MCC 5993: Cigar Stores & Tobacco Shops (Description and Processing Impact)

The United States is the fifth-largest producer of tobacco in the world. In a typical year, the country produces around 359 million pounds of tobacco. While some of that tobacco is sold abroad, a great deal of it ends up being sold to American consumers. 

If you are considered a cigar store or tobacco shop, you likely fall under merchant category code (MCC) 5993. Because this code is considered higher risk, you may have a harder time getting your merchant account approved. To learn more about MCC 5993 (cigar stores, tobacco), read on.

TL;DR

• MCC 5993 is the merchant category code for cigar stores and tobacco shops.
• Due to the age restrictions, shipping limitations, and government regulations involved, this code is considered high risk.
• Once a merchant has this classification, it can affect their account approvals, provider options, reserve requirements, and processing fees. 
• While gas stations, grocery stores, and restaurants sell tobacco products, they don’t fall under MCC 5993 because it isn’t their primary focus.
• To avoid chargebacks and disputes, merchants should adopt clear refund policies, write accurate product descriptions, and record delivery confirmation.
• Providing the right documentation, such as customer support procedures and refund policies, can help tobacco merchants simplify the underwriting and approval process.

What Is an MCC? 

A merchant category code (MCC) is a four-digit number that is used to represent different industries for payment processing purposes. Card networks rely on this code to understand each company’s risk level and fraud control needs. With this information, payment processors and issuers can set the merchant’s processing fees and reserve requirements.

What Businesses Fall Under MCC 5993?

Currently, the U.S. market size for the tobacco industry is $75.9 billion. Many of the retailers in this high-value industry fall under merchant category code 5993. This code is specifically assigned to companies that derive their main revenue from tobacco products and tobacco-related accessories. The following are common examples.

• Cigar shops
• Tobacco stores
• Smoke shops
• Vape shops (sometimes)
• Online cigar retailers

Real-World Examples of MCC 5993 Companies

To get a better understanding of which companies are included in the MCC 5993 description, check out some real-world examples of this merchant category code.

• A cigar distributor that sells online and offline
• A local smoke shop
• An online storefront for cigars, cigarettes, humidors, and tobacco-related accessories

Which Businesses Aren’t Considered MCC 5993?

Whether a company is considered a part of the 5993 MCC code depends on its primary revenue source. To receive this classification, the company must primarily focus on tobacco and tobacco-related revenue.

Examples of Near-Miss Businesses

The following are a few of the most common businesses that seem like they could fall under MCC 5993 (cigar stores, tobacco), but don’t.

• A gas station might sell cigarettes, but it uses code MCC 5541.
• Grocery stores sell tobacco products. However, they are classified under MCC 5411.
• As hospitality venues, hookah bars and cigar bars typically fall under MCC 5813 or MCC 5812.
• A restaurant that sells cigars will still be classified under MCC 5812.
• Similarly, bars that have a cigarette kiosk will fall under MCC 5813.

This code gets tricky when vaping is involved. Many companies that sell vaping products also sell tobacco products, so they are often classified as MCC 5993. However, a company that operates purely as a vape shop is likely classified under MCC 5999. Some acquirers also have special codes for vape retailers because this type of business is considered high risk.

What To Do If Your Company Is Misclassified

If your business is misclassified, it can impact your interchange fees, account approval, and fraud prevention support. Misclassifications can occur if a merchant’s onboarding information is incomplete, misunderstood, or inaccurate. When this occurs, you should immediately use the following steps to fix your incorrect classification.

1. Reach out to your payment processor or acquirer about the error. They’ll tell you the best steps to proceed.
2. Gather the appropriate paperwork. Often, you will be asked to show your product catalog, business description, website, and recent transaction data.
3. If you successfully demonstrate that you have been misclassified, your acquirer can request an update for your MCC.

Is MCC 5993 Considered High Risk by Processors?

Typically, the MCC 5993 description is considered a high-risk code by acquirers and payment processors. While tobacco merchants aren’t prohibited by payment processors, they must undergo a more stringent underwriting review. 

The MCC 5993 description is viewed as high risk by payment processors because of the refund practices, product and shipping constraints, and age restrictions connected to it. Because tobacco can only be purchased by adults, merchants must incorporate strict age verification measures. This is especially true when merchants operate in a primarily online environment.

Many physical and online tobacco stores have policies against accepting any returns. However, this leads to issues when there is a legitimate problem with an order. In these instances, customers often file chargeback disputes, which can increase the merchant’s chargeback rate. 

Finally, this MCC code is considered high risk because of the product and shipping restrictions it has. Tobacco is rigorously regulated by the state and federal governments. To carry out any sale, the merchant must carefully navigate state-by-state regulations and shipping rules.

The Practical Impact of MCC 5993 for Merchants and Customers

Because this is considered a high-risk industry, the 5993 MCC code can affect merchants and customers in a few different ways. 

For Merchants

If merchants fall under this classification, they may have a harder time finding a payment provider and getting their account approved. Similarly, they will often have to meet higher reserve requirements.

• Provider Availability: Some payment processors will not work with tobacco merchants, especially mainstream providers. Because of this, tobacco shops may have fewer options to choose from.
• Approvals: This industry faces strict age requirements and is intensely regulated, so the underwriting process often takes much longer. Merchants will also generally need to provide more information.
• Reserve Requirements: To mitigate the higher risks associated with this industry, payment processors often require rolling reserves. This means that a percentage of each transaction is held for a set amount of time so that the processor can cover any chargebacks or disputes that may occur.

For Customers

Meanwhile, customers are also impacted by merchant category code 5993. However, customers may not notice the impact unless they request a refund or attempt to use their corporate card for the purchase.

• Reward Points: Credit card rewards are provided for specific shopping categories, and 5993 is treated like general retail purchases. If bonus rewards are provided for retail purchases, credit card issuers may exclude tobacco purchases from the extra rewards.
• Bank or Corporate Card Restrictions: Often, corporate expense cards will restrict tobacco purchases. Additionally, banks may restrict these purchases for youth and teen debit cards.
• Dispute and Refund Needs: Once a tobacco product is opened, it is generally restricted from returns. Because of this, customers may dispute the transaction once they discover a refund is not possible.

Common Processing Challenges Merchants Must Deal With in the Tobacco Industry

As a tobacco merchant, the following day-to-day challenges can play a role in your payment processing options, fees, and overall experience. From dealing with extra regulations to navigating refund difficulties, addressing these challenges can help you avoid unnecessary complications. 

• Policy Factors: The local, state, and federal governments have specific rules about excise taxes. Many payment processors have additional policies, such as restrictions on cross-border sales or documentation.
• Compliance Requirements: To sell products, merchants must implement age verification measures. Each area is different, but merchants are typically required to use age-verification technology, ID checks during delivery, or identity verification measures. If these requirements aren’t adhered to, it can lead to account termination and fines.
• Product and Shipping Constraints: Carriers often restrict or ban tobacco shipments. At the very least, they typically require extra labeling or signature requirements. Additionally, some areas completely ban direct sales to consumers.
• Refund Practices: Because of the product safety concerns involved and extensive regulations, merchants typically ban tobacco refunds. However, they still must have clear policies and procedures in place for when there are inaccurate or damaged orders.

Important Operational Controls You Can Use To Reduce Risk

To reduce your chargeback risks, simplify your approval process, and improve your overall payment processing experience, you should work on implementing the following operational changes.

Clear Refund and Cancellation Policies

A clear refund and cancellation policy can help you avoid chargebacks and improve customer satisfaction. Customers should be aware of when they can ask for refunds and how long they can request one. By pointing out these policies clearly, you can prevent chargebacks and win disputes when they do happen.

Implement Verification Requirements

Because there are stringent age restrictions involved, merchants need to implement automatic verification tools. For example, you can incorporate these tools into your checkout process. Depending on where you are selling products, you may also need to request age verification on delivery. To demonstrate your legal compliance, you should carefully record proof of these verification steps.

Create Clean Product Descriptions

One of the best things you can do to avoid customer complaints and prevent chargebacks is to write a clear product listing. For example, you should include the brand, flavor, quantity, and product type in the description so that customers know exactly what they are getting.

Require and Record Delivery Confirmation

By getting delivery confirmation, you can prove that the package was delivered to the correct, age-appropriate recipient. This confirmation can be used to win chargeback disputes and to prove that the package was received by someone who was legally old enough to order tobacco products.

What You Need To Prepare in Order To Get Approved

While each payment processor is different, they’ll typically expect a few common types of documentation before your account can be approved. Because tobacco is considered a high-risk industry, it is important to have all of your documentation in order before you begin the onboarding process.

• Create and clearly post your refund and return policies. 
• Build a professional website with accurate product descriptions.
• Provide clear information to customers about your delivery requirements and shipping partners.
• Show your dispute management process to the payment processor.

How To Negotiate Better Terms and Fees

If you fit the MCC 5993 description, there are a few steps you can take to negotiate better terms with your payment processor. With many processors, you can negotiate your rolling reserves, payout schedules, processing fees, transaction limits, and volume limits.

To negotiate better terms, you must be able to demonstrate: 

• A stable sales history
• Low chargeback rates
• Consistent regulatory compliance

How PayCompass Supports MCC 5993 Merchants

At PayCompass, tobacco merchants can get help determining the best payment processing setup for their needs. Our team can evaluate your existing setup and help you find a cost-effective alternative. From ensuring stable payouts to advising on advanced risk controls, we can help with every step in the process.

Final Thoughts

MCC 5993 (cigar stores, tobacco) is used for any company that primarily focuses on selling tobacco products. Because there are more regulations involved with tobacco sales, refund issues, age restrictions, and shipping constraints, these are considered high risk by payment processors. As a result, there are often more processing fees and underwriting requirements involved. 

By being proactive and preparing your documentation, you can speed up the approval process for your merchant account. By updating your descriptions, clarifying refund policies, and carefully recording your regulatory compliance, you can also gain a better negotiating position. 

To learn more about payment processing and MCC 5993, reach out to the payment processing experts at PayCompass today.