First Data 2008 Annual Report Download - page 8

"charged back" to the merchant and the disputed amount is credited or otherwise refunded to the cardholder. The Company may, however, collect this amount
from the card association if the amount was disputed in error. If the Company or the alliance is unable to collect this amount from the merchant, due to the
merchant's insolvency or other reasons, the Company or the alliance will bear the loss for the amount of the refund paid to the cardholder. In most cases, this
contingent liability situation is unlikely to arise because most products or services are delivered when purchased, and credits are issued on returned items.
However, where the product or service is not provided until sometime following the purchase (e.g., airline or cruise ship tickets), the risk is greater. The
Company often mitigates its risk by obtaining collateral from merchants considered higher risk because they have a time delay in the delivery of services,
operate in industries that experience chargebacks or are less creditworthy.
Merchant Services Segment Competition
The Company's Merchant Services business competes with several service providers and financial institutions that provide these services to their
merchant customers. In many cases, the merchant alliances also compete against each other for the same business.
The most significant competitive factors relate to price, brand, strength of financial institution partnership, breadth of features and functionality,
scalability and servicing capability. The Merchant Services segment is further impacted by large merchant and large bank consolidation, card association
business model expansion, and the expansion of new payment methods and devices.
In both the Merchant Services and Financial Services segments, the card associations and payment networks—Visa, MasterCard and Discover—are
increasingly offering products and services that compete with the Company's products and services.
Merchant Services Seasonality
Merchant Services' revenues and earnings are impacted by the volume of consumer usage of credit and debit cards at the point of sale. Merchant
Services generally experiences increased POS activity during the traditional holiday shopping period in the fourth quarter, the back-to-school buying period in
the third quarter, and around other nationally recognized holidays.
Merchant Services Geographic Mix and Revenues
Revenues from external customers for the Merchant Services segment are substantially all earned in the U.S. Merchant revenues outside of the U.S. are
managed and reported by the Company's International segment. Within the U.S., revenues from external customers are spread across the country since
Merchant Services has merchant customers and alliance partners across geographic regions and a large percentage of its transactions occur at national
merchants.
Merchant Services Significant Customers
The Merchant Services segment does not have any individually significant customers; however, the Company has one significant merchant alliance
relationship with a financial institution. A second significant merchant alliance was terminated on November 1, 2008 as discussed above and in Note 4 of the
Company's Consolidated Financial Statements in Item 8 of this Form 10-K.
Financial Services Segment
The Financial Services segment is comprised of:
(1) Credit and retail card processing services;
(2) Debit network and processing services;
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