First Data 2013 Annual Report Download - page 6

analyzed by the Company. The Company either accepts or declines the check for warranty coverage under its guarantee service. If the Company approves the
check for warranty coverage and the merchant accepts the check, the merchant will either deposit the check in its bank account or process it for settlement
through the Company’s Electronic Check Acceptance service. If the check is returned unpaid by the merchant’s bank and the returned check meets the
requirements for warranty coverage, the Company is required to purchase the check from the merchant at its face value. The Company then owns the
purchased check and pursues collection of the check from the check writer. As a result, the Company bears the risk of loss if the Company is unable to
collect the returned check from the check writer. The Company earns a fee for each check it guarantees, which generally is determined as a percentage of the
check amount.
The Company’s Electronic Check Acceptance service, which converts a paper check written at the point of sale into an electronic item, enables funds to
be deposited electronically to the merchant’s account and deducted electronically from the check writer’s account.
Under the verification service, when a merchant receives a check in payment for goods or services, the transaction is submitted to and analyzed by the
Company, which will either recommend the merchant accept or decline the check. If the merchant accepts the check, the merchant will deposit the check in its
bank account. If the check is returned unpaid by the merchant’s bank, the Company is not required to purchase the check from the merchant and the
merchant bears all risk of loss on the check. The Company earns a fee for each check submitted for verification, which is generally a fixed amount per check.
Retail and Alliance Services segment competition The Company’s Retail and Alliance 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 check guarantee and verification products compete principally with the products of two other national competitors as well as
the migration to other non-check products.
The most significant competitive factors relate to price, brand, strength of financial institution partnership, breadth of features and functionality,
scalability and servicing capability. The Retail and Alliance 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 Retail and Alliance Services and Financial 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.
Retail and Alliance Services seasonality Retail and Alliance Services’ revenues and earnings are impacted by the volume of consumer usage of
credit cards, debit cards, stored value cards and checks written at the point of sale. Retail and Alliance Services generally 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 significant holidays.
Retail and Alliance Services geographic mix and revenues. Revenues from external customers for the Retail and Alliance Services segment are
substantially all earned in the U.S. Merchant revenues outside of the U.S. are managed and reported by the Company’s International segment. Within the
U.S., revenues from external customers are spread across the country since Retail and Alliance Services has merchant customers and alliance partners across
geographic regions and a large percentage of its transactions occur at national merchants.
Retail and Alliance Services significant customers. The Retail and Alliance Services segment does not have any individually significant
customers.
 The Financial Services segment is comprised of:
(1) credit and retail card processing services;
(2) debit network and processing services;
(3) output services; and
(4) other services including remittance processing.
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