First Data 2009 Annual Report Download - page 10

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 Retail and Alliance 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 Retail and Alliance 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 Retail and Alliance 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 the Company plays.
Output services
Output services consist of statement and letter printing, card embossing and mailing services. Services are
provided to organizations that process accounts on the Company’s platform as described above and for clients
that process accounts on alternative platforms. The Company provides these services primarily through in-house
facilities. Revenues for output services are derived primarily on a per piece basis and consist of fees for the
production and materials related to finished products. The mailing services drive a majority of the Company’s
postage revenue.
Other services
Other services consist of the Company’s remittance processing and other services. The remittance
processing business processes mail-in payments for third party organizations. Revenues for remittance
processing services are derived primarily on a per transaction basis and consist of fees for processing consumer
payments. Other services consist primarily of on-line banking and bill payment services.
Financial Services Pipeline
During 2009, the Company converted approximately 10.7 million accounts to its system. The pipeline at
December 31, 2009 was approximately 2.8 million accounts, which are primarily credit accounts. The Company
expects to convert these accounts in 2010.
Financial Services Segment Competition
The Company’s Financial Services segment competes with several other third-party card processors and
debit networks in the U.S., as well as financial institutions with in-house operations to manage card issuance and
maintenance. The Company also faces significant competition from regional and national operators of debit
networks.
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