Let’s try to visually grasp the concept of a basis point.
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I’ll explain it several ways.
Imagine 1 penny is 1 basis point.
100 pennies = 100 basis points.
100 pennies = 1 full point, or 1%.
1% = 100 basis points.
So a basis point is 1/100th of 1%.
A basis point is 1 penny in a $1 roll of pennies.
Let’s process a $100 debit sale at 40 basis points over Interchange.
[This calculation does not consider the item fee, which is separate.]
Here is how the stack of pennies [basis points] are divided:
Interchange:
• The Visa MasterCard Association share 5 basis points (bips) with their
Member Banks.
• 11 bips (pennies) for V MC Assessments.
Then the Processor gets 40¢, of which 16¢ goes to the Agent (40% split).
The Merchant pays 56 basis points (so far) to process $100.
Team Leader
Justin Holm
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