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an individual customer basis and is accumulated as qualified customers earn rewards through their ongoing credit card
purchase activity or other defined actions. The Company recognizes customer rewards costs as a reduction of the
related revenue, if any. In instances where a reward is not associated with a revenue-generating transaction, such as
when a reward is given for opening an account, the reward cost is recorded as an operating expense. For the years
ended December 31, 2015, 2014 and 2013, rewards costs, adjusted for estimated forfeitures, if any, amounted to
$1.3 billion, $1.4 billion and $1.0 billion, respectively. The liability for customer rewards was $1.4 billion at
December 31, 2015 and 2014 and is included in accrued expenses and other liabilities on the consolidated statements
of financial condition.
Protection Products
The Company earns revenue related to fees received for marketing products or services that are ancillary to the
Company's credit card and personal loans to its customers, including payment protection products and identity theft
protection services. The amount of revenue recorded is based on the terms of the agreements and contracts with the
third parties that provide these services. The Company recognizes this income over the customer agreement or contract
period as earned.
Transaction Processing Revenue
Transaction processing revenue represents fees charged to financial institutions and merchant acquirers/
processors for processing ATM and debit POS transactions over the PULSE network and is recognized at the time the
transactions are processed. Transaction processing revenue also includes network participant revenue earned by PULSE
related to fees charged for maintenance, support, information processing and other services provided to financial
institutions, processors and other participants in the PULSE network. These revenues are recognized in the period that
the related transactions occur or services are rendered.
Royalty and Licensee Revenue
The Company earns revenue from licensing fees for granting the right to use the Diners Club brand and
processing fees for providing various services to Diners Club licensees, which are referred to together as royalty and
licensee revenue. Royalty revenue is recognized in the period that the cardholder volume used to calculate the royalty
fee is generated. Processing fees are recognized in the month that the services are provided. Royalty and licensee
revenue is included in other income on the consolidated statements of income.
Incentive Payments
The Company makes certain incentive payments under contractual arrangements with financial institutions, Diners
Club licensees, merchants, acquirers and certain other customers. These payments are generally classified as contra-
revenue unless a specifically identifiable benefit is received by the Company in consideration for the payment and the
fair value of such benefit can be reasonably estimated. If no such benefit is identified, then the entire payment is
classified as contra-revenue, and included in the consolidated statements of income in the line item where the related
revenues are recorded. If the payment gives rise to an asset because it is expected to directly or indirectly contribute to
future net cash inflows, it is deferred and recognized over the expected benefit period. The unamortized portion of the
deferred incentive payments included in other assets on the consolidated statements of financial condition was $21
million and $22 million at December 31, 2015 and 2014, respectively.
3. Business Dispositions
On June 16, 2015, the Company announced the closing of the mortgage origination business it acquired in
2012, which is part of its Direct Banking segment. The disposition represents the exiting of an ancillary business that
will not have a major impact on the Company’s operations. As part of the closure, the Company incurred
approximately $28 million of exit expenses for the year ended December 31, 2015, recorded in other expense within
the consolidated statements of income.