Merchant Category Codes: The Fastest Way to Get Labeled High-Risk

Merchant Category Codes are the fastest way to get labeled high-risk because the MCC assigned to your business directly determines transaction fees, risk assessments, and potential account restrictions. You’re likely here because you’ve discovered that something called a “Merchant Category Code” might be affecting your business operations and bottom line. We understand the frustration of navigating complex payment industry regulations, and you’re in the right place to get clear, actionable answers about how MCCs impact your risk classification and what you can do about it.   Merchant Category Codes (MCCs) are four-digit numerical classifications assigned by payment networks to categorize businesses based on the products or services they sell, directly determining transaction fees, risk assessments, and account restrictions that can make or break your payment processing capabilities. TL;DR Summary:

• MCCs are four-digit codes (0001-9999) following ISO 18245:2023 standards that classify your business type for payment processors
• Visa’s Integrity Risk Program categorizes high-risk merchants into three tiers based on potential health, financial, and regulatory harm
• High-risk classification leads to 3.5-10% transaction fees versus 2.4% average, plus rolling reserves of 5-15% of deposits
• Chargeback rates increased 59% from 2023 to 2024, with friendly fraud accounting for 70-79% of all disputes
• Misclassification penalties can reach $50,000 per transaction, while proper MCC management can save thousands monthly
• New regulations in 2025-2026 will tighten monitoring thresholds from 2.2% to 1.5% for some regions
• Geographic variations create compliance complexity, with states like Texas prohibiting certain MCCs while California mandates them
• Professional payment providers like 2Accept help navigate MCC optimization and reduce high-risk classifications

Quick Tip: Before signing any merchant account agreement, verify the exact MCC code being assigned to your business—a simple miscategorization from generic retail (MCC 5999) to a high-risk category could triple your processing fees overnight.   As we explore how MCCs determine your risk profile, you’ll discover the specific codes that trigger automatic high-risk labels, understand the real costs of misclassification, and learn proven strategies to optimize your merchant category assignment. The following sections break down everything from basic MCC mechanics to advanced compliance strategies that could save your business thousands in unnecessary fees.

What Are Merchant Category Codes and How Are They Assigned?

Merchant Category Codes are four-digit numerical codes ranging from 0001 to 9999 that credit card companies use to classify businesses for payment processing. ISO 18245:2023 standardizes these codes globally, replacing the previous ISO 18245:2003 standard on February 17, 2023. The codes follow a non-hierarchical structure with single-level classification across service categories.   ISO 18245:2023 allocates codes systematically: 0001-1499 for agricultural services, 1500-2999 for contracted services, 4000-4799 for transportation, 4800-4999 for utilities, 5000-5599 for retail outlets, 5600-5699 for clothing shops, 5700-7299 for miscellaneous shops, 7300-7999 for business services, 8000-8999 for professional services, and 9000-9999 for government services. Mastercard’s October 2024 implementation contains 879 MCCs grouped into 20 categories, including 293 generic codes for business activities and 586 merchant-specific codes for individual companies. Visa and American Express maintain separate implementations with minor variations, such as Visa’s unique MCC 3176 for Metroflight Airlines.   The following sections explore how payment processors utilize these codes, which business types receive restrictive classifications, and the operational impacts of MCC assignments.

How Do Payment Processors Use Merchant Category Codes?

Payment processors use MCCs for four primary functions: determining interchange fees, assessing transaction risk, restricting purchases for specific card types, and reporting taxes to government authorities. Acquirers must provide valid MCCs in Data Element 26 (Card Acceptor Business Code) per Mastercard’s network requirements for transaction processing.   MCCs primarily classify businesses and institutions capable of receiving credit card payments. Most agricultural and manufacturing businesses remain absent from the classification system, limiting coverage to card-accepting merchants. Payment networks use these codes to calculate processing fees, with rates varying significantly based on assigned categories.

What Types of Businesses Receive Restrictive Merchant Category Codes?

Restrictive MCCs apply to eight major business categories based on regulatory scrutiny and chargeback risk:

Business Category	MCC Code	Description
Adult/Dating	7273, 5967	Dating services, escort services, adult content
Financial Services	6051, 6012, 6050, 6211, 7276, 7321	Cryptocurrency, loans, forex, investments, credit repair, collections
Gambling	7995	Casinos, online gaming, fantasy sports
Firearms	5723	Guns and ammunition (effective July 2024)
Controlled Substances	5921, 5993, 5715, 8398	Alcohol, tobacco, vaping, cannabis
Travel/Hospitality	4722, 4411, 7012	Travel agencies, cruise lines, timeshares
Direct Marketing	5966, 5968, 5969	Telemarketing, subscriptions, continuity merchants
Technology/Digital	4816, 5816, 5734, 7375	File sharing, digital goods, SaaS, web hosting

Financial services businesses receive multiple restrictive codes including 6051 for cryptocurrency and payday loans, 6012 for financing services, and 7321 for collection agencies. Technology companies face restrictions through codes like 4816 for cyberlockers and file-sharing services. The firearms MCC 5723 became active July 1, 2024, though implementation varies by state regulations.   These restrictive classifications directly influence processing fees, reserve requirements, and underwriting standards that high-risk merchants must navigate.

Why Do Certain Merchant Category Codes Trigger High-Risk Classification?

Certain merchant category codes trigger high-risk classification because businesses in these industries generate significantly higher chargeback rates and regulatory concerns than standard merchants. The average chargeback rate across all industries is 0.65%, but high-risk industries consistently exceed this threshold. According to a 2024 industry report, chargeback rates increased 59% from 0.34% in 2023 to 0.54% in 2024, with eCommerce chargebacks rising 222% between Q1 2023 and Q1 2024.   High-risk MCCs identify businesses with three primary risk factors: elevated cardholder disputes, increased financial exposure for banks, and heightened regulatory compliance requirements. Online travel and lodging experienced an 816% increase in chargebacks compared to Q1 2023. Digital goods and services saw a 59% rise during the same period. These statistics demonstrate why payment processors apply stricter controls to specific merchant categories.

What Criteria Do Banks and Processors Use to Categorize Businesses as High-Risk?

Banks and processors categorize businesses as high-risk using Visa’s Integrity Risk Program (VIRP), which assigns risk tiers based on potential health, financial, and regulatory harm. VIRP replaced the Global Brand Protection Program on May 1, 2023, establishing standardized risk assessment criteria across the payment industry.   Tier 1 (Highest Risk) includes MCCs with health and safety concerns:

• MCC 5967 (adult content)
• MCC 7273 (dating and escort services)
• MCC 7995 (gambling)
• MCCs 5122/5912 (pharmacies)

Tier 2 (High Risk) covers financial and economic harm potential:

• MCCs 6051/6012 (crypto merchants requiring special condition code 7)
• MCC 4816 (cyberlockers and remote file-sharing)
• MCC 5816 (games of skill, card-absent)

Tier 3 (Moderate Risk) addresses regulatory non-compliance risks:

• MCC 6211 (high-integrity risk financial trading platforms)
• MCC 5966 (outbound telemarketing)
• MCC 5968 (subscription negative option merchants)
• MCC 5993 (cross-border tobacco sales)

Primary risk assessment factors include operating in high-risk industries (30% of cases), subscription billing (27.1%), and future services (16.4%). A 2024 chargeback analysis found that 36.6% of chargebacks stem from subscription-billed products, making this business model particularly vulnerable to high-risk classification.

How Can Merchant Category Codes Impact Your Payment Processing Options?

Merchant category codes directly limit payment processing options through monitoring programs and outright refusals from processors. Businesses exceeding a 0.90% chargeback rate enter payment processor monitoring programs with escalating penalties.   Visa charges $50 per dispute after a four-month grace period. Fines can reach $25,000 per month for businesses failing to reduce chargeback rates. Mastercard implements faster penalties, starting at $1,000 per month after one month in the monitoring program, with additional fees for accounts exceeding 300 chargebacks.   Some payment processors refuse service to specific MCCs entirely, creating a shrinking pool of available providers. State-level regulations compound these restrictions. California requires MCC 5723 for firearms businesses, while Texas prohibits the same code with $10,000 civil penalties per violation. These conflicting requirements force multi-state merchants to navigate complex compliance landscapes that further limit processing options.   Understanding how MCCs trigger high-risk classification helps businesses anticipate challenges and prepare appropriate mitigation strategies before establishing merchant accounts.

How Can Being Labeled High-Risk Affect Your Business Operations?

Being labeled high-risk impacts business operations through increased financial losses and operational constraints. American businesses lost $10.44 billion in 2024 due to chargebacks, with projections reaching $12.87 billion by 2026. Merchants lose 0.47% of total revenue annually to chargebacks according to Shopify, while a 2018 study shows sellers lose 1.8% from fraud. For every $1 lost to fraud, merchants lose $3.35 when including associated costs. Over 32% of merchants raise prices to offset chargeback-related costs. The following challenges and fees define the high-risk merchant experience.

What Are the Typical Challenges High-Risk Merchants Face?

The typical challenges high-risk merchants face are increased fraud, stricter requirements, and customer behavior issues. A 2024 study shows 72% of merchants reported increased friendly fraud chargebacks, with friendly fraud accounting for 70-79% of all chargebacks. Digital fraud rose 15% in 2024, reaching $48 billion in losses. Dispute rates increased 78% year-over-year in Q3 2024 according to Sift Global Network.   High-risk merchants face operational constraints including:

• Stricter underwriting standards
• Ongoing transaction monitoring requirements
• Mandatory account reserves
• Multi-state compliance conflicts

Customer behavior creates additional challenges. There are 84% of customers who say filing chargebacks feels easier than requesting refunds. Additionally, 52% skip contacting sellers before filing chargebacks. Multi-state operations encounter conflicting MCC requirements, with onboarding, monitoring, and data handling rules varying by jurisdiction. These operational challenges compound the financial burden of high-risk classification.

Are There Additional Fees or Limitations for High-Risk Merchants?

Additional fees and limitations for high-risk merchants include setup costs, annual fees, and transaction surcharges. High-risk account setup fees reach $2,000 depending on provider and business complexity. Visa charges $950 annually for registration, while Mastercard charges $500 with no waivers. High Integrity Risk Fees cost $25 annually for US merchants and $100 for Canadian merchants.

Fee Type	High-Risk Amount	Low-Risk Amount
Setup Fees	Up to $2,000	$0-$200
Monthly Fees	$10-$50	$0-$25
Transaction Fees	3.5%-10% + $0.20-$0.35	2.6%-3.1% + $0.10
Rolling Reserve	5%-15% for 6-12 months	None
Chargeback Fees	$10-$100 per incident	$0-$25 per incident

Rolling reserves hold 5% to 15% of credit card deposits for six months to one year, directly impacting cash flow. Transaction fees for high-risk merchants range from 3.5% to over 10%, compared to 3.49% to 3.95% plus $0.25 for low-risk businesses. These financial limitations significantly affect profitability and growth potential for businesses classified as high-risk.

How Can You Avoid Getting Labeled High-Risk Because of Your Merchant Category Code?

You can avoid getting labeled high-risk because of your merchant category code by proactively managing your MCC assignment and aligning compliance strategies to prevent misclassification. Businesses face penalties up to $50,000 per transaction for MCC non-compliance, making accurate classification essential from initial merchant account setup. The following steps help merchants maintain favorable risk ratings while navigating complex regulatory requirements.

What Steps Can You Take to Select the Right Merchant Category Code?

The steps you can take to select the right merchant category code start with ensuring your MCC is accurately assigned during initial merchant account setup to avoid misclassification penalties of up to $50,000 per transaction. Payment processors assign MCCs based on primary business activity, requiring merchants to provide detailed documentation about products, services, and business models during onboarding.   Multi-state merchants face unique challenges with conflicting MCC requirements. California mandates firearms businesses use MCC 5723 while Texas prohibits the same code with $10,000 civil penalties per violation. Businesses operating across these jurisdictions must maintain separate merchant accounts or negotiate processor accommodations for state-specific compliance.   Strategic MCC selection involves three critical actions:

• Document your primary business activity comprehensively during merchant account applications
• Request specific MCCs that accurately represent your business model
• Verify assigned MCCs match your actual business operations before processing transactions

Merchants should review their MCC assignments quarterly and request corrections when business models evolve. Understanding how payment processors categorize similar businesses helps merchants present their operations favorably during underwriting.

How Should You Respond If You Are Misclassified?

If you are misclassified, you should document your actual business operations and submit a formal reclassification request through your payment processor to correct your assigned MCC. Merchants who fight chargebacks report an average win rate of 45%, with digital goods achieving 72.56% win rates compared to 53.42% for physical goods and 46.78% for services. Misclassification impacts dispute resolution success rates because processors apply industry-specific fraud filters and risk thresholds based on assigned MCCs.   Transaction amount significantly affects dispute outcomes. Transactions under $29.99 have a 46.85% dispute win rate, while higher-ticket transactions show progressively lower success rates. This pattern reflects consumer behavior and processor risk algorithms that scrutinize larger purchases more carefully.   Industry-specific win rates vary dramatically across merchant categories:

Industry	Average Win Rate	Key Factor
Digital Goods	72.56%	Clear delivery proof
Physical Goods	53.42%	Shipping confirmation
Services	46.78%	Usage documentation
Apparel	35.81%	Return policy disputes
Consumer Electronics	16.59%	Technical issues

Responding to misclassification requires documenting actual business operations, collecting transaction evidence showing true business nature, and submitting formal reclassification requests through your payment processor. Merchants should compile sales records, customer communications, and product documentation demonstrating why their current MCC assignment misrepresents their business model. The reclassification process typically takes 30-45 days, during which merchants continue operating under existing MCCs while building evidence for their case.

What Are the Potential Legal and Compliance Risks With High-Risk Merchant Category Codes?

The potential legal and compliance risks with high-risk merchant category codes are regulatory penalties, misclassification fines, and state-level enforcement actions. Card networks impose fines up to $50,000 per transaction for MCC non-compliance. State attorneys general enforce civil penalties ranging from $10,000 per violation. Payment processors face conflicting state mandates requiring opposite MCC assignments for identical business types.

How Can Mishandling Merchant Category Codes Lead to Regulatory Problems?

Mishandling merchant category codes leads to regulatory problems through network violations, state enforcement actions, and compliance failures. Visa and Mastercard impose fines up to $50,000 per transaction for MCC misuse. The Texas Attorney General exercises investigative powers including civil investigative demands with $10,000 penalties per improper firearms MCC usage.   State-level MCC regulations create conflicting compliance requirements. California’s AB 1587 mandates MCC 5723 for firearms merchants. Colorado’s SB24-066 grants enforcement authority to the Colorado Attorney General. New York’s AB 9862/SB 8479 requires payment networks to make firearms MCC available starting May 2025. Texas prohibits the same MCC 5723 that California requires.   Businesses operating across state lines face impossible compliance scenarios. A firearms retailer with locations in California and Texas must use MCC 5723 in California or face state penalties. The same merchant using MCC 5723 in Texas faces $10,000 civil penalties per violation. Payment networks cannot simultaneously comply with both states’ mandates for identical transaction types.

What Role Does Transparency Play in Managing Merchant Category Risks?

Transparency plays a critical role in managing merchant category risks through accurate reporting, compliance documentation, and chargeback rate monitoring. Acquirers must provide valid MCCs recognized by Mastercard in Data Element 26 for transaction processing and compliance. Geographic variations reveal significant risk differences, such as Brazil’s 3.48% chargeback rate and Mexico’s 2.81% rate versus the United States’ 0.47% rate.   Transparent MCC assignment enables proper risk assessment across jurisdictions. Brazilian merchants face chargeback rates 7.4 times higher than U.S. merchants. Mexican merchants experience rates 6 times the U.S. average. These geographic disparities require transparent reporting for accurate risk pricing and reserve requirements.   Payment processors use transparency requirements to demonstrate compliance with varying state regulations. Documentation proves correct MCC usage when facing regulatory audits or investigations. Clear MCC assignment trails protect against misclassification penalties and support dispute resolution processes.

How Are Merchant Category Codes Changing in 2025 and Beyond?

Merchant Category Codes are undergoing significant regulatory shifts in 2025 that will reshape payment processing standards and risk assessment protocols. The Visa Acquirer Monitoring Program (VAMP) implements new thresholds in June 2025 at 2.2% for merchants, dropping to 1.5% for some regions in April 2026.   These changes arrive alongside Visa CEDP modifications in October 2025 that introduce new incentives replacing the current Level 3 program, with most Level 2 programs ending April 2026. The payment industry faces intensifying regulatory scrutiny as emerging business models lack proper MCC classification while fraud costs escalate dramatically across all sectors.

What New Regulations or Industry Trends Impact Merchant Category Code Assignments?

New regulations and industry trends are transforming MCC assignments through stricter monitoring thresholds and identification of classification gaps in emerging sectors. The Visa Acquirer Monitoring Program (VAMP) implements new thresholds in June 2025 at 2.2% for merchants, dropping to 1.5% for some regions in April 2026. Visa CEDP changes in October 2025 introduce new incentives replacing the current Level 3 program, with most Level 2 programs ending April 2026.   The US Payments Forum September 2025 white paper identifies emerging mobility modes lacking distinguishable MCCs. These include micromobility services such as e-scooters and bike shares, public transportation systems, carsharing platforms, ridesharing services, EV charging stations, and parking facilities. A February 2024 McKinsey analysis indicates the payments industry confronts high levels of risk with intensifying regulatory scrutiny and significant changes in global standards.   Recent code additions demonstrate ongoing system evolution. There are two new codes created in April 2024:

• MCC 3168 (Hainan Airlines)
• MCC 5723 (Guns and Ammunition Shops)

MCC 7322 was introduced in 2023 for collection agencies. These additions reflect both airline industry expansion and regulatory requirements for specific retail sectors. The creation of MCC 5723 particularly highlights how political and regulatory pressures drive classification changes.

How Should Businesses Prepare for Ongoing Changes in Risk Labels?

Businesses should prepare for ongoing changes in risk labels by understanding escalating fraud projections and implementing robust compliance frameworks. The cost of third-party eCommerce fraud is expected to increase 141%, from $44.3 billion in 2024 to $107 billion in 2029. Ethoca predicts annual chargebacks could reach 337 million in 2026, up from 238 million in 2023.   Future MCC alignment will focus on three core areas:

• Greater compliance standards across payment networks
• Evolving market needs for emerging business models
• Tightening regulations around financial transactions

Proposed solutions address current classification gaps through multiple approaches. These include introduction of new MCCs for emerging mobility services, improved use of existing codes for better categorization, and transaction data enrichment for greater transparency. Businesses operating in sectors without clear MCC assignments face particular challenges as they may default to higher-risk generic codes.   The dramatic increase in fraud costs demands proactive risk management strategies. Companies must invest in fraud prevention technologies, maintain detailed transaction records, and stay informed about regulatory changes affecting their industry classifications. As MCC assignments directly impact processing fees and account restrictions, businesses need continuous monitoring of their classification status and industry-specific regulatory developments to avoid unexpected operational disruptions.

How Can You Navigate Merchant Category Code Issues With a Payment Services Provider Like 2Accept?

Navigating merchant category code issues with a payment services provider like 2Accept requires understanding specialized high-risk payment processing capabilities and MCC optimization strategies. Payment service providers specializing in high-risk industries offer MCC consultation, proper code assignment verification, and alternative processing solutions when standard merchant accounts face restrictions.

How Can 2Accept Help You Avoid Being Labeled High-Risk?

2Accept helps businesses avoid high-risk labels through strategic MCC assignment and comprehensive risk mitigation services. The platform provides accurate MCC classification during initial merchant account setup, preventing misclassification penalties of up to $50,000 per transaction under Visa and Mastercard rules.   2Accept’s specialized underwriting team evaluates business models to identify the most favorable MCC within compliance requirements. The service includes chargeback prevention tools that help maintain dispute rates below the 0.90% threshold that triggers monitoring programs. A 2024 industry analysis shows merchants using specialized payment providers achieve 45% average chargeback win rates, with digital goods reaching 72.56% success rates.   The platform offers alternative processing routes for businesses in restricted categories such as MCC 7995 (gambling), MCC 5967 (adult content), and MCC 6051 (cryptocurrency). 2Accept provides rolling reserve management solutions that minimize the typical 5-15% fund holds affecting high-risk merchant cash flow.

What Are the Key Takeaways About Merchant Category Codes and High-Risk Labels for Businesses?

The key takeaways about merchant category codes and high-risk labels are that MCCs directly determine processing costs, chargeback vulnerability, and operational limitations. High-risk merchants pay 3.5% to over 10% per transaction compared to the 2.4% global average for credit card processing.   Friendly fraud represents the primary threat, accounting for 70-79% of all chargebacks. A 2024 consumer study reveals 27% of consumers report seeing social media posts encouraging chargeback fraud, rising to 47% for Gen Z and 35% for Millennials.   Financial impact compounds quickly for affected businesses. A merchant processing $19 average transactions with 12 monthly chargebacks loses over $7,270 annually from chargeback costs alone. The average chargeback amount increased from $165 in 2023 to $169.13 in 2024, with most disputes falling in the $25-$75 range.   Businesses must prioritize accurate MCC assignment, implement robust fraud prevention, and partner with specialized payment providers to navigate the evolving regulatory landscape effectively.