What Is Basis Points?

The conversion is straightforward once it clicks: 25 basis points equals 0.25%, 100 basis points equals 1%. The unit shows up almost exclusively in interchange-plus pricing, where a merchant's real cost per transaction is interchange, the rate set by the card networks and largely driven by MCC, plus an agreed basis-point markup, plus a small per-transaction fee.

Basis points matter because they let an agent or a merchant compare markups apples to apples across competing offers regardless of the underlying interchange rate, which neither the agent nor the processor actually controls. Two quotes that both sound "cheap" in casual conversation can carry very different real markups once converted to the same basis-point number, and that number is exactly what a real statement analysis is built to extract from a prospect's current bill.

It is worth being precise about what a basis-point markup does and doesn't describe: it is the processor's or ISO's disclosed markup, not the merchant's overall effective rate. The effective rate folds in the basis-point markup plus interchange itself, plus every flat fee, a monthly minimum, a PCI fee, a gateway fee, that shows up separately on the statement, which is why the two numbers should never be quoted interchangeably in a pitch.