First Data 2007 Annual Report Download - page 11

Debit issuing and processing services
The Company provides STAR Network access as well as ATM/debit and signature debit card processing services, such as transaction routing,
authorization, card embossing and settlement for issuers. When a merchant acquirer acquires a STAR Network transaction, it sends the transaction to the
network switch, which in turn routes the transaction to the appropriate financial institution for authorization. To be routed through the STAR Network switch,
a transaction must be initiated with a card participating in the STAR Network at an ATM or POS terminal also participating in the STAR Network.
Revenue related to the STAR Network and debit card issuing and processing services is derived from fees payable under contracts but are driven more
by monetary transactions processed rather than by accounts on file. The Company provides services which are driven by client transactions and are separately
priced and negotiated with clients. In a situation in which a PIN-secured debit transaction uses the Company's debit network and the Company is the debit
card processor for the financial institution, the Company receives (1) a fee from the card issuing financial institution for running the transaction through the
network switch, and (2) a fee from the card issuer for obtaining the authorization. There are other possible configurations of transactions that result in the
Company receiving multiple fees for a transaction, depending on the role which the Company plays.
Output services
Output services consist of statement and letter printing, embossing and mailing services. Services are provided to organizations that process accounts on
the Company's platform as described above and for clients that process accounts on alternative platforms. The Company provides these services primarily
through in-house facilities.
Revenues for output services are derived primarily on a per piece basis and consist of fees for the production and materials related to finished products.
The mailing services drives a majority of the segment's and the Company's postage revenue.
Remittance processing
The remittance processing business processes mail-in payments for third party organizations. Revenues for remittance processing services are derived
primarily on a per transaction basis and consist of fees for processing consumer payments.
Financial Institution Services Pipeline
During 2007, the Company converted approximately 26 million accounts to its system. The pipeline at December 31, 2007 was approximately
15 million accounts, which are primarily retail accounts. The Company expects to convert approximately 8 million of these accounts in 2008.
Financial Institution Services Segment Competition
The Company's Financial Institution Services segment competes with several other third-party card processors and debit networks in the United States,
as well as financial institutions that possess in-house operations to manage card issuance and maintenance.
The most significant competitive factors are price, system performance and reliability, breadth of features and functionality, disaster recovery
capabilities and business continuity preparedness, data security, scalability, and flexibility of infrastructure and servicing capability. The Financial Institution
Services business is further impacted by financial institution consolidation.
In both the Commercial Services and Financial Institution Services segments, the card associations and payment networks—Visa, MasterCard and
Discover—are increasingly offering products and services that compete with the Company's products and services.
Financial Institution Services Seasonality
A large portion of Financial Institution Services results of operations are driven by the number of accounts on file, both active and inactive, which are
affected by the traditional holiday season in the fourth quarter. Debit processing and STAR Network revenues and earnings are impacted by the volume of
consumer usage of debit cards and increased POS activity during the traditional holiday shopping period in the fourth quarter, the back-to-school buying
period in the third quarter, and around other nationally recognized holidays.
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