First Data 2012 Annual Report Download - page 10

debit card interchange fees, and routing and exclusivity restrictions as well as a proposed rule governing the fraud prevention
adjustment in response to Section 1075 of the Dodd-Frank Act. Effective October 1, 2011, debit interchange rates for card issuers
operating in the U.S. with assets of $10 billion or more are capped at the sum of $.21 per transaction and an ad valorem component of
5 basis points to reflect a portion of the issuer’s fraud losses plus, for qualifying issuers, an additional $.01 per transaction in debit
interchange for fraud prevention costs. In addition, the new regulations ban debit payment card networks from prohibiting an issuer
from contracting with any other payment card network that may process an electronic debit transaction involving an issuer’s debit
cards and prohibit card issuers and payment networks from inhibiting the ability of merchants to direct the routing of debit card
transactions over any network that can process the transaction. Beginning April 1, 2012, all debit card issuers in the U.S. were
required to participate in at least two unaffiliated debit payment card networks. On April 1, 2013, the ban on network exclusivity
arrangements becomes effective for prepaid card and healthcare debit card issuers, with some leeway for prepaid cards issued before
that date. Additionally, Section 1075 of the Dodd-Frank Act provides two self-executing statutory provisions that became effective
on July 22, 2010. The first provision allows merchants to set minimum dollar amounts (not to exceed $10) for the acceptance of a
credit card (while federal governmental entities and institutions of higher education may set maximum amounts for the acceptance of
credit cards). The second provision allows merchants to provide discounts or incentives to entice consumers to pay with an alternative
payment method, such as cash, checks or debit cards. Separate from Title X, the Dodd-Frank Act creates a new entity, known as the
Financial Stability Oversight Council, and authorizes it to require that a nonbank financial company that is deemed to pose a systemic
risk to the U.S. financial system become subject to consolidated, prudential supervision by the Federal Reserve Board. At this point it
is unclear whether the Company would be subject to additional systemic risk related oversight.
The Company experienced some benefit due mostly to lower debit interchange rates. A discussion of the overall impact
on the Company is set forth in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of
this Form 10-K.
Association and network rules. A number of the Company’s subsidiaries are subject to payment network rules of
MasterCard, Visa and other associations. Several of the Company’s subsidiaries in the International segment are members of
MasterCard and/or Visa in the countries where the subsidiaries do business and are subject to the rules of such associations. First Data
Resources, LLC, First Data Merchant Services Corporation, and STAR Network, along with a number of the Company’s subsidiaries
in the International segment are registered with Visa and/or MasterCard as service providers for member institutions. In those
situations where the Company serves as a service provider to member institutions, the Company is not an issuer or an acquirer under
Visa’s and MasterCard’s rules. In addition, First Data Canada Merchant Solutions ULC is a member of Interac and subject to its
rules and First Data Global Services Limited is a subscriber to PULSE and is therefore subject to rules applicable to its members.
Various subsidiaries of the Company are also processor level members of numerous debit and electronic benefits transaction
(“EBT”) networks, such as Star Networks, Inc., Star Processing Inc., First Data Merchant Services Corporation, and Concord
Transaction Services, LLC, or are otherwise subject to various network rules in connection with processing services and other services
they provide to their customers and a number of the Company’s subsidiaries are providing processing and other services related to
ATM deployment to customers. As such, the Company is subject to applicable card association, network and national scheme rules,
which could subject the Company to a variety of fines or penalties that may be levied by the card associations, banking associations or
networks for certain acts and/or omissions by the Company, its sponsorees, acquirer customers, processing customers and/or
merchants. The Company mitigates this risk by maintaining an extensive card association and network compliance function. The
Company is also subject to network operating rules promulgated by the National Automated Clearing House Association relating to
payment transactions processed by the Company using the Automated Clearing House Network and to various state and Federal laws
regarding such operations, including laws pertaining to EBT.
Cashcard Australia Limited (“Cashcard”) is a member of the Australian Consumer Electronic Clearing System (“CECS”),
which is a debit payment system regulated by network operating rules established and administered by Australian Payments Clearing
Association Limited and which facilitates the clearing and settlement of ATM payments in Australia and a member of EFTPOS
Payments Australia Limited (“EPAL”), which is a debit payment system regulating Electronic Funds Transfer at Point of Sale
(“EFTPOS”) payments in Australia. Cashcard is also a member of the ATM Access Company Limited and the EFTPOS Access
Company Limited which respectively administers reciprocal access and interchange arrangements for ATMs and EFTPOS in
Australia. The network operating rules, ATM Access Code and EFTPOS Access Code impose a variety of sanctions, including
suspension or termination of membership and fines for non-compliance. Cashcard also operates its own network of members,
regulated by rules promulgated by Cashcard, which facilitates access to CECS and EPAL for Cashcard’s member institutions. To
enable Cashcard to settle in CECS direct with banks and financial institutions, Cashcard maintains an Exchange Settlement Account
(“ESA”) which is supervised by the Reserve Bank of Australia through its delegate, the Australian Prudential Regulatory Authority
(“APRA”), and which requires Cashcard to adhere to conditions imposed by APRA, such as maintaining a minimum balance in the
ESA.
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