SAN FRANCISCO—Digital wallets may be costing consumers rewards points.
A report by NerdWallet reminds that that credit card companies rely on merchant category codes (MCC) to determine whether a purchase qualifies for bonus rewards that cards offer. MCCs are assigned by the four major payment networks depending on the nature of the merchant.
“For example, a grocery store purchase will likely be coded as 5411, according to the MCC list provided by the IRS. However, if you purchase groceries from an online retailer such as Amazon, your purchase will likely generate a different MCC because Amazon’s primary business isn’t selling groceries,” NerdWallet explained.
Digital wallets’ encryption technology adds additional security to transactions, but that is what is preventing some rewards points from being credited on purchases, the website said.
“Many digital wallet services function by charging the transaction to their own payment account and then charging you separately. For example, when you use the PayPal app or Google Wallet to buy groceries at a grocery store, it will be listed as the merchant on your credit card statement instead of the grocery store,” NerdWallet said.
The consumer then loses because cash back points are not credited because the credit card issuer sees an MCC based on PayPal or Google as the merchant and not the grocery store.
NerdWallet added that the situation is different with Apple Pay and its use of tokenization. Because Apple Pay uses tokenization to secure the transaction instead of using its own payment account, a grocery store purchase made with Apple Pay reflects the grocery store’s MCC instead of Apple’s, ensuring that rewards are credited. But NerdWallet noted that how Apple Pay uses tokenization allows rewards to be credited, and that another digital wallet that uses tokenization may not.