NetSpend 2015 Annual Report Download - page 55

The Company’s North America and International Services revenues are derived from long-term processing
contracts with financial and nonfinancial institutions and are generally recognized as the services are performed.
Payment processing services revenues are generated primarily from charges based on the number of accounts on
file, transactions and authorizations processed, statements mailed, cards embossed and mailed and other
processing services for cardholder accounts on file. Most of these contracts have prescribed annual revenue
minimums, penalties for early termination, and service level agreements which may impact contractual fees if
certain service levels are not achieved.
Revenue is recognized as the services are performed, primarily on a per unit basis. Processing contracts generally
range from three to ten years in length. When providing payment processing services, the Company frequently
enters into customer arrangements to provide multiple services that may also include conversion or
implementation services, business process outsourcing services such as call center services, web-based services,
and other payment processing-related services. Revenue for these services is generally recognized as they are
performed on a per unit basis each month or ratably over the term of the contract.
The Company’s Merchant Services revenues are partially derived from relationships with thousands of individual
merchants. Additionally, part of the revenues are derived from long-term processing contracts with large financial
institutions, other merchant acquirers and merchant organizations which generally range from three to eight years
and provide for penalties for early termination. Merchant services revenue is generated primarily from processing
all payment forms including credit, debit, electronic benefits transfer and check truncation for merchants of all
sizes across a wide array of retail market segments. The products and services offered include authorization and
capture of electronic transactions, clearing and settlement of electronic transactions, information reporting
services related to electronic transactions, merchant billing services, and point-of-sale terminal services. Revenue
is recognized for merchant services as those services are performed, primarily measured on a per unit basis.
When providing merchant processing services, the Company frequently enters into customer arrangements to
provide multiple services that may also include conversion or implementation services, business process
outsourcing services such as call center services, terminal services, and other merchant processing-related
services. Revenue for these services is generally recognized as they are performed on a per unit basis each month
or ratably over the term of the contract. Revenues on point-of-sale terminal equipment are recognized upon the
transfer of ownership and shipment of product.
When a sale involves multiple deliverables, revenue recognition is affected by the determination of the number of
deliverables in an arrangement, whether those deliverables may be separated into multiple units of accounting,
and the standalone selling price of each unit of accounting which affects the amount of revenue allocated to each
unit. Pursuant to Accounting Standards Codification (ASC) 605 ”Revenue Recognition,” the Company uses
vendor-specific objective evidence of the standalone selling price (VSOE) of its services when it exists to
determine the amount of revenue to allocate to each unit of accounting. The Company establishes VSOE using
the price charged when the same service is sold separately (on a standalone basis). In certain situations, the
Company does not have sufficient VSOE. In these situations, TSYS considers whether sufficient third party
evidence (TPE) of standalone selling price exists for the Company’s services. However, the Company typically is
not able to determine TPE and has not used this measure of selling price due to the unique and proprietary
nature of some of its services and the inability to reliably verify relevant standalone third party prices. When there
is insufficient evidence of VSOE and TPE, the Company has made its best estimate of the standalone selling price
(ESP) of that service for purposes of allocating revenue to each unit of accounting. When determining ESP, TSYS
uses limited standalone sales data that do not meet the Company’s criteria to establish VSOE, management
pricing strategies, residual selling price data when VSOE exists for a group of elements, the cost of providing the
services and the related margin objectives. Consideration is also given to geographies in which the services are
sold or delivered, customer classifications, and market conditions including competitor pricing strategies and
benchmarking studies. Revenue is recognized when the revenue recognition criteria for each unit of accounting
have been met.
As business and service offerings change in the future, the determination of the number of deliverables in an
arrangement and related units of accounting and the future pricing practices may result in changes in the
estimates of VSOE and ESP, which may change the ratio of fees allocated to each service or unit of accounting in
a given customer arrangement. There were no material changes or impact to revenue for current contractual
arrangements in the year ended December 31, 2015 due to any changes in the determination of the number of
deliverables in an arrangement, units of accounting, or estimates of VSOE or ESP.
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