First Data 2013 Annual Report Download - page 8

transactions than do the card associations for credit and signature debit since there is substantially less risk involved in the PIN-debit transaction because PIN
authentication is generally required and transactions are not approved unless there are sufficient funds in the customer’s bank account.
Revenues related to the STAR Network and debit card and ATM processing services are derived from fees payable under contracts but are driven more
by monetary transactions processed 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 as well as the processor for the merchant, the Company receives: (1) a fee from the card issuing financial institution
for running the transaction through the STAR Network switch, recognized in the Financial Services segment; (2) a fee from the card issuer for obtaining the
authorization, recognized in the Financial Services segment; (3) a fee from the merchant for acquiring the transaction, which is recognized in the Retail and
Alliance Services segment; and (4) a network acquirer fee from the merchant for accessing the STAR Network, which is recognized in the Financial Services
segment. There are other possible configurations of transactions that result in the Company receiving multiple fees for a transaction, depending on the role the
Company plays.
Output services. Output services consist of statement and letter printing, card 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 drive a majority of the Company’s postage revenue.
Other services. Other services consist of the Company’s remittance processing and other services. 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. Other services consist primarily of online banking and bill payment services and voice services.
Financial Services segment competition.The Company’s Financial Services segment competes with several other third-party card processors
and debit networks in the U.S., as well as financial institutions with in-house operations to manage card issuance and maintenance. The Company also faces
significant competition from regional and national operators of debit networks.
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 Services
business is impacted by financial institution consolidation.
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.
Financial Services seasonality. Debit processing and STAR Network revenues and earnings are impacted by the volume of consumer usage of
debit cards at the point of sale. Such volumes are generally impacted by 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.
Financial Services geographic mix and revenues. Revenues from external customers for the Financial Services segment are substantially all
earned in the U.S. Card issuing revenues outside of the U.S. are reported by the Company’s International segment. Within the U.S., revenues from external
customers are geographically dispersed throughout the country.
Financial Services significant customers. No individual customer makes up more than 10% of the Financial Services segment revenue.
The International segment is comprised of:
· credit, retail, debit and prepaid card processing;
· merchant acquiring and processing; and
· ATM and POS processing, acquiring and switching services.
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