Understanding The Concept Of Basis points
Every industry has some internal terminologies. These terminologies can be a little bit hard to understand for people who are not familiar with the industry basics.
Let’s understand what a Basis Point (BP) in Credit card processing industry is.
A basis point is a fractional value that is charged to the merchant over any interchange rates. This can also be referred to as a markup. The Basis point can be referred in Numeral, Percentage or decimal Values
1 Basis Point is equal to 0.01% or 0.0001.
From a merchants point of view it a bit easy to understand. A merchant pays a transaction % on each transaction. This transaction charge includes multiple fees
Interchange Fee – This is paid by the Merchant Account Acquirer bank to the credit card issuer bank. This is defined by the credit card brand. The Merchant account acquirer also needs to make money to cover the cost of operations and generate profit. For this, they charge a Markup and this is referred to in the terms of Basis Points.
The industry uses the Basis Points to calculate the value of profit generated by the processor. It is easy to calculate the returns. All you have to do is to convert Basis Points in decimal by dividing it with 10,000. The result can be multiplied by the monthly sales volume to calculate the profit of the processor.
|Basis Point Value||In Decimal Value||In Percentage (%)|
Why we wrote this article on basis points in the credit card processing indiustry?
We are a well known provider of high risk payment gateway for Indian merchants. Many merchants ask us about how the pricing model works. We get tons of phone calls for regarding this query. One day we though of creating an Know How article on the same. Hope you like it. Feel free to drop in your comments. We answer all the comments within 24 hours.