MoneyGram 2007 Annual Report Download - page 8

Table of Contents
finance companies, telecom companies, satellite companies, property management companies and third-party bill collectors. We work
closely with our agents to identify billers in their service areas to target for our services. Generally, our bill payment services generate
revenue from transaction fees charged to consumers for each bill payment transaction completed.
The largest portion of walk-in payments consists of our ExpressPayment® urgent bill payment service. Our ExpressPayment bill payment
service, which is offered through our money transfer agent locations in the United States and select Caribbean countries, continues to
grow as we add new billers to our network. As of December 31, 2007, we provide our ExpressPayment bill payment services to over
1,900 billers. The ExpressPayment bill payment service provides customers with same-day notification of credit to their account pursuant
to our contract with the biller. Customers can also use the ExpressPayment service to load prepaid cards. Our ExpressPayment bill
payment service is available for select billers for internet transactions at www.emoneygram.com.
Walk-in payments also include a new utility bill payment platform. Our FlashPay® and BuyPay® routine utility bill payment services are
in the process of being converted to the new utility platform, implemented in 2007. Our utility payment product allows customers to
make in-person payments of non-urgent bills at a low cost for credit to a biller typically within two to three days.
The acquisition of ACH Commerce in 2005 allowed us to enhance our electronic bill payment business and create a multi-faceted, full-
suite of payment services. The acquisition of PropertyBridge in 2007 further expands our electronic bill payment suite of services.
PropertyBridge offers a complete solution to the resident payment cycle, including the ability to electronically accept deposits and rent
payments. The electronic payment portion of our bill payment services offers payment products by phone, IVR, web, and ACH
processing along with check conversion. Consumers may select one-time or recurring ACH, credit or debit card payments to our
contracted billers.
Payment Systems Segment
Our Payment Systems segment primarily provides financial institutions with payment processing services, which include official check
outsourcing services and money orders for sale to their customers, as well as ACH processing services. Our customers are primarily
comprised of financial institutions, thrifts and credit unions. As of December 31, 2007, we provide official check services to over 17,000
branch locations of over 1,900 financial institutions.
We primarily derive revenues in our Payment Systems segment from the investment of funds underlying the official check or financial
institution money order. We invest funds from the official checks and money orders sold from the time the proceeds are remitted until the
items are cleared. We also derive revenue from fees paid by our financial institution and corporate customers. In 2007, Payment Systems
segment revenue was a loss of $614.4 million. As noted above, we experienced significant other-than-temporary impairments in our
investment portfolio in 2007. Net securities losses of $955.6 million were allocated to the Payment Systems segment, which represents
approximately 80 percent of the total losses recorded on our investment portfolio for 2007. The operating loss for 2007 was
$920.1 million.
In the fourth quarter of 2007, we announced the strategic review of our official check business. As a result of the review, we have begun a
restructuring of the official check business model by changing the commission structure and exiting certain large customer relationships.
This restructuring will enable us to continue providing these essential services by focusing on small- to mid-sized institutions. We expect
to exit contracts with most of our top ten official check customers, who together account for approximately $2 billion of our official
check payment obligations. As of March 21, 2008, 45 of our over 1,900 financial institutions have provided some form of notification of
intent to terminate their official check agreements with us. Outside of the top ten customers we planned to exit, these termination
notifications represent $132.0 million of our average payment service obligations in 2007. Of the financial institutions that have provided
notification, 32 financial institutions have stopped or reduced their issuance of official checks. We expect that most of our top ten official
check financial institutions will stop issuing our official checks by the end of 2008. Also impacting the Payment Systems segment is the
process commenced in January 2008 to realign our investment portfolio away from asset-backed securities into highly liquid assets. The
realigned portfolio will consist primarily of cash equivalents, government and government agency securities. As a result, we anticipate
that our profit margins in the official check business will be adversely affected
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