First Data 2009 Annual Report Download - page 40

FIRST DATA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Integrated Payments Systems
The IPS segment’s principle business includes the issuance of official checks which are sold by agents that
are financial institutions. Revenue is principally earned on invested funds which are pending settlement. This
segment is in the process of winding down its official check business. For further details refer to the “Official
Check and Money Order Wind-Down” in the “2007 Overview” section above.
All Other and Corporate
All Other and Corporate is comprised of the Company’s business units not included in the segments noted
above as well as the Company’s Corporate results. There were no significant developments within All Other and
Corporate during 2009.
Industry
Bank industry consolidation impacts existing and potential clients in FDC’s service areas. The Company’s
alliance strategy could be impacted negatively as a result of such consolidations, especially where the banks
involved are committed to merchant processing businesses that compete with the Company. Conversely, if an
existing alliance bank partner acquires a new merchant business, this could result in such business being
contributed to the alliance. Bank consolidation has led to an increasingly concentrated client base in the industry,
resulting in a changing client mix for Financial Services as well as increased price compression. Bank
consolidations impacted the Company, specifically the Financial Services and Retail and Alliance Services
segments, during 2009. The Financial Services segment was negatively impacted by the consolidation of
JPMorgan Chase and Washington Mutual which is discussed in more detail in the “Segment Results” discussion
below. The Retail and Alliance Services segment was positively impacted by the PNC and National City
Corporation consolidation mentioned above. If bank consolidations continue in 2010, the Company could be
impacted positively or negatively depending on its relationship with the bank.
Components of Revenue and Expenses
The following briefly describes the components of operating revenues and expenses as presented in the
Consolidated Statements of Operations. Descriptions of the revenue recognition policies are included in Note 1
of the Company’s Consolidated Financial Statements in Item 8 of this Form 10-K.
Transaction and processing service fees—Transaction and processing service fee revenue is comprised of
fees related to merchant acquiring; check processing; credit, retail and debit card processing; output and
remittance processing; and payment management services. Revenues are based on a per transaction fee, a
percentage of dollar volume processed, accounts on file or some combination thereof. These revenues represent
approximately 62% of FDC’s 2009 revenue and are most reflective of the Company’s core business performance.
“Merchant related services” revenue is comprised primarily of fees charged to merchants and processing fees
charged to alliances accounted for under the equity method. Merchant discount revenue from credit card and
signature debit card transactions acquired from merchants is recorded net of interchange and assessments charged
by the credit card associations. “Check services” revenues include check verification, settlement and guarantee
fees which are charged on a per transaction basis or as a percentage of the face value of the check. “Card
services” revenue related to credit and retail card processing is comprised primarily of fees charged to the client
based on cardholder accounts on file, both active and inactive. “Card services” revenue for output services
consists of fees for printing statements and letters and embossing plastics. Debit processing and network service
fees included in “Card services” revenues are typically based on transaction volumes processed. “Other services”
revenue includes all other types of transactional revenue not specifically related to the classifications noted
above.
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