How Much is 40 Basis Points | Calculating Bps
Accepting credit card payments for your business comes as a cost. How much is 40 basis points? Read below and we’ll help you understand what you are paying in Bps processing fees when being charged interchange plus pricing for your merchant services.
Pricing for merchant services can seem confusing. Merchants need to realize that getting the best merchant account rates improves their profit margins and allows them to stay in business for the long haul.
A merchant gets the best rates for processing card payments by understanding what basis points are and more importantly how to calculate Bps processing fees. How much is 40 basis points? Read below and find out.
When it comes to card transactions, there are different costs involved. While some costs are fixed, some costs are flexible and can be negotiated.
These Bps processing fees are hard costs set by card processing companies like Mastercard, Visa, American Express and Discover.
Interchange fees are non-negotiable costs and these costs, also known as buyrates, are the same for all merchants.
Interchange consists of a percentage rate & per transaction fee when discussing pricing for merchant services.
After that is the mark-up of Bps processing fees a merchant service provider charges for allowing you to process transactions with your merchant account.
The total charges are expressed as basis points and transaction fees.
Knowing how much your credit card processor is charging you to process those transactions is crucial to your bottom line. And to know this, you have to look at your statement and understand how to calculate them.
Understanding Basis Points
When a payment processing company gives you a quote for interchange plus pricing, it is always done in basis points or percentage points.
If your payment processor is charging you 40 basis points, how much is 40 basis points?
How do you convert a quote of 40 basis points from your current charges into percentages?
40 basis points is the same as 0.4% or in decimal points form—0.004. This is because 1 basis point equals 0.01% or 1 basis point is equal to 1/100th of 1 percent.
Defining Basis Points
Basis points are common units of measures used in calculating credit card processing fees as well as interest rates.
A basis point is equal to 1/100th of 1%. And is expressed in decimal form as 0.001 or 0.01% in percentage form.
100 bps, 100 bips or 100 basis points equal 1%. How much is 40 basis points? 40 basis points is the same as 0.4% or in decimal points form—0.004.
Knowing this will help figure out what you are forking out in card processing fees and discussing pricing for merchant services in general.
Basis points are commonly used in financial circles to calculate rate spreads and interest rate changes. The industry also refers to basis points as “bps” (pronounced bips).
The Advantage of Using Bips
Basis points are convenient and stable. They are less confusing than percentages and represent absolute figures rather than ratios.
Calculating Your Basis Points
To figure out an exact amount, convert the basis points that you have been given to a percentage or decimal.
Then multiply it by the dollar volume of your transactions.
For example, if you processed $50,000 and a payment processor charged you 40 basis points, you need to know how much is 40 basis points in percentage. How much is 40 basis points? 40 basis points is the same as 0.4% or in decimal points form—0.004.
First, convert the basic points to a decimal or percentage which is 40 (bps) x 0.0001 (0.01%) which is equal to 0.0040 or rather the percentage value of 0.40%.
Now you are ready for a calculation which is your percentage multiplied by your dollar volume.
By calculating 0.0040 (0.40%) x $50,000 the fee is $200.
A reverse calculation is also possible to find out how many bps you have been charged.
This is important because some statements show only a mark-up rate in a percentage.
To find out how many basis points you have been charged, if given only a percentage, multiply the percentage by 100.
Let’s work it out, if the percentage rate on your statement is 0.40%, multiply it by 100.
The calculation is 0.40% x 100= 40.
The answer is 40 basis points. How much is 40 basis points? 40 basis points is the same as 0.4% or in decimal points form—0.004.
Tiered Pricing: Getting the Effective Rate
Getting your rates using basis points only works with an Interchange plus model.
This will not work with Tiered Pricing as the model does not differentiate markups from interchange fees.
In other words, it is impossible for a merchant to know the base cost or how much percentage goes to the processor.
A merchant has no control over Tiered Pricing. Instead, how much a merchant pays depends on the card being used and the rate a processor chooses to apply.
If you are using this pricing model, the best way to figure out your numbers is to calculate your effective rate.
You will never know the exact mark-up the processor is charging you, however by taking the total cost that you pay for accepting credit cards; you can calculate your percentage as an effective rate.
Merchant Account Rates & Interchange Plus Pricing
If you are looking for fairness and transparency, demand Interchange-Plus Pricing from your payment processor.
This model offers you the best way to calculate and pay for credit card processing. How much is 40 basis points? 40 basis points is the same as 0.4% or in decimal points form—0.004.
This pricing model passes the base interchange fees to the merchant alongside the processor’s exact mark-up fee.
This is a convenient model for merchants because you know exactly what you are being charged per transaction.
And because of the transparency that comes with using this pricing model, you do not have to worry about unexpected or hidden fees.
Best Credit Card Processing Model
The Interchange Plus Pricing model is the least expensive of all payment card processing models available.
But for some businesses that have specific integration needs when processing payments, this model might not be the best option.
When looking for a credit card processing platform, do not be only convinced by the low rates that processors offer.
Ensure the rate structure fits your needs now and will allow you to seamlessly scale up your business in the future.
Basis Points Vs Interchange Plus Pricing
The interchange Plus Pricing model comes in 2 components: basis points and authorization fees charged by card companies.
As pointed out earlier, the interchange rate is fixed and cannot be negotiated. The rates are the same for all merchants.
In essence, basis points are what payment processing companies charge merchants for services rendered. You can save yourself a substantial amount of money if you understand pricing in general and know how to calculate your basis points.
By passing interchange fees directly to merchants with a permanent mark-up, the stress of hidden costs and surcharges are removed.
