Basis Point (bps)
A basis point is one hundredth of one percentage point — 0.01%. FX and payments pricing is quoted in basis points because small percentages are easy to misread: 25 basis points is 0.25%, and 100 basis points is 1.00%.
Also called: basis points · BPS · bp
A basis point — bps, said “bips” — is one hundredth of one percentage point. Divide by 100 to get a percentage, or by 10,000 to get a decimal: 25 bps is 0.25%, or 0.0025.
The unit exists to remove an ambiguity that costs money. “Cut the margin by 10 percent” can mean ten percentage points, or a tenth of whatever the margin already is. “Cut it by 10 basis points” can only mean one thing. That precision matters most where the numbers are small and the volumes are large, which describes FX and payments pricing exactly.
In cross-border pricing, a figure in basis points usually describes the FX markup — the distance between the mid-market rate and the rate quoted to the customer — rather than the bid/ask FX spread, which is a much narrower number in most pairs. Card and acquiring schedules use the same unit for interchange and processing. Whichever it is, basis points measure one line of the price; the all-in cost adds the fixed fees on top.
In practice
25 basis points is 0.25% and 100 basis points is 1.00%. The unit removes the ambiguity that surrounds small percentages, but only if both sides state what the basis points are charged on — basis points of the amount sent, of the amount converted, or of an existing margin are three different numbers.
Example
A provider quotes 25 basis points on converted volume. On a 50,000-dollar payment that is 125 dollars. At 5 million dollars a month it is 12,500 dollars a month. Described the other way round — “a quarter of a percent” — the same charge sounds smaller, which is part of why the unit is used in negotiation.
Commonly confused with
| Term | How it differs |
|---|---|
| Percentage point | A percentage point is 100 basis points, so moving a price from 1.00% to 1.25% is a rise of 25 basis points — a quarter of a percentage point, not a 25% increase. |
| FX Markup | A basis point is the unit of measurement; an FX markup is one of the things commonly measured in it. |
See also
- FX SpreadStrictly, the FX spread is the bid/ask spread: the gap between the price at which a currency can be bought and the price at which it can be sold at the same moment. It is a property of the market and of liquidity in that pair.
- FX MarkupAn FX markup is the difference between a reference rate — normally the mid-market rate — and the rate actually offered to the customer. It is the provider’s price for the conversion, and on a cross-border transfer it is usually the largest part of the cost.
- Mid-Market RateThe mid-market rate is the midpoint between the price at which a currency pair is being bought and the price at which it is being sold — the rate with no margin added. It is a reference point for pricing, not a rate a customer transacts at.
- All-in CostThe all-in cost of a transfer is everything the sender gives up: explicit fees, the FX markup built into the exchange rate, and any deduction taken downstream before the recipient is paid. It is expressed against the amount sent.