In credit card processing, a basis point is one one-hundredth of one percent (0.01%), and it’s the standard unit processors use to quote their markup on your transactions. When a sales rep offers you “interchange plus 30 basis points,” the processor’s cut is 0.30% of each sale on top of the interchange fee your customer’s bank charges. The number looks small on paper. It isn’t: a 10-basis-point difference between two contracts can mean thousands of dollars a year for a business with real volume.
The Math: Basis Points, Percentages, and Dollars
One basis point equals 0.01%, or 0.0001 as a decimal. Ten basis points is 0.10%. Fifty is half a percent. One hundred basis points equals a full 1.0%. To convert, divide the basis points by 100 for a percentage, or by 10,000 for the decimal you multiply against a dollar amount.
Say your processor charges a 25-basis-point markup. Divide 25 by 10,000 and you get 0.0025. On $10,000 in monthly sales, that’s $25 in processor markup. Bump the markup to 40 basis points and the same volume costs you $40. That $15 spread doesn’t sound dramatic on one month. Over a year of $10,000 months, it’s $180. Scale to a business processing $100,000 a month, and a 15-basis-point difference is $1,800 annually.
The payments industry uses basis points instead of percentages for precision. Saying a rate went up 15 basis points is cleaner than saying it went up 0.15 percentage points, and it removes the confusion between percent and percentage points that trips up rate comparisons.
Where Basis Points Show Up in Your Fees
Every credit card transaction stacks three costs, and basis points appear in all three. Only one of them is negotiable.
Interchange
Interchange is the largest slice of every transaction. Card networks like Visa and Mastercard set these rates, which are paid to the bank that issued your customer’s card. You don’t negotiate interchange with anyone. Rates vary by card type, transaction method, and merchant category, and the network schedules run dozens of pages. A standard consumer credit card swiped in person might carry an interchange rate around 150 to 200 basis points, while a rewards card used online can run significantly higher.
Network Assessments
The card networks also charge their own smaller fees on every transaction, separate from interchange. Assessment fees are non-negotiable. They’re small but measured in basis points and add up across thousands of transactions. American Express charges an assessment of about 15 basis points. Visa charges a separate 5-basis-point assessment on certain commercial data transactions. Easy to overlook if you’re focused only on the processor’s cut.
Processor Markup
The processor markup is the piece you can actually negotiate, and it’s almost always quoted in basis points. Under interchange-plus pricing, the processor passes interchange and assessments through at cost and adds a fixed markup on top. Competitive markups for standard-risk businesses fall in the range of 10 to 40 basis points plus a small per-transaction fee, depending on your volume, industry, and whether transactions happen in person or online. High-risk industries pay more.
Pricing Models That Show (or Hide) the Basis Points
Whether you can even see the basis-point breakdown depends on how your processor prices you.
Interchange Plus
Interchange-plus pricing, sometimes called cost-plus, is the most transparent model. You see the actual interchange rate for each card type and the processor’s fixed markup expressed in basis points. If a transaction carries an interchange rate of 185 basis points and your processor charges a 25-basis-point markup, you pay a total of 210 basis points (2.10%) on that transaction. The markup stays constant even as interchange varies by card type. Comparing processors becomes straightforward because you’re comparing only the markup portion.
Flat Rate
Flat-rate processors like Square, Stripe, and PayPal bundle interchange, assessments, and markup into a single rate. Square charges 260 basis points plus 15 cents per in-person swipe. Stripe charges 290 basis points plus 30 cents for online transactions. The simplicity is appealing for small businesses, but you can’t see how many of those basis points are interchange versus profit margin. On a low-interchange debit transaction, you may be overpaying compared to interchange-plus. On a high-interchange rewards card, the flat rate might work in your favor.
Subscription or Membership
Subscription processors charge a flat monthly fee and pass interchange and assessments through with zero additional basis points of markup. You still pay a small per-transaction fee, often around 5 to 15 cents, but the processor’s revenue doesn’t scale with your sales volume. For businesses processing more than roughly $20,000 per month, the math on subscription pricing often beats interchange-plus.
Negotiating a Lower Markup
Interchange and assessments are locked in by the networks. The basis points your processor charges on top of those are a business decision, and that number moves with leverage.
Processing volume is the biggest lever. Flat-rate processors generally won’t negotiate unless you’re processing over $250,000 annually. With interchange-plus processors, markups drop at natural volume tiers. One major processor’s published rates show markups declining from 40 basis points for smaller merchants down to 15 basis points for businesses processing over $1 million per month. That 25-basis-point spread is $2,500 per month in savings at the million-dollar level.
A few other factors move the number. In-person transactions carry less fraud risk than online sales, so processors charge fewer basis points on them. Businesses in low-chargeback industries get better rates than those in travel or subscriptions. Processors competing for your account will sometimes match a rival’s basis-point markup if you bring a written offer to the table.
Watch for the trick where a processor quotes an attractive basis-point markup and then pads revenue with ancillary charges: PCI compliance fees, batch settlement fees, monthly minimums. Always calculate the total effective cost as a percentage of your processing volume, not just the headline markup.
Finding Basis Points on Your Statement
On an interchange-plus statement, the processor markup typically appears as a separate line item from the base interchange costs. Look for a column or section labeled “Processor Markup,” “Margin,” or simply “Plus.” The basis points may show as a percentage (0.25%) or as a whole number (25 bps), depending on the format.
Verify that the markup matches your contract. Multiply the stated basis-point markup by your total volume for the statement period and confirm the dollar amount lines up. If it doesn’t, the processor may have raised the rate mid-contract. Interchange-plus agreements often allow processors to adjust the markup with written notice, and those notices are easy to miss in a stack of mail or a cluttered inbox.
Flat-rate statements won’t show basis points at all, since everything is bundled. If you want to reverse-engineer the effective markup on a flat-rate plan, subtract an estimated average interchange cost (roughly 170 to 200 basis points for a typical card mix) from the flat rate. The remainder is approximately what you’re paying in combined assessments and processor profit.
What Federal Law Caps and What It Doesn’t
One boundary worth knowing before you compare rates: federal law caps some interchange, but not the processor markup you’re negotiating and not credit card interchange at all.
The Durbin Amendment, codified at 15 U.S.C. ยง 1693o-2, directed the Federal Reserve to cap debit card interchange fees charged by large financial institutions (those with $10 billion or more in assets). The statute doesn’t set specific dollar amounts. It requires that interchange fees be “reasonable and proportional” to the issuer’s cost and delegates the cap-setting to the Fed.1Office of the Law Revision Counsel. 15 USC 1693o-2 – Reasonable Fees and Rules for Payment Card Transactions
The Fed implemented the mandate through Regulation II (12 CFR Part 235), which caps the interchange fee a covered issuer can receive at 21 cents plus 5 basis points of the transaction value per debit card transaction.2eCFR. 12 CFR Part 235 – Debit Card Interchange Fees and Routing Issuers meeting certain fraud-prevention standards can receive an additional adjustment of up to 1 cent per transaction. In late 2023, the Fed proposed lowering these caps based on updated cost data.
Small banks and credit unions with under $10 billion in assets are exempt from these caps, which is why you’ll sometimes see higher debit interchange on cards issued by smaller institutions.1Office of the Law Revision Counsel. 15 USC 1693o-2 – Reasonable Fees and Rules for Payment Card Transactions Credit card interchange is not capped by the Durbin Amendment. A major class-action settlement between Visa, Mastercard, and U.S. merchants would reduce and cap credit interchange rates for several years if the court grants final approval.