First Data 2008 Annual Report Download - page 10

Credit and retail card issuing and processing services
Credit and retail card issuing and processing services provide outsourcing services to financial institutions and other issuers of cards, such as consumer
finance companies. Financial Services clients include a wide variety of banks, savings and loan associations, group service providers and credit unions.
Services provided include, among other things, account maintenance, transaction authorizing and posting, fraud and risk management services and settlement.
The Company provides services throughout the period of each card'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 card's transactions. The Company's fraud management services monitor the unauthorized use of cards which have been
reported to be lost, stolen, or which exceed credit limits. The Company's fraud detection systems help identify fraudulent transactions by monitoring each
cardholder'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.
Revenues for credit and retail card issuing and processing services are derived from fees payable under contracts that depend primarily on the number
of cardholder accounts on file. More revenue is derived from active accounts (those accounts on file that had a balance or any monetary posting or
authorization activity during the month) than inactive accounts.
Debit network and processing services
The Company provides STAR Network access, PIN-debit and signature debit card processing services and ATM processing services, such as
transaction routing, authorization, and settlement as well as ATM management and monitoring. The STAR Network represents a telecommunications network
which is connected to thousands of financial institutions, merchants, payment processors, ATM processors, and card processors that participate in the
network. In the merchant acquiring process flow described above in the Merchant Services segment discussion, STAR Network represents a debit network.
When a merchant acquirer or ATM owner acquires a STAR Network transaction, it sends the transaction to the network switch, which is operated by the
Company, which in turn routes the transaction to the appropriate participant for authorization. To be routed through the STAR Network switch, a transaction
must be initiated with a card participating in the STAR Network at an ATM or POS terminal also participating in the STAR Network. STAR Network's fees
differ from those presented in the example above in the Merchant Services segment description in that the debit network charges less for PIN-debit
transactions than do the card associations for credit and signature debit since there is substantially less risk involved in the PIN-debit transaction because PIN
authentication is generally required and transactions are not approved unless there are sufficient funds in the customer's bank account.
Revenue related to the STAR Network and debit card and ATM processing services is derived from fees payable under contracts but are driven more by
monetary transactions processed rather than by accounts on file. The Company provides services which are driven by client transactions and are separately
priced and negotiated with clients. In a situation in which a PIN-secured debit transaction uses the Company's debit network and the Company is the debit
card processor for the financial institution as well as the processor for the merchant, the Company receives (1) a fee from the card issuing financial institution
for running the transaction through the STAR Network switch, recognized in the Financial Services segment, (2) a fee from the card issuer for obtaining the
authorization, recognized in the Financial Services segment. (3) a fee from the merchant for acquiring the transaction, which is recognized in the Merchant
Services segment and (4) a network acquirer fee from the merchant for accessing the STAR Network, which is recognized in the Financial Services segment.
There are other possible configurations of transactions that result in the Company receiving multiple fees for a transaction, depending on the role which the
Company plays.
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