What does the term 'merchant category code' (MCC) refer to?

The term 'merchant category code' (MCC) refers to a classification system that categorizes businesses based on the type of goods or services they provide. Each MCC is a four-digit number assigned to a merchant by payment networks, such as Visa or MasterCard, and helps in distinguishing different types of merchants. This categorization is particularly useful for credit card companies and financial institutions when processing transactions, analyzing spending habits, and determining rewards eligibility for customers based on their expenditures in certain categories.

MCCs are essential for various financial processes, including transaction approvals, fraud prevention, and statistical reporting, as they provide insights into purchasing patterns across different industries. By accurately classifying a business according to its primary activities, MCCs facilitate targeted marketing strategies and help investors and analysts gain a clearer picture of economic trends.