First Data 2009 Annual Report Download - page 5

to the merchants through contractual alliance arrangements primarily with financial institutions, relationships
with independent sales organizations and other referral/sales partners. The segment’s processing services include
authorization, transaction capture, settlement, chargeback handling, and internet-based transaction processing.
The vast majority of these services pertain to transactions in which consumer payments to merchants are made
through a card association (such as Visa or MasterCard), a debit network, or another payment network (such as
Discover).
Revenues are generated from, among other things:
• Discount fees charged to a merchant, net of credit card interchange and assessment fees charged by the
bankcard associations or payment networks (Visa, MasterCard or Discover). The discount fee is
typically either a percentage of the credit card transaction or the interchange fee plus a fixed dollar
amount;
• Processing fees charged to unconsolidated alliances discussed below;
• Processing fees charged to merchant acquirers who have outsourced their transaction processing to the
Company;
• Selling and leasing POS devices; and
• Debit network fees.
The items listed above are included in the Company’s consolidated revenues and, for equity earnings from
unconsolidated alliances, the “Equity earnings in affiliates, net” line item in the Consolidated Statements of
Operations. The Retail and Alliance Services segment revenue and EBITDA are presented using proportionate
consolidation. In addition, segment revenue excludes debit network fees and other reimbursable items.
Retail and Alliance Services provides merchant acquiring and processing services, prepaid services and
check verification, guarantee and settlement services to merchants operating in approximately 4.0 million
locations across the U.S. Retail and Alliance Services provides full service merchant processing primarily on
Visa and MasterCard transactions and PIN-debit at the point of sale.
Growth in the Retail and Alliance Services business is derived from entering into new merchant
relationships, new and enhanced product and service offerings, cross selling products and services into existing
relationships, the shift of consumer spending to increased usage of electronic forms of payment and the strength
of FDC’s alliances and relationships with banks and other entities. The Company’s alliance structures take on
different forms, including consolidated subsidiaries, equity method investments and revenue sharing
arrangements. Under the alliance and referral programs, the alliance/referral partners typically act as a merchant
referral source. The Company benefits by providing processing services for the alliance/referral partners and
their merchant customers. Both the Company and the alliance may provide management, sales, marketing, and
other administrative services. The alliance strategy could be affected by further consolidation among financial
institutions.
The Company’s strategy with banks, independent sales organizations and referral/sales partners provides the
Company with broad geographic coverage, regionally and nationally, as well as a presence in various industries.
The alliance/referral partner structure allows the Company to be the processor for multiple financial institutions,
any one of which may be selected by the merchant as their bank partner. Additionally, bank partners provide
brand loyalty and a distribution channel through their branch networks which increases merchant retention.
There are a number of different entities involved in a merchant transaction including the cardholder, card
issuer, card association, merchant, merchant acquirer, electronic processor for credit and signature debit
transactions, and debit network for PIN-debit transactions. The card issuer is the financial institution that issues
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