First Data 2010 Annual Report Download - page 4

Table of Contents
Year ended December 31,
2010 2009 2008
Segment revenues from external customers 51% 49% 48%
Segment EBITDA 65% 56% 55%
Assets (at December 31) 66% 64% 55%
Description of Retail and Alliance Services segment operations. In the Retail and Alliance Services segment, revenues are derived primarily
from providing merchant acquiring and processing services, prepaid services and check verification, settlement and guarantee services. Retail and Alliance
Services businesses facilitate the acceptance of consumer transactions at the point of sale, whether it is a transaction at a physical merchant location or over
the internet. A brief explanation of the segment's service and product offerings is presented below.
Merchant acquiring and processing services. Merchant acquiring services facilitate the merchants' ability to accept credit, debit, stored-value
and loyalty cards by authorizing, capturing and settling the merchants' transactions. Acquiring services also provide POS devices and other equipment
necessary to capture merchant transactions. A majority of these services are offered 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.
Most of this segment's revenue is derived from regional and local merchants. 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 4.1 million merchant locations across the U.S. and acquired $1.4 trillion of payment transaction dollar
volume on behalf of U.S. merchants in 2010. Retail and Alliance Services provides full service merchant processing primarily on Visa and MasterCard
transactions and PIN-debit at the point of sale.
Retail and Alliance Services approaches the market through diversified sales channels including equity alliances, revenue sharing alliances and referral
arrangements with over 470 financial institution partners, over 1,040 non-bank referral partners, and over 610 independent sales organization partners, as of
December 31, 2010. 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.
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