When it comes to credit card processing, the fees can be confusing, and so can the way those numbers are determined and the phrasing merchant service sales agents use to describe the pricing their selling you. It can be dizzying!
Several factors affect your credit-card processing fees, and the one that may leave merchants scratching their heads most is the basis point.
So, what is a basis point?
A basis point, also referred to as bp, is a financial term that credit card processors typically use to describe fractions of a percentage.
This is an important unit of measurement to understand so you'll know what your processor means when you're told that your credit card processing rates are increasing by 50 basis points.
Comparing Basis Points with Percentage Points
One basis point equals 0.01%, or 0.0001.
To put this in perspective, let’s say that your credit card processor offers you Interchange plus 75 basis points or bps, he or she means that you would be paying all pass-through Visa, MasterCard, Discover and American Express fees, or interchange, plus 0.75% of all credit card volume processed. The 0.75% would be the processor’s profit. So if you processed $10,000 in a month, your processor would earn $75 ($10,000 x 0.0075).
Other Quick Examples
Here are a few other examples that show the relationship between percentage points and basis points:
- 0.50% = 0.0050 = 50 bps
- 0.75% = 0.0075 = 75 bps
1.00% = 0.01 = 100 bps
1.25% = 0.0125 = 125 bps
1.50% = 0.015= 150 bps
1.75% = 0.0175 = 175 bps
2.00% = 0.02 = 200 bps
If you’re looking to learn more about your credit-card processing fees and how you can lower them, find out what MPX can do for you!