Summary How exposed are you to risk? Your exposure to risk depends on charge-backs, forecast turnover, average transaction size, time from payment to order fulfillment, the length of your trading record, your business sector classification and how many safeguards you have in place. You will need to pay for a bond ie an insurance to cover this risk. This could cost between £300-2000.

Exposure is the acquiring banks estimate of the total risk you are exposed to at any one time, for instance, the number of sales open to refund over a given period. The bond is an amount of money, overdraft facility or insurance to cover any exposure. Your exposure level will also affect the charge bands offered to your business, i.e. monthly charges and transaction charges.

Acquiring banks calculate the exposure whether the Merchant Service provided is online or offline. The exposure level is calculated by examining the following elements of risk:

• Charge-backs – the risk of refunds on your merchant account;
• Forecast turnover figures – higher turnover can generate higher exposure;
• Average transaction size – if you sell very high value items (diamonds, cars) this will influence the risk analysis of your business;
• Time from payment to order fulfillment – The longer it takes to dispatch goods to a customer, the greater the risk of an order cancellation;
• Length of trading record – a start-up company presents more risk than a well established business;
• Business sector classification – different sectors have more or less risk associated with them (CDs can be resold but a flight needs the purchaser to turn up in person). Some banks have over 700 different business sector classifications.
• Safeguards you have in place – security checks like verifying address details or phoning customers who place large or repeated orders will reduce the perceived risk.

The bond that may be introduced to underwrite the exposure level can range from £300-£2000 (maybe even £0) for an average SME bond. Often the bond can be covered by a small increase to your overdraft facility and even some specialist insurance.

The level of bond required from your company depends on the factors above. For instance a travel company where products are often purchased months prior to the fulfillment of the transaction have a much higher exposure to charge-back than a product where fulfillment is immediate, or even prior to payment, for example a restaurant business, which will rarely have to lodge a bond.

The element of exposure will be an important factor for the retailer to consider when deciding which payment method to employ. The acquiring bank may require a bond to be lodged with them to cover the worst possible scenario of charge-backs or fraud.

Be aware of this area of merchant services and negotiate with your bank to establish a reasonable level of risk or look at bureaus and alternative solutions to remove this cost from your payment solution.

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