When your payment provider or a card network looks at your MCC (Merchant Category Code), they see a 4-digit label. But that shorthand often carries more weight than it deserves and can lead to unfair treatment for many businesses.
At Atoa, we hear this complaint frequently: “We’re being penalised based on our MCC, not our true performance or risk profile.” This hits especially hard in industries that are stereotyped as “risky.” In this article we’ll explore this in more depth and identify a better path for businesses that feel affected by this classification system.
What is an MCC (and why it matters)
An MCC is a standardized, four-digit code used by card networks (Visa, Mastercard, etc.) to classify merchants by the kinds of goods or services they offer.
These codes feed into how card issuers and acquirers:
- calculate interchange or processing fees,
- judge risk or impose reserves or limitations, especially for MCCs considered “high risk”
- determine whether transactions qualify for cardholder rewards or incentives, or whether a card issuer disallows certain MCCs entirely. For example, some virtual cards might block merchants outside a specific MCC
In short: your MCC becomes a lens through which your business is judged. This is often based on broad assumptions rather than your individual operations.
The problems with relying on MCCs
- Overgeneralisation & misclassification
All businesses with the same MCC are lumped together. A clean, low-chargeback subscription business might be treated the same as a poorly managed one, just because they share an MCC considered “risky.” In some cases, providers misclassify businesses and push higher risk labels by default. - Default to “high risk” penalties
Some MCCs (e.g. travel, digital goods, subscription services, or pharmaceuticals) are frequently flagged as higher risk, triggering higher fees, stricter underwriting, or reserves. Even though not all businesses in those sectors actually fit the risk profile, they pay the cost of guilt by association. - Limited recourse or transparency
Requesting reclassification is possible, but it tends to be laborious and opaque. Merchants must provide documentation with approval being at the discretion of the acquirer. Many simply accept the label because fighting it is too painful. - Stifles innovation or hybrid business models
When your business spans multiple verticals (for example, a software + services + hardware bundle), MCC codes struggle to capture the nuance. You may end up penalised for the “riskier” piece of your model even if it’s only a minority part.
Real consequences for UK businesses
In practice, the reliance on MCCs means:
- Higher processing costs: Some merchants pay dozens of basis points more just because their MCC triggers a “risk premium”.
- Cashflow constraints: Payouts delayed, rolling reserves imposed, or frozen funds become commonplace.
- Rejected applications: Some card processors will refuse to work with certain MCCs altogether, forcing businesses into more expensive providers.
- Distrust & frustration: Many merchants feel judged by their static code, not by their real performance, compliance or customer satisfaction.
In the UK, pressure is mounting on card networks and regulators to improve transparency in merchant fees. For example, the Payment Systems Regulator has flagged concerns around opacity and excess costs in card schemes.
A better path: treating businesses on their merits
At Atoa, we believe payments should reflect who you are and how you behave, not simply which box you’re put in. With Pay by Bank, for instance, MCC codes don’t play a gatekeeping role. Payments go directly from a customer’s bank to the business so you aren’t judged by card scheme categorizations.
That means:
- Lower and fairer costs: No extra premiums baked in for “risky” MCCs
- Instant settlement: No holding periods or reserves
- No chargebacks: Eliminating one of the main drivers of risk pricing in card payments
What you can do now
If you believe your business is being unfairly penalised by your MCC code, there are solutions.
- Check your assigned MCC: Ask your acquirer or look in your statements.
- Challenge it if wrong: Provide clear documentation about your business model, chargeback history, risk mitigations, etc.
- Build trust metrics: Maintain low disputes, strong compliance, robust refund policy, and show consistency.
- Seek alternatives: Evaluate payment options (like Pay by Bank) that bypass the MCC-based gatekeeping altogether.
Your business deserves to be judged by your operations, not by a legacy classification system. If you’d like to learn how to lower your payment fees, reach out to our team today.
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