August 24, 2023
What is a Basis Point?
A basis point (written as “bps”) is a small unit of measurement that expresses a small percentage change. It's a technical term that is used in the finance world that equals 1/100th of a percentage point.
Basis points are used because it is generally simpler to understand and compare a whole number like “50 bps” as opposed to 0.5%. If you are working in the finance field or if you’re looking to show competence in the payments world, your ability to grasp basis points is essential. When credit card transactions happen, there tend to be several players involved. The credit card transaction cost can get broken up and paid to several different places. Some of them will be a very small part of the cost and hence, you’d address them using basis points.
When using basis points in a finance consider the inflection point between using bps and percent to be 100 - 200 bps. For example, saying “25 bps” (0.25%) is great. Saying “2,500 bps” (25%) would raise eyebrows.
If you read a line item for 25 bps. Now you know that it just means a ¼ percent; 0.25%
