Hotel Payments: Merchant IDs, Category Codes & The Cost of Misuse

Online purchasing is easier and faster than ever for consumers – but behind the scenes, a complex system is hard at work to process your hotel payments correctly. Funds get exchanged between purchasers, issuing banks (who issue credit and debit cards), and payment processors (who give you the ability to accept card payments). Read on to better understand the innerworkings of payments, so you can make sure your property is set up for success and gets paid at the lowest cost possible to you.

Merchant IDs and MCCs

To accept payments, your processor will issue a merchant account associated to a particular merchant ID, otherwise known as an MID. The MID identifies a particular merchant and is associated with a deposit account where funds are deposited. This is the final step in converting plastic payments into cash money that the merchant can use.

To create a merchant account, merchants are required to provide a variety of verification information, a tax ID number, payment volume estimates, and the deposit bank account information. In addition, they must provide personal identification to satisfy KYC banking regulations. KYC is a legal requirement for financial institutions and financial services companies to establish a customer’s identity and identify risk factors, helping prevent identity theft, money laundering, and other financial crimes.

Lastly, and seemingly one of the more basic elements requested, merchants will be asked to describe the type of business conducted, from which a Merchant Category Code (MCC) is assigned.

The Cost of MCC Misuse

While an MCC seems like a simple label to identify a type of business, it’s far more complex. For example, Visa has roughly 750 unique MCC codes. You might be asking, “Why do we need so many?” There are almost as many answers as there are MCCs, but we’ll hit the highlights.

1. Risk and Pricing: Card issuers manage fraud and chargeback risk through the prices they charge for processing transactions. Recurring phone bill payments are far less likely to be paid with stolen credit cards than a retail transaction, deeming them safer, so they’re priced lower by the card issuer in turn. Hotel and restaurant transactions are near the highest because of the potential for customer disputes not just for fraud but for a poor guest experience.
   
   
2. Processing Method: Cards processed in store using the embedded chip are far safer than transactions processed online or, even worse, key-entered at the point of sale. MCC codes are assigned for businesses who primarily accept chip-enabled transactions, but they get downgraded (charged more) when they key enter a transaction which is outside the normal expectation for the MCC or business type.
   
   
3. Features: Some MCCs need special transaction types. For example, restaurants get special privileges to settle for an amount larger than the original authorization to account for tips. Hotels can incrementally raise the initial authorization amount during a guest stay as guests bill meals or other items to their room.
   
   
4. Rewards: Ever wonder how you earn double rewards for airlines or triple rewards for that hotel brand card? Those big brands that have their own branded card (Visa, MC or Amex) all have their own unique MCC code to track that spend.
   
   
5. Compliance: Some industries even have data compliance standards. For example, hotels must include a check in and check out date, and airlines must provide the departure and destination city when they process.
   
   

As you can see, MCC codes play an extremely important part in the credit card ecosystem. Therefore, creating a unique MID with its own MCC for each venue or use case in a hotel is extremely important. Hotel front desk MIDs shouldn’t be used in a spa or restaurant if for no other reason than to allow for tips. For events and groups paying in advance, payments should be processed online rather than key-entering cards into the front desk card-present system to avoid significant penalties. If requirements aren’t met, you’re at risk to be downgraded and charged fees by the card issuer – sometimes up to 5% per transaction. For smaller charges like post-stay shipping charges, this may not seem like a big risk, but for events that cost thousands of dollars, it can cost you a lot.