First Data 2012 Annual Report Download - page 18

payment methods. On June 29, 2011, the Federal Reserve Board announced the final rules governing debit card interchange fees, and
routing and exclusivity restrictions as well as a proposed rule governing the fraud prevention adjustment in response to the Dodd-Frank
Act. Within the Retail and Alliance Services segment the Company experienced some transitory benefit due mostly to lower debit
interchange rates, however, the overall impact of the Dodd-Frank Act on the Company is difficult to estimate because it will take some
time for the market to react and adjust to the new regulations and additional regulations may be developed by the newly created Bureau
of Consumer Financial Protection (“CFPB”), with respect to consumer financial products and services that impact the Company or its
customers. Pursuant to final rules published by the CFPB specifying the criteria for agencies with consumer reporting activities that will
be subject to direct supervision and regulatory oversight by the CFPB, two of the Company’ s subsidiaries, TeleCheck Services Inc. and
TRS Recovery Services, Inc., are subject to CFPB oversight. At this point it is unclear as to whether other parts of the Company’ s
business also will be subject to CFPB oversight in the future or what such oversight may entail. Each of the proposed regulations may
adversely affect the Company’ s business or operations, directly or indirectly (if, for example, the Company’ s customers’ business and
operations are adversely affected). In addition, an inadvertent failure by the Company to comply with laws and regulations, as well as
rapidly evolving social expectations of corporate fairness, could damage the Company’ s reputation or brands. Furthermore, the
Company is subject to tax laws in each jurisdiction where it does business. Changes in tax laws or their interpretations could decrease
the value of revenues the Company receives, the value of tax loss carryforwards and tax credits recorded on the Company’ s balance
sheet and the amount of the Company’ s cash flow and have a material adverse impact on the Company’ s business.
Future consolidation of client financial institutions or other client groups may adversely affect the Company’s financial condition.
The Company has experienced the negative impact of the substantial bank industry consolidation in recent years. Bank industry
consolidation impacts existing and potential clients in the Company’ s service areas, primarily in Financial Services and Retail and
Alliance Services. The Company’ s alliance strategy could be negatively impacted as a result of consolidations, especially where the
b
anks involved are committed to their internal merchant processing businesses that compete with the Company. 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. Further consolidation in the bank industry or other client base could have a negative impact on the
Company.
The Company is subject to the credit risk that its merchants will be unable to satisfy obligations for which the Company may also be
liable.
The Company is subject to the credit risk of its merchants being unable to satisfy obligations for which the Company also may be
liable. For example, the Company and its merchant acquiring alliances are contingently liable for transactions originally acquired by the
Company that are disputed by the card holder and charged back to the merchants. If the Company or the alliance are unable to collect
this amount from the merchant, due to the merchant’ s insolvency or other reasons, the Company or the alliance will bear the loss for the
amount of the refund paid to the cardholder. The Company has an active program to manage its credit risk and often mitigates its risk
by obtaining collateral. Notwithstanding the Company’ s program for managing its credit risk, it is possible that a default on such
obligations by one or more of the Company’ s merchants could have a material adverse effect on the Company’ s business.
Changes in credit card association or other network rules or standards could adversely affect the Company’s business.
In order to provide the Company’ s transaction processing services, several of the Company’ s subsidiaries are registered with Visa
and MasterCard and other networks as members or service providers for member institutions. As such, the Company and many of its
customers are subject to card association and network rules that could subject the Company or its customers to a variety of fines or
penalties that may be levied by the card associations or networks for certain acts or omissions by the Company, acquirer customers,
processing customers and merchants. Visa, MasterCard and other networks, some of which are the Company’ s competitors, set the
standards with respect to which the Company must comply. The termination of the Company’ s member registration or the Company’ s
status as a certified service provider, or any changes in card association or other network rules or standards, including interpretation and
implementation of the rules or standards, that increase the cost of doing business or limit the Company’ s ability to provide transaction
processing services to or through the Company’ s customers, could have an adverse effect on the Company’ s business, operating results
and financial condition.
The Company’s business may be adversely affected by risks associated with foreign operations.
The Company is subject to risks related to the changes in currency rates as a result of its investments in foreign operations and
from revenues generated in currencies other than the U.S. dollar. Revenue and profit generated by international operations will increase
or decrease compared to prior periods as a result of changes in foreign currency exchange rates. From time to time, the Company
utilizes foreign currency forward contracts or other derivative instruments to mitigate the cash flow or market value risks
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