NetSpend 2014 Annual Report Download - page 22

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reimbursable items are impacted with changes in postal rates and changes in the volumes of mailing activities by
its clients. Reimbursable items for the year ended December 31, 2014, were $253.9 million, an increase of $13.3
million or 5.5% compared to $240.6 million for the same period last year. Reimbursable items for the year ended
December 31, 2013 decreased $11.9 million, or 4.7%, compared to $252.5 million for the same period in 2012.
TSYS’ revenues are generated from charges based on the number of accounts on file (AOF), transactions and
authorizations processed, statements mailed, cards embossed and mailed, and other processing services for
cardholder AOF. Cardholder AOF include active and inactive consumer credit, retail, prepaid, stored value,
government services and commercial card accounts.
TSYS’ revenues in its North America Services and International Services segments are influenced by several
factors, including volumes related to AOF and transactions. TSYS estimates that approximately 47.2% of these
segments’ revenues is AOF and transaction volume driven. The remaining 52.8% of payment processing
revenues are not AOF and transaction volume driven, and are derived from production and optional services
TSYS considers to be value added products and services, custom programming and licensing arrangements.
Whether or not an account on file is active can impact TSYS’ revenues differently. Active accounts are accounts
that have had monetary activity either during the current month or in the past 90 days based on contractual
definition. Inactive accounts are accounts that have not had a monetary transaction (such as a purchase or
payment) in the past 90 days. The more active an account is, the more revenue is generated for TSYS (items such
as transactions and authorizations processed and statements billed).
Occasionally, a client will purge inactive accounts from its portfolio. An inactive account typically will only
generate an AOF charge. A processing client will periodically review its cardholder portfolio based upon activity
and usage. Each client, based upon criteria individually set by the client, will flag an account to be “purged” from
TSYS’ system and deactivated.
A deconversion involves a client migrating all of its accounts to an in-house solution or another processor.
Account deconversions include active and inactive accounts and can impact the Company’s revenues significantly
more than an account purge.
A sale of a portfolio typically involves a client selling a portion of its accounts to another party. A sale of a
portfolio and a deconversion impact the Company’s financial statements in a similar fashion, although a sale
usually has a smaller financial impact due to the number of accounts typically involved.
TSYS’ revenues in its Merchant Services segment are influenced by several factors, including volumes related to
transactions and dollar sales volume, which are approximately 92.6% of this segment’s revenues. The remaining
7.4% of Merchant Services’ revenues are derived from value added services, monthly statement fees, compliance
fees, and miscellaneous services.
TSYS’ revenues in its NetSpend segment primarily consist of a portion of the service fees and interchange
revenues received by NetSpend’s prepaid card Issuing Banks in connection with the programs managed by
NetSpend. For the year ended December 31, 2014, 70.3% of revenues was derived from fees charged to
cardholders and 29.7% of revenues was derived from interchange and other revenues. Service fee revenues are
driven by the number of active cards, and in particular by the number of cards with direct deposit. Cardholders
with direct deposit generally initiate more transactions and generate more revenues than those that do not take
advantage of this feature. Interchange revenues are driven by gross dollar volume. Substantially all of the
NetSpend segment’s revenues are volume driven as they are driven by the active card and gross dollar volume
indicators.
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