Home » How to Calculate Basis Points in Credit Card Processing

A basis point (bps) is a financial term used to describe a small unit of measurement for interest rates and other percentages. In credit card processing, basis points help determine the fees merchants pay for each transaction.

Knowing how to calculate basis points and how they work can help businesses identify cost-saving opportunities, compare processing quotes, and negotiate better rates.

In this article, you’ll learn everything you need to know about basis points, including how to calculate them, why processors use them, how they scale with percentages, and how they influence credit card processing fees. 

Let’s get right to it!

What are basis points in credit card processing?

In credit card processing, basis points represent a way to express fees as a fraction of a percentage. One basis point equals 0.01%, making it a precise way for processors to communicate pricing structures. For example, if your processor charges 50 basis points, that translates to 0.50% of the transaction amount.

This is just a quick snapshot — we will have more detailed, practical examples later in the article.

Understanding how basis points work can help merchants manage their processing costs more effectively. Here’s how:

• Identifying BPS on your statement: Look for terms like “markup,” “interchange,” or “processor fee,” often expressed in basis points.
• Evaluating processor quotes: Comparing processors by their basis point rates ensures you can make apples-to-apples comparisons.
• Negotiating lower fees: Once you understand how basis points translate to costs, you’ll be better equipped to negotiate with processors.
• Tracking fees over time: Monitoring basis points in your processing statements can help identify trends and opportunities to save on fees.

Basis points vs percentage

Processors use basis points instead of standard percentages to provide more granularity and clarity in pricing. While percentages are straightforward, basis points allow processors to convey even the smallest differences in rates, which can be significant when applied to high transaction volumes.

To better understand the relationship between basis points, percentages, and decimals, here’s a quick basis points conversion chart:

Typical structure for credit card processing fees

Credit card processing fees are typically broken into three main components:

• Interchange fees: These are fees set by the card networks and paid to the card-issuing banks. They are typically a combination of a fixed fee plus a percentage of the transaction amount and are often expressed in basis points. For instance, 150 bps means 1.50%.
• Assessment fees: These are fixed fees set by the card networks to cover their operating costs. They are usually expressed as a percentage of the transaction amount. For example, Visa might charge an assessment fee of 0.13% (or 13 bps).
• Processor markup: This is the fee charged by your payment processor for facilitating transactions. It can be a flat monthly fee, a per-transaction fee, or a percentage of the transaction amount.

Let’s imagine you are using an interchange-plus pricing model where all of your fees are expressed in basis points. Here is what your total costs would be:

• Interchange fees (150 bps)
• Assessment fees (13 bps)
• Processor markup (20 bps)

For a $1,000 transaction, the total bps would be 150 + 13 + 20 = 183 bps.

The fee calculation would go like this:

Fee = 1000 x (183 / 10 000)

Fee = 1000 x 0.0183

Fee = 18.30

In other words, under these conditions, you’d pay $18.30 in processing fees for this transaction.

Basis points formula and calculations

The formula to calculate basis points is:

Or, to convert basis points back to a percentage:

If you don’t like doing math, you can:

• Use online calculators: There are many free BPS calculators available to make quick conversions between basis points and percentages.
• Set up a spreadsheet: You can set up a simple Excel or Google Sheets formula to automate calculations for larger data sets.
• Speak with a payment processor: If you are confused about any of this, reach out to the SecureGlobalPay team for a free consultation.

An example of calculating processing fees for a single transaction

Let’s say you’re charged 25 basis points (0.25%) on a $200 transaction.

Fee = 200 x (25 / 10 000)

Fee = 200 x 0.0025

Fee = 0.5

So, the processing fee for this transaction is $0.50. 

Usually, on top of this, you would have to pay a fixed flat fee, depending on your processing agreement.

An example of calculating processing fees on a monthly volume basis

Suppose your business processes $50,000 in monthly transactions, and your processor charges 30 basis points (0.30%).

Monthly fee = 50 000 x (30 / 10 000)

Monthly fee = 50 000 x 0.003

Monthly fee = 150

You would pay $150 in processing fees for the month to your processor for their services.

How to calculate basis points in a real-life payment processing context

Let’s break down how changes in interchange rates and processor fees can impact your total credit card processing costs.

Let’s imagine you have the following costs:

• Interchange rate = 1.80% + $0.10 per transaction
• Processor fees = 0.25% (25 basis points) + $0.20 per transaction

When you sum up those percentages and flat fees, you get a total cost of 2.05% + $0.30 per transaction.

If your average transaction size is $12, the cost looks like this:

12 × 0.0205 = 0.246 (or roughly 0.25)

Add the per-transaction flat fee of $0.30, and the total processing fee for a $12 transaction is: 

$0.25 + $0.30 = $0.55

This means you’re left with $11.45 from a $12 sale after processing fees.

What happens if the processor lowers the markup but increases the flat fee?

Suppose your processor reduces their markup to 0.15% (15 basis points) but increases the per-transaction flat fee from $0.20 to $0.30.

Your new processing cost is:

• Interchange: 1.80% + 0.15% = 1.95%
• Flat fee: $0.10 + $0.30 = $0.40 per transaction

For the same $12 transaction:

12 × 0.0195 = 0.234 (or roughly 0.23)

Add the new per-transaction flat fee of $0.40, and the total processing fee is:

$0.23 + $0.40 = $0.63

Now, instead of paying $0.55, you’re paying $0.63, leaving you with $11.37 from a $12 sale — despite a lower percentage markup.

Even though the processor reduced their percentage markup, the higher per-transaction flat fee increased your overall cost. This demonstrates why it’s essential to understand and calculate not just basis points — but all components of your pricing model. 

Why merchants should stick with interchange-plus pricing

There are three common pricing models merchants can choose from: 

• Interchange-plus pricing: This model separates the interchange fees (set by card networks) from the processor’s markup (expressed in basis points). Merchants see exactly what they’re paying to the networks and how much the processor is adding on top.
• Tiered pricing: Transactions are grouped into categories like “qualified,” “mid-qualified,” and “non-qualified,” each with its own rate.
• Flat-rate pricing: A single rate applies to all transactions, regardless of card type or transaction method. A predictable and easy-to-understand model, but often more expensive because it doesn’t reflect actual interchange rates.

While each has its place, interchange-plus pricing is usually the most transparent and cost-effective for businesses.

Key takeaways

Understanding basis points and how they influence credit card processing fees is crucial for businesses aiming to minimize costs and maximize profits. Here’s what you should remember:

• Basis points are key to transparent pricing: Basis points provide a granular way to measure processing fees, helping merchants understand exactly how much they’re paying and why.
• Small changes have big impacts: Even minor adjustments in basis points or flat fees can significantly affect your processing costs. Always analyze any proposed changes to ensure they work in your favor.
• Interchange-plus pricing is the smart choice: This pricing model offers transparency, flexibility, and better control over costs compared to tiered or flat-rate pricing.
• Review your processing statements regularly: Check your monthly statements to ensure your processor’s fees align with your agreement. Look for hidden charges or unexpected rate increases.

Want to take control of your processing fees? 

If you’re unsure about the fees you’re currently paying or want help analyzing your credit card processing statement, reach out to SecureGlobalPay. We’ll help you understand your costs and find ways to save.