MCC codes unveil consumer shopping habitsWant to keep your purchases private? Use cash instead
Want to get the lowdown on someone's interests and
priorities? Look no further than their credit card, thanks to a tracking system
that stores data on where credit card customers use their cards.
"The Merchant Category Code (MCC) is a four-digit number
assigned to describe a merchant's primary business," says Ted Carr, a spokesman
for Visa. "In addition, some merchant category codes identify a specific
merchant or type of transaction," he adds.
When a cardholder makes a purchase, the MCC for that
business is stored. Card issuers track that information, so if MCC 5310 comes
up, for example, they know you shopped in a discount store. If MCC 4722 shows
up, they know you've spent money on travel. (Here's a full list of MCC codes).
The reasons and uses for MCC codes vary. Here's a rundown of
how they are used -- and how they're not.
MCCs do help prevent
fraud. MCC codes allow card issues to flag purchases that are unusual to the
cardholder, says Nessa Feddis, vice president and senior counsel for the
American Bankers Association. For example, if a thief uses your card in a
jewelry store or casino and this goes against your normal buying behavior, a
red flag might be raised. The MCCs also give issuers insight into the risk
level of particular types of merchants, Carr says. For example, a lot of charge-backs
to a particular merchant category suggests that consumers tend to
leave unhappy with the product or service.
MCCs are used to
market new products to consumers. By tracking MCCs, card issuers know a lot
about their customers' spending habits. As a result, they have insight into
products and services their customers might buy. "It's a way to understand their customers and respond in a
competitive way to their customers' spending," says Feddis. "If you're a card
issuer that has a special partnership with an airline, and you see that one of
your customers has a lot of airline purchases, you might then offer that card
to that customer."
Such a practice is becoming more common, says Anil Batra,
vice president of business consulting for iJento, a multi-channel analytics
company. "Most businesses in some way,
shape or form are collecting data," Batra says. With that data, companies
engage in what's known as behavioral marketing. By building user profiles that
track such information as what consumers are buying and what Web sites they are
browsing, marketers can better target their products and services.
MCCs are shared with
marketing partners. Your card issuer might not be the only one that knows
you have an affinity for motorcycles. Card issuers sometimes share information
about customers with their partners, who can then tailor their marketing
pitches to you. The problem with that is companies don't have to disclose they're
sharing the data with partners they have joint marketing arrangements with,
says Paul Stephens, director of Policy and Advocacy with the Privacy Rights
Clearinghouse. When it comes to keeping your MCC codes out of the hands of
partner companies, "there are limitations on the extent to which you can opt
out," Stephens says.
Cash is obviously the best
privacy protector, but you have to balance privacy against convenience to
determine which is more important for you.
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Paul Stephens
Privacy Rights Clearinghouse |
On the other hand, companies may offer bargains on items
you're likely to buy. But there's also the chance that the opposite could
happen, Stephens says. "If a company sees that you
make many purchases [of a particular type], you may not be offered the best
prices. They may offer good prices to someone who is not a regular customer to
induce them to make a purchase."
MCCs can be
subpoenaed. If a court requests your credit card records, your issuer must
comply, Feddis says. In criminal and civil cases, MCC codes can paint a picture
of where a litigant spent his or her money -- something that can be relevant to
proving a case.
MCCs keep businesses,
consumers accountable. Businesses must report certain types of purchases to
the IRS. MCC codes can be used to determine whether charges made on a credit
card are among them. With health care flexible spending accounts that restrict
spending to pharmacies and certain types of merchants, the codes can also be
used to ensure that purchases aren't made at other types of businesses.
MCCs don't impact
your credit score. Contrary to popular belief, "nobody's using MCC codes to
determine, 'I'm going to lower someone's limit or increase their interest
rate,'" says Feddis. That's not to say that card issuers never did. In 2009, it
came to light that American Express had used customers' shopping patterns as a criterion for credit line reductions. After public outcry,
the company announced that it would end the practice. "It was very short-lived,
and it was one issuer and that was the end of that," Feddis says.
For consumers who are concerned about how information about
merchant category codes are being used, options are limited. To keep the number
of companies with access to your shopping habits down, opt out of allowing card
issuers to freely share your information, Stephens says. The only other option:
Use cash.
"Cash is obviously the best
privacy protector, but you have to balance privacy against convenience to
determine which is more important for you," says Stephens.
See related: What you buy, where you shop may affect your credit, What you buy, where you shop may affect your credit
Published: September 21, 2011
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