Basis Points Credit Card Processing

A person holding a cell phone and a credit card.
Josh Phelps
September 13, 2023

Basis points in credit card processing are the percentage points that are charged to accept a credit card transaction. As a simple rule, one basis point is equal to one one-hundredth of a percentage point or 0.01%. In payment processing, this small difference can go a long way toward gaining margins.

Basis points are abbreviated BPS or sometimes called “bips” for short. These colloquial terms are often heard in negotiations about fees. If you want to save money on your merchant account, you’ll want to be paying as few basis points as possible.

Why Basis Points Matter

Basis points are the foundation of the fees you’ll pay as an ongoing charge associated with your account. A fee breakdown on your merchant account will show all the relevant ways where basis points become critical. For example, you may pay points to Visa for people who use that credit card, or you may have to pay 2.9% per transaction for every purchase made. Before applying for a merchant account, you’ll want to look at your fee statement in order to understand the places where you can reduce costs and take advantage of lowering basis points. Some fees aren’t negotiable, while others can vary based on the risk of your account.

High Risk Merchant Accounts

Much like a bank reviews a potential loan, when you open a merchant account, your payment processor will gather information to understand your level of risk. Standard merchant accounts have more consistent fees whereas high risk merchant accounts have premiums and additional costs associated with them.

The items that can cause risk are how long you’ve been in business, your industry, or your business model. Let’s elaborate on some of these items:

1. Startup Merchant Accounts - If your business is just starting up then you’ll have no payment history as proof of your success. Ultimately, to open an account the banks want to see three months of transactions and a steady increase in revenue. To hedge this risk, you may want to accept different forms of payment initially so you can build your business model.

2. Industries - There are a number of industries listed as high risk, and each of them has their own MCC code respective of the business they’re in. Some of these industries include Adult, CBD, Firearms, Subscription Billing, Online Gambling, and even Match Listed merchants.

3. Chargebacks and Refunds - These are some of the most important factors to look at when it comes to getting fewer basis points and lower fees on your merchant account. If you have high chargeback rates you’ll have to work with a mitigation company in order to prove your account is in good standing before getting approved.

A person holding a credit card and a tablet.

No Fee Merchant Account

A no fee merchant account is hard to come by, and realistically the closest you can come to it is something called pass-through payment processing. This is when you only pay necessary fees such as interchange rates. Other fees can be reduced drastically, and some down to zero if you process huge safe volumes and have low risk.

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Josh Phelps is an experienced sales professional with eight years of expertise, including four years in payment processing. Throughout his career, Josh has successfully secured approvals for thousands of businesses, demonstrating his skill in navigating and optimizing the payment processing landscape.

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