NetSpend 2013 Annual Report Download - page 18

Major Customer
The Company works to maintain a large and diverse
customer base across various industries. A significant
amount of the Company’s revenues are derived from
long-term contracts with large clients. TSYS derives
revenues from providing various processing and
other services to these clients, including processing
of consumer and commercial accounts, as well as
revenues for reimbursable items. The loss of one of
the Company’s large clients could have a material
adverse effect on the Company’s financial position,
results of operations and cash flows.
On July 19, 2012, TSYS announced that it finalized a
master services agreement, with a minimum six year
term, with Bank of America to provide processing
services for its consumer credit card portfolios in the
U.S. In addition, TSYS will continue to process Bank
of America’s commercial credit card portfolios in the
U.S. and internationally. TSYS plans to complete the
conversion of Bank of America’s consumer card
portfolio from its in-house processing system in the
third quarter of 2014. Following the processing term,
the agreement provides Bank of America the option
to use the TS2 software pursuant to a license under a
long-term payment structure for purposes of
processing its consumer card portfolio.
The master services agreement with Bank of America
provides for a tiered-pricing arrangement for both
the consumer card portfolio and the existing
commercial card portfolios.
In June 2009, Bank of America announced that it
formed a new joint venture to provide merchant
services. In November 2010, TSYS and Bank of
America agreed to a new agreement, during the term
of which TSYS expects merchant services revenues
from Bank of America to decline as Bank of America
transitions its services to its new joint venture.
Effective June 2013, the Company renewed its
processing agreement, which includes revenue
minimums, with Bank of America for an additional
two years.
The loss of Bank of America as a merchant services
client is not expected to have a material adverse
effect on TSYS’ financial position, results of
operations or cash flows. However, the loss will have
a significant adverse effect on the Merchant Services
segment’s financial position, results of operations and
cash flows.
Refer to Note 21 in the consolidated financial
statements for more information on major customers.
Operating Segments
TSYS’ services are provided through four operating
segments: North America Services, International
Services, Merchant Services, and NetSpend.
The Company’s North America Services and
International Services segments have many long-term
customer contracts with card issuers providing
account processing and output services for printing
and embossing items. These contracts generally
require advance notice prior to the end of the
contract if a client chooses not to renew. Additionally,
some contracts may allow for early termination upon
the occurrence of certain events such as a change in
control. The termination fees paid upon the
occurrence of such events are designed primarily to
cover balance sheet exposure related to items such
as capitalized conversion costs or client incentives
associated with the contract and, in some cases, may
cover a portion of lost future revenue and profit.
Although these contracts may be terminated upon
certain occurrences, the contracts provide the
segment with a steady revenue stream since a vast
majority of the contracts are honored through the
contracted expiration date.
These services are provided throughout the period of
each account’s use, starting from a card-issuing client
processing an application for a card. Services may
include processing the card application, initiating
service for the cardholder, processing each card
transaction for the issuing retailer or financial
institution and accumulating the account’s
transactions. Fraud management services monitor the
unauthorized use of accounts which have been
reported to be lost, stolen, or which exceed credit
limits. Fraud detection systems help identify
fraudulent transactions by monitoring each account
holder’s purchasing patterns and flagging unusual
purchases. Other services provided include
customized communications to cardholders,
information verification associated with granting
credit, debt collection, and customer service.
TSYS’ revenues in its North America Services and
International Services segments are derived from
electronic payment processing. There are certain
basic core services directly tied to accounts on file
and transactions. These are provided to all of TSYS’
processing clients. The core services begin with an
account on file.
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