In today’s market, more and more consumers are choosing the ease and security of paying with credit and debit cards. Whether you’re grabbing a coffee, shopping online, or picking out a gift—Visa is working behind the scenes to make every transaction seamless.
Every day Visa, Mastercard, Discover, and American Express connect:
- Thousands of financial institutions
- Hundreds of thousands of businesses, and
- Millions of cardholders worldwide
… through in-store, online and eCommerce purchases.
So, what are Interchange Fees?
When you use a credit card, an interchange fee is paid by the merchant’s bank to your bank, which goes directly to the credit card companies. A simple yet powerful mechanism that helps the entire system work by:
- Allowing consumers to purchase goods/services without immediately paying for them, and
- Ensuring merchants get paid for those goods/services right away.
The credit card system offers much more behind the scenes, as well, including:
- Funding fraud protection
- Offering 24/7 support and cardholder rewards
- Expanding card acceptance across retailers, large and small
In short:
Interchange is what helps deliver the speed, security, and convenience a customer expects every time they tap, swipe, insert, or enter card details online.
How Credit Cards Work
Let’s say you use your Visa card to buy a pair of shoes. Here’s what happens:
- You pay for something you want or need using your card.
- The retailer’s bank (the acquirer) pays the retailer.
- Your bank (the issuer) reimburses the acquirer—typically within 24–48 hours.
- The issuer collects from you via:
- Bank account withdrawal (debit)
- Monthly billing (credit)
- Prepaid balance (gift card)
This ALL happens in mere seconds but powers an incredibly complex global system. And the system works because all participants get value from the transaction — whether it’s convenience, worldwide acceptance, a more secure way to pay, stronger customer loyalty, or business efficiencies, among others.
MCC Codes & Interchange Fees
Every business is charged Interchange fees based on its specific type of business. Visa and Mastercard both designate a code called an MCC code for each business type, to which an interchange percentage fee is then assigned. These codes are often the same but may differ. Read below to better understand the Merchant Category Code system.
Some FAQs about Merchant Category Codes
Q: What are Merchant Category Codes (MCCs)?
Merchant Category Codes (MCCs) are four-digit identification codes used in the payment processing industry to segment and categorize different types of transactions. It ensures that merchant activities are correctly identified for taxation, reporting, and compliance purposes.
Q: Why are there different codes?
For payment processors, MCCs assist in assessing the credit risk associated with different merchants and transactions. This allows them to identify high-risk activities requiring stringent checks before processing payments.
For merchants, accurate MCCs help obtain better rates and fee structures for their transactions, improve fraud protection, ensure easier tax compliance, facilitate more robust financial reporting, and provide useful insights into payment processing data.
Q: And, how does a business have that MCC assigned?
An MCC is assigned to a business when it sets up its merchant account with a payment processor. The processor either assigns a code or provides a list of codes for the business to choose from to correctly represent their operations.
In sum…
The MCC code assigned to a business truly matters; an incorrect code can make the difference between just 10 or even 30 basis points, which could mean hundreds or thousands of dollars lost for a business, depending on their volume.
Make sure your MCC code is correct, your rate is reasonable, you have no contracts to sign, and the agent will be there when you need them, down the road.
It is generally up to the agent who ‘sold’ a business their payment processing account, to make sure a business’ processing service and code assignment is done correctly and fairly.. All the more reason to work with someone you trust, work with someone local, and know that he/she is in your corner to keep an eye out for the success of your business!