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Credit Card Basis Points Explained
For every business, there are costs associated with accepting credit cards. The bulk of these costs come from interchange fees, going directly to the banks that provide the consumer their credit card. Understanding how these charges are calculated using basis points will help you better understand and control your expenses for one of the most important activities in your organization—credit card processing.
What are credit card basis points?
Basis points, often referred to as BPs, are a unit of measurement that denotes a fraction of a percent. Basis points are used in financial industries where charges and fees are derived from those small percentage fractions. BPs are used in credit card payment processing, interest rates, and other financial percentages.
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 for your credit card processing activities, start by converting the BPs to a decimal.
1 basis point = 1/100th of a percentage point. That’s 0.01% or 0.0001 as a decimal.
You can do the above conversion by dividing the BPs number by 10,000. Therefore, 50 BPs would be 0.0050 calculated by 50/10000 = 0.0050.
Multiply the decimal by the sales volume to determine your interchange charge. Let’s say the processor offers you 50 BPS for $15,000 in credit card payments. The formula for determining your charge is:
$15,000 / 0.0050 BPS (in decimal as determined by 50/10000) = $75.00
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.
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 Gotten 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
- More Integrations
- A more extensive network
- A reputation you can trust
There’s no call center or automated system in these halls. We answer the phone and emails during business hours and return messages promptly when we miss them. That’s how we’ve survived in such a competitive and volatile industry for over two decades.
Get Answers From The Experts
- Am I paying too much for credit card processing?
- Am I being taken advantage of by the credit card processor?
- What’s with all the chargebacks?
- My bank has labeled me “high-risk”; can I still get a low processing rate?
- What do I need to do if I want to process checks?
Don’t let these questions fester into uncertainty. We can help. Call 1-866-4152636 to get in touch with one of our team members today.
