First Data 2007 Annual Report Download - page 9

Commercial Services Segment Competition
The Company's Commercial Services business competes with several service providers and financial institutions that provide these services to their
merchant customers. In many cases, the merchant alliances also compete against each other for the same business. The Company's check guarantee and
verification products compete principally with the products of two other national companies. The Company also faces significant competition from regional
and national operators of debit networks. The Company's prepaid card services compete with other payment processing companies as well as card associations
and payment networks such as Visa and American Express.
The most significant competitive factors relate to price, brand, strength of financial institution partnership, breadth of features and functionality,
scalability and servicing capability. The Commercial Services segment is further impacted by large merchant and large bank consolidation, card association
business model expansion, and the expansion of new payment methods and devices.
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.
Commercial Services Seasonality
Commercial Services' revenues and earnings are impacted by the volume of consumer usage of credit cards, debit cards, gift cards and checks written at
the point of sale. Commercial Services experiences 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.
Commercial Services Geographic Mix and Revenues
Revenues from external customers for the Commercial Services segment are substantially all earned in the United States. Merchant revenues outside of
the United States are managed and reported by the Company's First Data International segment. Within the United States, revenues from external customers
are spread across the country since Commercial Services has alliance partners across geographic regions and a large percentage of its transactions occur at
national merchants.
Commercial Services Significant Customers
The Commercial Services segment does not have any individually significant customers; however, the Company has two significant merchant alliance
relationships with financial institutions of which one is accounted for under the equity method of accounting and the other is consolidated. The alliance
accounted for under the equity method, Chase Paymentech, meets the significant subsidiary test provided in SEC Regulation S-X Rule 1-02(w) in that the
Company's equity earnings of this alliance exceeded 20% of the Company's consolidated income from continuing operations before income taxes in the
predecessor period. Chase Paymentech may not meet the significant subsidiary test in 2008. In accordance with SEC Regulation S-X Rule 3-09, the financial
statements of Chase Paymentech are filed with this annual report on Form 10-K as part of Item 15(c). In the event of a termination of these significant alliance
relationships, the Company has certain rights to receive a portion of the applicable merchant portfolios. With the receipt of the Company's portion (its
ownership interest) of an alliance's merchant portfolios upon termination, the Company's consolidated revenues would increase or decrease depending upon if
the alliance was previously consolidated, however, there would not be a material impact on consolidated earnings. Potential risks if the alliance is terminated
include the potential loss of certain processing volume over time, the loss of JPMorgan branch referrals, the loss of access to the JPMorgan brand, and post-
termination competition by Chase.
Financial Institution Services Segment
The Financial Institution Services segment is comprised of:
(1) Credit and retail card processing services;
(2) Debit card processing and network services;
(3) Output services; and
(4) Remittance and other processing services.
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