Introduction to Issuer Declined MCC
An “Issuer Declined MCC” occurs when a card transaction is rejected due to the Merchant Category Code (MCC). MCCs are four-digit codes assigned by payment networks like Visa, MasterCard, and American Express to classify businesses. These codes help card issuers assess the risk of transactions. For example, businesses under high-risk MCCs, such as gambling, firearms, or adult entertainment, often experience more rejections due to higher risks.
Why Issuer Declines MCC
Issuer declines based on MCC codes stem from a few primary factors:
- High-Risk Categories: Certain industries are high-risk due to higher fraud rates. For example, businesses in online gambling (MCC 7995) or escort services (MCC 7273) often face rejection because of high fraud potential.
- Mismatch Between MCC and Business: If a business’s assigned MCC doesn’t reflect its operations accurately, declines can happen. For instance, if a company classified under MCC 5045 (Computers, Peripherals, Software) starts selling unrelated goods, transactions may be flagged.
Table 1: High-Risk MCC Codes and Decline Rates
| MCC Code | Industry | Decline Rate (%) | Chargeback Rate (%) |
|---|---|---|---|
| 7995 | Online Gambling | 25% | 12% |
| 7273 | Escort Services | 30% | 15% |
| 5933 | Pawn Shops | 20% | 10% |
| 4829 | Wire Transfer and Money Orders | 18% | 8% |
| 6012 | Financial Institutions | 22% | 5% |
Common Reasons for Issuer Declined MCC
- Insufficient Funds: Issuers decline transactions when the cardholder’s balance is too low to cover the cost. This is the most common reason for declines, affecting up to 40% of transactions.
- Incorrect MCC: If the business’s MCC does not match its activities, transactions may be declined. For example, a tech firm categorized under MCC 5734 selling apparel may see frequent declines.
- Suspicious Activity or Fraud: Issuers monitor transaction patterns for fraud. A sudden increase in spending or use in unusual locations can trigger declines.
- Expired or Incorrect Card Information: Transactions are often rejected when card details like expiration date, CVV, or billing address are incorrect.
Table 2: Common Decline Reasons by Issuers
| Reason | Decline Rate (%) |
|---|---|
| Insufficient Funds | 40% |
| Incorrect MCC | 25% |
| Suspicious Activity | 20% |
| Incorrect Card Information | 10% |
| Others | 5% |
Impact on Merchants
For merchants, Issuer Declined MCC errors lead to:
- Lost Revenue: Declined transactions directly reduce sales, especially in high-risk industries.
- Increased Chargebacks: Businesses in high-risk MCC categories see more chargebacks, which cut into profits. Industries like online gambling or escort services can face chargeback rates exceeding 15%.
- Customer Frustration: Frequent declines lead to customer dissatisfaction, affecting repeat business.
To reduce these risks, merchants should manage their MCC assignments and payment processes carefully. Merchanto.org, an official partner of VISA and MasterCard in chargeback prevention, provides tools that help merchants lower declines and chargebacks. More information is available at Merchanto.org.
Solutions for Merchants
Merchants can minimize Issuer Declined MCC errors by taking several steps:
- Ensure Accurate MCC Assignment: It’s essential to categorize businesses correctly under the right MCC. Payment processors like Stripe and Braintree help businesses verify their MCC codes.
- Offer Alternative Payment Methods: Providing options like ACH payments, PayPal, or Buy Now, Pay Later (BNPL) reduces declines. Merchants using Checkout.com report fewer declines when multiple payment methods are available.
- Implement Fraud Prevention Tools: Tools like CVV verification, 3D Secure, and Address Verification Services (AVS) lower the chance of declines caused by fraud concerns.
- Use Pre-Authorization: Running a pre-authorization transaction helps confirm the card’s validity before processing larger amounts, preventing declines for issues like insufficient funds or fraud suspicions.
Table 3: Fraud Prevention Tools and Effectiveness
| Tool | Decline Reduction (%) |
|---|---|
| 3D Secure | 15% |
| CVV Verification | 10% |
| Address Verification (AVS) | 8% |
| Pre-Authorization | 20% |
Key Insights for Merchant Strategy
Reducing declines requires effective strategies and partnerships with reliable payment processors. Visa and MasterCard recommend that merchants in high-risk categories consider working with specialized partners to manage risk.
Conclusion
Issuer Declined MCC errors are a significant challenge for businesses, especially in high-risk industries. By understanding why these errors occur and adopting best practices like accurate MCC classification, fraud prevention tools, and offering diverse payment methods, merchants can reduce declines. Partnering with specialized providers can further enhance chargeback prevention and fraud management.
Taking proactive steps and working with trusted service providers ensures businesses can minimize Issuer Declined MCC errors and maintain smooth operations.
