, if a card offers 3% cashback on office supplies, any purchase made at a merchant classified under the “office supplies” MCC will automatically trigger that reward.

Determining interchange fees

MCCs are integral to identifying transaction types, which in turn dictate interchange rates. High-risk businesses usually pay higher fees, reducing their overall profit margin from each card transaction.

Cross-border transactions

When it comes to international purchases, MCCs influence how transactions are processed — including currency conversion fees, acceptance rules, and risk-based pricing. High-risk cross-border transactions may attract additional costs.

>> MORE: How to combine credit cards and maximise your rewards

Understanding Merchant Category Codes (MCCs) has become essential for anyone who wants to maximise their credit card rewards. With so many cards offering bonus cashback or miles for specific categories like groceries, dining, or online shopping, knowing how your transactions are classified can make a real difference. A quick check before you spend could mean the difference between earning 4 miles per dollar and just 0.4.

Use official MCC lists

Both Visa and Mastercard publish updated Merchant Category Code lists, which are helpful when you want to verify a merchant’s official classification. These are available directly on their websites:

• Visa Merchant Data Standards Manual

• Mastercard Merchant Category Codes

Keep in mind that classifications can differ slightly between networks, so the same merchant might fall under one category for Visa and another for Mastercard.

Use third-party tools like Heymax and WhatCard

If you want a simpler way to check MCCs and see how different cards reward those merchants, Heymax and WhatCard are invaluable tools for Singapore users.

• Heymax offers a free online and app-based database that lists local merchants, their MCCs, and the corresponding rewards for popular cards. It’s especially useful for comparing which card gives you the best return for a particular store or platform (e.g., whether to use your UOB Lady’s Card or Citi Rewards at Shopee).

• WhatCard provides a crowdsourced database of Singapore merchants and their MCCs, along with user-submitted insights on cashback and miles eligibility. It’s frequently updated and includes niche merchants that may not appear in official bank lists.

Both platforms can help you avoid unpleasant surprises like discovering that your favourite online grocer is classified as an “Online Marketplace” instead of “Groceries.”