A method of processing a presentation instrument transaction for a merchant includes receiving transaction information including ticket amount from the merchant at the host computer system The method also includes at the host computer system, determining a settlement amount to pay the merchant for the transaction, remitting the payment to the merchant and obtain reimbursement The payment to the merchant includes the settlement amount that is less than the ticket amount and the difference is based, at least in part, on a fee The fee is determined by calculating an expected loss specific to the merchant based on a probability of default specific to the merchant and a gross exposure specific to the merchant The presentation instrument transaction may be based on a presentation instrument such as a credit card, gift card, stored value card, or debit card.