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Merchant identification – a key part of payment processing

“Do you have any ID?” It’s a question most of us have been faced with in the past.  Depending on the context, we might be flattered or irritated to be asked. And there could be a tense few moments for the questioner, too, as they await our response. If they want to benefit from or make use of the information in our answer, they must be daring enough to ask the question, however.

In business, identifying individuals or entities accurately is important. The findings from the process might help a company to meet its legal obligations, market its products effectively, or simply treat its customers well. It’s not surprising, then, that accurate identification is a hot topic in open banking.


What’s in a name – or a merchant identification number (MID)?

Identifying merchants is crucial to the payment process. MIDs and TIDs are the bedrock of this identification process.

Payment processing services allocate identification numbers to all of their customers (merchants). Each MID is unique. Payment processors use them to securely link card payments with the correct merchant accounts. An MID is also a useful feature on the purchaser’s side of a transaction. Their credit card provider or bank can use it to see that they are paying a genuine business. In other words, it helps with both reconciliation and anti-fraud measures.

Businesses that have more than one credit card machine handling payments might also make use of terminal identification numbers. Payment processors use these to pinpoint exactly which machine was used for a particular transaction. Once again, this is useful for anti-fraud purposes and avoiding the scourge of online retailers – chargebacks.


Merchant Category Codes broadly define the category of merchant you are transacting with

What you need to know about merchant category codes

Next up, we have merchant category codes, or MCCs. Card companies use these four-digit numbers to group businesses together.  Each MCC represents a different type of product or service, like clothing companies or business services. The card companies might also use more specific codes to further classify the merchants within each group. In the two previous instances, the codes could specify children’s clothing shops or accountancy firms, for example.

MCCs have several possible uses when it comes to open banking, but one of the most obvious is in helping banks to better understand their customers’ spending habits. Having access to this kind of information aids in everything from assessing creditworthiness, to account management and identifying appropriate sales opportunities.




Making the most of MCCs

Simple merchant category codes are not infallible, however. There are a number of variables involved in assigning and using them accurately.

  1. MCCs are not always universal – while the categories are set by the International Organization for Standardization (ISO), there are some variations across the major credit card providers.
  2. Nor are all categories created equal. Some are exceptionally wide, while others are very narrow in definition.
  3. Then there’s the sheer scale of the task at hand – with innovation and disruption occurring at an unprecedented level around the globe, the number of businesses accepting card payments is rising sharply. Can we be sure that every single one of these new businesses can be described accurately by one of the standard categories?
  4. Although the merchant categories are standard, they are open to interpretation by the card providers who allocate them to businesses. Take, for an example, a shop that sells and repairs bikes. Should it fall under one of the transportation, retail, or sports and leisure codes, or something else entirely?
  5. A single business might have more than one MCC. Indeed, some companies with lots of different divisions have many. When this is the case, it can make the process of extracting and assessing transaction data more complex.


What about the purchases of the future?

These variables and uncertainties highlight the importance of using a competent transaction enrichment vendor to make full use of the data available.  Several microservices have come up with advanced techniques to gather, understand and take advantage of MCC data. Some of these involve using artificial intelligence. We think this is both a great example of fintech’s innovative nature and a herald of exciting new developments in open banking.