MoneyGram 2007 Annual Report Download - page 22

Table of Contents
contracts, including our contract with Wal-Mart, contain service level standards pertaining to the operation of our system, and give the
agent a right to collect damages and in extreme situations a right of termination for system downtime exceeding agreed upon service
levels. If we face system interruptions and system failures our business interruption insurance may not be adequate to compensate us for
all losses or damages that we may incur.
If we are unable to effectively operate and scale our technology to match our business growth, our business, financial condition and
results of operations could be adversely affected.
Our ability to continue to provide our services to a growing number of agents and consumers, as well as to enhance our existing services
and offer new services is dependent on our information technology systems. If we are unable to effectively manage the technology
associated with our business, we could experience increased costs, reductions in system availability and loss of agents or consumers. Any
failure of our systems in scalability, reliability and functionality could adversely impact our business, financial condition and results of
operations.
We face credit and fraud risks from our retail agents.
The vast majority of our Global Funds Transfer segment is conducted through independent agents that provide our products and services
to consumers at their business locations. Our agents receive the proceeds from the sale of our payment instruments and money transfers
and we must then collect these funds from the agents. As a result, we have credit exposure to our agents, which averages approximately
$1.4 billion in the aggregate, representing a combination of money orders, money transfers and bill payment proceeds. During 2007, this
credit exposure was spread across over 24,000 agents, of which 12 owed us in excess of $15.0 million each at any one time.
We are not insured against credit losses, except in circumstances of agent theft or fraud. If an agent becomes insolvent, files for
bankruptcy, commits fraud or otherwise fails to remit money order or money transfer proceeds to us, we must nonetheless pay the money
order or complete the money transfer on behalf of the consumer. Moreover, we have made, and may make in the future, secured or
unsecured loans to retail agents under limited circumstances or allow agents to retain our funds for a period of time before remitting them
to us. The failure of agents owing us large amounts to remit funds to us or to repay such amounts could have a material adverse effect on
our business, results of operations and financial condition.
An increase in fraudulent activity using our services could lead to reputational damage to our brand and could reduce the use and
acceptance of our services.
Criminals are using increasingly sophisticated methods to engage in illegal activities such as fraud and identity theft. As we make more
of our services available over the internet we subject ourselves to new types of credit and fraud risk, because requirements relating to
customer authentication are more complex with internet services. If fraud levels involving our services were to rise, it could lead to
regulatory intervention and reputational and financial damage. This in turn could reduce the use and acceptance of our services or
increase our compliance costs, and thereby have a material adverse impact on our business, financial condition and results of operations.
The opening of new retail locations and acquisition or start-up of businesses create risks and may adversely affect our operating
results.
We have recently opened several Company-owned retail locations for the sale of our products and services. Operating such retail
locations presents new risks for us. After substantial capital investment in such retail locations it is uncertain how such locations will be
accepted in the market and how quickly transaction volume will increase to offset such investment. We may be subject to additional laws
and regulations that are triggered by our ownership of the retail locations and our employment of the individuals staffing such retail
locations. There are also certain risks inherent in operating any retail location, including theft, personal injury and property damage and
risks associated with long-term lease obligations and employee matters.
Additionally, we may from time to time acquire or start up businesses both inside and outside of the U.S. The acquisition and integration
of businesses, involve a number of risks. We may not be able to successfully integrate any businesses that we acquire or open, including
their facilities, personnel, financial systems, distribution, operations and general operating procedures. If we fail to successfully integrate
acquisitions, we could experience
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