Cal-ITP: California Integrated Travel Project

Fact sheet: Merchant category codes in mobility

To promote equitable, sustainable, and customer-friendly travel across California, one of Caltrans’ California Integrated Travel Project’s (Cal-ITP) core objectives is to make mobility simpler and more affordable while broadening financial inclusion. State or private-sponsored grant programs that provide funds or “benefits” (e.g., subsidies) directly to Californians for their mobility needs, including to those who are under- or un-banked, is one element of this vision. It may be complemented with price discounts or “rewards” that further increase affordability and – in the case of the latter – can also be used to incentivize mode shift. Through our work, both in California and across the world, we see that Merchant Category Codes (MCCs) can play a key role in the distribution of benefits via bank cards - and any associated rewards - since they help determine whether a mobility payment is identified as a valid spend, and/or should act as a trigger for a reward.

In Cal-ITP’s mission to broaden financial inclusion, our team is working to gain a deeper understanding of the complex issues surrounding MCCs, especially as they relate to new and emerging modes of mobility including electric vehicles and bike sharing among others. For customers spending money on new modes of mobility, we have identified two main challenges that persist:

  1. Inaccurate or inconsistent implementation of MCCs, i.e., when a specific MCC exists, but not all payment transactions associated with that purchase type utilize the MCC in question. This is a common challenge we identified, particularly for electric vehicle charging, where the MCC 5552 Electric Vehicle Charging is not always assigned. Instead, electric vehicle charging sales can be categorized by other MCCs.

  2. A lack of clearly defined MCCs for emerging mobility modes, i.e., when a payment transaction is associated with an existing, likely more generic, code. For bike shares, car shares, or e-scooter rentals, for example, there are no clearly defined MCCs currently to categorize these types of sales.

We envision how these two challenges might evolve for restricted prepaid cards and rewards cards. If MCCs are not assigned correctly for these use cases, this could pose a barrier to someone making a valid purchase, or else to receive the correct amount of rewards.

Over a series of interactive sessions in Spring 2023, our team presented these challenges, within the context of real-life use cases and analysis, to payment networks, including American Express, Discover, Mastercard, and Visa, to identify and examine the role of key stakeholders, the work currently undertaken by these payment networks, and existing gaps in this field.

In our conversations, all four payment networks strongly agreed with the challenges we identified and reflected that the MCC landscape will likely grow in complexity in the coming years. Across the four payments schemes there was agreement about the importance of data quality to the networks and the issuers, and how inaccurate or mismatched MCCs can impact data consistency and accuracy. There was a general sentiment that the transaction volume for these types of purchases, specifically for emerging modes of mobility, is still quite small relative to other sectors. They indicated that, while these are important markets, there is not likely to be significant momentum to address gaps until transaction volumes increase.