First Data 2007 Annual Report Download - page 38

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
First Data Financial Institution Services Segment
The First Data Financial Institution Services segment is comprised of businesses that provide credit and retail card processing, debit card processing
and network services, output services and remittance processing services. The credit and retail card processing and debit network processing businesses
provide services which enable financial institutions and other organizations offering credit cards, debit cards and retail private label cards to consumers and
businesses to manage customer accounts. The output services business provides statement and letter printing and embossing and mailing services to clients
processing accounts on the Company's platform, as well as those using alternative platforms. The remittance processing business processes mail-in payments
for third-party organizations. The segment's largest components of revenue consist of fees for account management, transaction authorization and posting, and
network switching as well as reimbursable postage.
Credit and retail based revenue is derived primarily from the card processing services offered to financial institutions and other issuers of cards.
Revenue from these markets is driven primarily by accounts on file, with active accounts having a larger impact on revenue than inactive. Retail account
portfolios typically have a lower proportionate share of active accounts than credit account portfolios and product usage is different between the card types
resulting in lower revenue per active retail account. In addition, contract pricing at the customer level is dependent upon the volume of accounts, mix of
account types (e.g. retail, credit, co-branded credit and debit) and product usage.
Financial Institution Services is focused on developing new product offerings, maximizing productivity and system capacity, and integrating its recent
acquisitions which include Instant Cash and FundsXpress noted above.
The underlying economic drivers of card issuance are population demographics and employment. Strengthening in the economy typically results in an
improved credit risk profile, allowing card issuers to be more aggressive in their marketing campaigns to issue more cards. Conversely, a weakening in the
economy typically results in a tightening of the credit market with fewer consumers qualifying for credit. The Company continues to see a shift to the use of
debit cards from credit cards, checks and cash. Domestic debit issuer transactions have been the fastest growing type of transaction.
First Data International
The First Data International segment businesses operate in four main geographic regions: "EMEA" includes European, Middle Eastern and African
countries and provides card issuing processing, merchant acquiring and processing, and ATM and POS processing, driving, acquiring and switching services
across the region; "LAC" includes Canada and Latin American and Caribbean countries and provides merchant acquiring and processing, card issuing
processing, software licensing and debit switching services; "ANZ" includes Australia and New Zealand and provides merchant acquiring, processing and
switching services, managed service card processing and owns and operates an ATM network in Australia; Asia includes China and North and South Asian
countries and mainly provides merchant POS transaction switching services, software licensing, card issuing processing services, host processing services and
merchant acquiring and processing. The primary service offerings of the International segment are substantially the same as those provided in the Commercial
Services and Financial Institution Services segments.
The EMEA region is the largest region and accounted for approximately 60% of the segment's pro forma revenue for 2007, as well as 2006 and 2005,
with LAC accounting for over 15% and ANZ accounting for over 13% of the segment's revenue for the same periods. The Asia regions accounted for the
remaining revenue other than certain businesses that accounted for approximately 3% of the segment's total revenues that do not operate on a geographic
basis.
In 2007, the Company's international acquisitions included First Data Polska, Deecal International, Check Forte and 56% of the Merchant Solutions
joint venture.
As noted above in the "First Data Commercial Services" discussion, the purchase and sale of merchant contracts is also an ordinary element of the
Company's International business.
Integrated Payments Systems
The Integrated Payment Systems segment's most significant operations involve the issuance of official checks and money orders by agents which are
typically banks or other financial institutions. Official checks serve as an alternative to a bank's own disbursement items such as cashiers or bank checks and
money orders primarily serve as a disbursement option for un-banked customers. This segment also provides other payment services such as remote deposit,
clearing services and processing for payments which occur in such forms as checks, ACH, wire transfer and stored-value cards. A large component of revenue
is earnings on invested funds which are pending settlement.
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