MoneyGram 2009 Annual Report Download - page 17

Table of Contents
We face credit risks from our retail agents and official check financial institution customers.
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. 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. As of December 31, 2009, we had
credit exposure to our agents of approximately $436.4 million in the aggregate spread across over 14,000 agents, of which five owed us
in excess of $15.0 million.
Our official checks outsourcing business is conducted through financial institutions. Our official check financial institution customers
issue official checks and money orders and remit to us the face amounts of those instruments the day after they are issued. MoneyGram is
liable for payment on all of those instruments except cashier's checks. As of December 31, 2009, we had credit exposure to our official
check financial institution customers of approximately $482.0 million in the aggregate spread across 1,700 financial institutions, of which
one owed us in excess of $15.0 million.
We monitor the creditworthiness of our agents and official check financial institution customers on an ongoing basis. There can be no
assurance that the models and approaches we use to assess and monitor agent and official check financial institution customer
creditworthiness will be sufficiently predictive, and we may be unable to detect and take steps to timely mitigate an increased credit risk.
In the event of an agent bankruptcy, we would generally be in the position of creditor, possibly with limited security or financial
guarantees of performance, and we would therefore be at risk of a reduced recovery. We are not insured against credit losses, except in
circumstances of agent theft or fraud. Significant credit losses could have a material adverse effect on our business, results of operations
and financial condition.
We face fraud risks that could adversely affect our business, financial condition and results of operations.
Criminals are using increasingly sophisticated methods to engage in illegal activities such as paper instrument counterfeiting, fraud and
identity theft. As we make more of our services available over the Internet and other unmanned media, we subject ourselves to new types
of consumer fraud risk because requirements relating to customer authentication are more complex with Internet services. Certain former
retail agents have also engaged in fraud against consumers or us, and existing agents could engage in fraud against consumers or us. We
use a variety of tools to protect against fraud; however, these tools may not always be successful. Allegations of fraud may result in fines,
settlements and litigation expenses.
Negative economic conditions may result in increased agent or consumer fraud. If consumer 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.
An inability of the Company or its agents to maintain adequate banking relationships may adversely affect our business, financial
condition and results of operations.
We rely on domestic and international banks for international cash management, ACH and wire transfer services to pay money transfers
and settle with our agents. We also rely on domestic banks to provide clearing, processing and settlement functions for our paper-based
instruments, including official checks and money orders. The Company's relationships with these banks are a critical component of our
ability to conduct our official check, money order and money transfer businesses. An inability on our part to maintain existing or
establish new banking relationships sufficient to enable us to conduct our official check, money order and money transfer businesses
could adversely affect our business, results of operations and financial condition. There can be no assurance that the Company will be
able to establish and maintain adequate banking relationships.
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