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Email this3:17 pm
April 6, 2013
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According to CardFellow: Merchant Category Code: Reporting & Rates, Merchant Category Codes (MCC) were created around 2004 to help with US Internal Revenue Service business tax reporting.
Apparently, IRS requires businesses to report payments for services (in contrast to payments for the purchase of goods). This is supported by the IRS bulletin Merchant Category Codes to Determine Reportable Payment Card Transactions.
7:23 pm
October 21, 2013
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This sounds similar to before we had HST, when goods were taxed but services were not necessarily or it was a hidden tax. I wonder why Canada had to adopt the same code system. Probably the Americans own MC and Visa, so it was for their benefit.
So, why would credit card issuers want to reward some categories of expenditures and not others, as several of them do?
5:58 pm
April 6, 2013
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I suspect that MasterCard Canada and VISA Canada, as well as their counterparts from other regions, had input into the design of the MCC. The MCC likely ended up suiting their needs as well.
Some parts of the MCC seem to be quite fine in granularity. The airlines and hotel chains each seem to have their individual MCC. These are from Citibank: Merchant Category Codes:
3000 United Airlines
3009 Air Canada
3171 Canadian Airlines International
3180 Westjet Airlines
3502 Best Western
3503 Sheraton
It looks like corporate cardholders would be able to use the MCC of their corporate card transactions to calculate their travel spending by hotel chain and by airline!
6:16 pm
April 6, 2013
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Loonie said
...
So, why would credit card issuers want to reward some categories of expenditures and not others, as several of them do?
I don't think the card issuers do. I think it is more of a marketing gimmick.
I think they are hoping that people would be dazzled by how much they are getting back for certain spending and not notice how much they are getting back overall.
For example, the Costco-member only Capital One Platinum MasterCard:
3% on all restaurant purchases
2% on all gas purchases
½% on the first $3,000 on all other purchases, and 1% after that
I think that most charges, included purchases at Costco, would end up in the ½% to 1% category and not the highest 3% restaurants category.
12:40 pm
October 21, 2013
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Yes, I remember pointing out that Costco problem in another thread. Seems daft (to me) that Costco would bother to issue a credit card that provided such a poor reward for shopping in their stores, so I assumed they thought people wouldn't notice and would be distracted by the restaurant and gas rebates. And I'm sure very few people do the calculations to see how much they are (not) getting, as a percent.
For some people, a trip to Costco is only once a month or less and involves quite a distance, so a lot of gas and no doubt a stop to eat somewhere (other than the Costco hot dog etc). So, in that sense only, it might provide an incentive to shop at Costco. Perhaps they'd analyzed postal codes!
I wonder, how does Costco benefit from having their name on this card? Is it just the free advertising? but we already have a Costco membership card in our wallets. Do they get some kind of kickback from the card company? I have no idea.
Ironically, the only way you can get ahead with this card is by NOT using it to shop at Costco! Use it only for restaurants and maybe gas. Use another MC instead when shopping at Costco. Almost any cash-reward card would give you a better return!
I keep forgetting how gullible people can be, too. People complain about the cost of gas and utility bills (recurrent category) all the time, so would perhaps be looking for rewards in those categories. But in fact I think that for most people the biggest category may be "Other", including various kinds of Insurance, which is never reimbursed at a high rate. (It is for me, anyway.)
7:19 pm
April 6, 2013
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Loonie said
....
I keep forgetting how gullible people can be, too. People complain about the cost of gas and utility bills (recurrent category) all the time, so would perhaps be looking for rewards in those categories. But in fact I think that for most people the biggest category may be "Other", including various kinds of Insurance, which is never reimbursed at a high rate. (It is for me, anyway.)
I think that is likely what Capital One saw when they studied the historic charges on the credit cards they issued.
According to Costco Canada's merchant payment processing site for Elavon, the commission rate for premium VISA and premium MasterCard charges is 1.99%.
With that in mind, I think Capital One would quickly change the offering if most of the Costco MasterCard charges ended up being in the 3% restaurant and 2% gas purchase categories.
9:29 pm
October 21, 2013
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Norman1 said
I think Capital One would quickly change the offering if most of the Costco MasterCard charges ended up being in the 3% restaurant and 2% gas purchase categories.
Now, who would ever do a thing like that!?
7:43 pm
April 6, 2013
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Loonie said
Now, who would ever do a thing like that!?
Indeed. Who would do such a thing? Let's see. The Costco Platinum MasterCard application is at ....
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