Basis Points
A unit of measurement equal to one-hundredth of one percentage point (0.01%), commonly used in payment processing to express processor markups, rate differences, and fee adjustments.
Basis points (abbreviated as "bps" or "bp") provide a precise way to discuss small percentage differences without decimal confusion. The conversion is straightforward: 1 basis point equals 0.01%, 10 basis points equals 0.10%, 25 basis points equals 0.25%, 100 basis points equals 1.00%, and 50 basis points equals 0.50%. This terminology is borrowed from financial markets where basis points are standard for discussing interest rates, yields, and investment returns.
In payment processing, basis points are most commonly used to describe processor markups in interchange-plus pricing models. A processor quoting "interchange plus 20 basis points" means they add 0.20% to the card network's interchange rate. For a transaction with 1.80% interchange, the total percentage fee would be 2.00%. This markup structure allows merchants to see the processor's margin separately from the non-negotiable interchange and assessment fees set by card networks.
The financial impact of basis point differences scales with transaction volume. A 25-basis-point (0.25%) difference on $100,000 in monthly volume equals $250 per month or $3,000 annually. On $1 million in monthly volume, that same 25-basis-point difference costs $2,500 per month or $30,000 annually. This scaling effect makes basis point pricing particularly important for high-volume merchants, where seemingly small percentage differences translate into substantial absolute cost differences.
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