Understanding Interchange Fees and MCC Codes: What Every Business Needs to Know
Interchange fees are a fundamental part of payment processing, yet they often feel like a mystery to business owners. These fees, charged by card networks like Visa and Mastercard, can vary significantly depending on your business type and how you process transactions. A key factor in determining your interchange fees is your Merchant Category Code (MCC), which categorizes your business within the payment system.
In this blog, we’ll break down what interchange fees and MCC codes are, how they impact your bottom line, and what businesses can do to optimize costs.
What Are Interchange Fees?
Interchange fees are paid by your payment processor to the card-issuing bank every time a credit or debit card transaction is processed. These fees compensate the bank for the risk of approving the transaction and are typically calculated as a percentage of the transaction amount, plus a flat fee.
For example:
A Visa credit card transaction may have an interchange fee of 1.5% + $0.10 per transaction. For a $100 sale, this would equal $1.60.
How Are Interchange Fees Determined?
Several factors influence interchange fees:
Card Type: Rewards cards, corporate cards, and premium credit cards often have higher interchange fees compared to standard debit or credit cards.
Transaction Type: In-person (card-present) transactions typically have lower fees than online (card-not-present) transactions due to reduced fraud risk.
Business Type: Your MCC plays a significant role in determining your interchange rates.
What Are Merchant Category Codes (MCC)?
MCCs are four-digit codes assigned to businesses by card networks to classify the type of goods or services they provide. For example:
5411: Grocery stores.
5812: Restaurants.
5732: Electronics stores.
Your MCC helps determine your interchange fees because some industries are considered higher risk or have lower profit margins, leading to adjusted fee structures.
Why Do MCC Codes and Interchange Fees Matter?
Impact on Processing Costs: Your MCC directly influences the interchange rates you pay. For example, grocery stores (MCC 5411) typically benefit from lower interchange rates compared to restaurants (MCC 5812) due to the lower fraud risk associated with their transactions.
Processor Relationship: Processors use MCC codes to determine how they classify your business, which can affect your eligibility for certain pricing structures.
Errors in MCC Assignment: If your MCC is incorrectly assigned, you may end up paying higher interchange fees than necessary.
How to Optimize Interchange Costs
Review Your MCC Code
Ensure that your business is categorized correctly. For example, a café offering both dine-in and takeout services might be misclassified under a higher-fee restaurant MCC instead of a quick-service restaurant MCC, which typically has lower fees.
Choose the Right Processor
Work with a payment processor that offers transparent interchange-plus pricing, where interchange fees and processor markups are clearly separated. This helps you understand exactly what you’re paying for.
Encourage Lower-Cost Payment Methods
Debit cards often have lower interchange fees than credit cards. Consider incentivizing customers to use debit cards or alternative payment methods.
Work with a Payment Consultant
A consultant can analyze your transaction data, negotiate better rates, and ensure your MCC and processing setup are optimized for your business type.
How PlutosPay Can Help
At PlutosPay, we specialize in helping businesses reduce their interchange fees and optimize payment processing. Here’s how:
MCC Accuracy Checks: We review your MCC classification to ensure it aligns with your business activities, avoiding unnecessary overcharges.
Processor Negotiation: We help you secure better rates by negotiating with processors on your behalf.
Transparent Fee Analysis: Our team breaks down your statements to identify hidden fees and areas for improvement.
Ongoing Monitoring: With real-time transaction monitoring, we ensure that your fees stay optimized even as your business grows.
Conclusion: Take Control of Your Payment Costs
Understanding interchange fees and MCC codes is crucial for any business looking to control costs and optimize their payment operations. By reviewing your MCC classification, choosing the right processor, and working with experts, you can ensure that your payment system works for your business—not against it.
At PlutosPay, we’re here to help you navigate the complexities of payment processing and save money. Contact us today for a free consultation and start optimizing your payment operations.