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What are credit card basis points?
Credit card basis points are a unit of measurement used to express fees or interest rates in credit card processing. One basis point equals one-hundredth of a percent (0.01%), so 100 basis points equal 1%. In the context of merchant services, basis points are typically used to describe the markup a processor adds to the interchange rate—the base cost set by the card networks like Visa or Mastercard. For example, if a payment processor charges a merchant 150 basis points, that means the merchant pays an additional 1.5% on top of the interchange rate for each transaction. Using basis points helps standardize pricing and makes it easier to compare processing offers across providers.
How To Calculate Basis Points For Credit Card Processing?
The primary question business owners want to know when determining which credit card processing vendor to use is, what fees will a specific number of basis points incur for a given number of sales?
Calculating your basis points will show you if the rate you’re being offered is a good one. Be wary of any vendor offering “zero BPs” or no basis points. Interchange fees are non-negotiable, so those charges will likely come from hidden, small-print contractual items.
To calculate basis points in credit card processing fees, you need to understand what a basis point (bp) is:
1 basis point = 0.01%
So, 100 basis points = 1%
Step-by-Step: How to Calculate Credit Card Processing Fees Using Basis Points
Let’s say a processor charges 200 basis points (bps) as part of their markup, and you want to know what that means in real money on a transaction.
Step 1: Convert basis points to a percentage
200 basis points = 200 × 0.01% = 2.00%
Step 2: Apply the percentage to the transaction amount
If a customer purchases $100, the fee is:
$100 × 2.00% = $2.00
So, 200 basis points = $2.00 on a $100 transaction.
Quick Reference for Basis Points to Percentage Conversions
| Basis Points | Percentage |
|---|---|
| 25 bps | 0.25% |
| 50 bps | 0.5% |
| 100 bps | 1.0% |
| 150 bps | 1.5% |
| 200 bps | 2.0% |
What Is Interchange Plus Pricing?
As a pricing structure, interchange plus pricing separates the different processing costs, keeping up with the demand for transparent reporting, no hidden fees, and lower processing costs. Further, using basis points for this pricing method allows for more optimized expenses and helps businesses better control these costs.
Here's An example of Interchange Plus Pricing
Let’s say your processing pricing structure includes:
Interchange + 200 basis points (2.00%)
$0.10 per-transaction fee
If the interchange rate on a $100 Visa transaction is 1.80% + $0.10:
Interchange cost = $1.80 + $0.10 = $1.90
Processor markup (200 bps) = $100 × 2.00% = $2.00
Total processing cost = $1.90 + $2.00 = $3.90
All processors must pay the same interchange fees which are fixed across the industry. These fixed rates are paid to the card issuing bank. Processors then take this fixed rate and add their own pricing on top. For example, the Mastercard credit card processing interchange fee for a swiped consumer card is 1.58% + $0.10 and comes with an authorization fee. The $0.10 is a transaction fee from the bank or credit card provider. Measured in basis points, this would be 158 BPS. If you expect to take $5,000 by swiped Mastercard consumer cards, this will yield a charge of $79 (.0158 * $5,000).
To learn more about interchange plus pricing, check out our blog.
How To Determine If You've Received A Good Credit Card Rate?
A key indicator of working with a trusted credit card processor is their transparency in policies and interchange fees. Processors who provide fair interchange fees using basis points and thorough education about how these fees and charges are determined—without using impossibly small print and dry jargon—would make a solid and reliable partner for your payment processing needs.
We can navigate the financial payment industry while studying trends and consumer demand; that comes from our time in the market serving various types of businesses.
Durango Merchant Services was founded in 1997. We’re the oldest, longest-lasting, best-reviewed, small-town credit card processor who understands the need for superior customer service and unbeatable prices. Building out-of-the-box creative money-savings strategies are how we became the leader in hard-to-acquire and high-risk credit card processing. With our deep knowledge and expertise, you get:
- More Payment Solutions
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Get Answers From The Experts
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- What’s with all the chargebacks?
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Don’t let these questions fester into uncertainty. We can help. Call 1-866-415-2636 to get in touch with one of our team members today.
