First Data 2012 Annual Report Download - page 24

Merchant processing and acquiring revenues are driven most significantly by the number of transactions, dollar volumes of
those transactions and trends in consumer spending between national, regional and local merchants. Consumers continue to increase
the use of credit, debit and stored-value cards in place of cash and paper checks. Internet payments continue to grow but account for a
small portion of the segment’s transactions. While transactions over the internet may involve increased risk, these transactions
typically generate higher profits for the Company. The Company continues to enhance its fraud detection and other systems to address
such risks.
In addition, Retail and Alliance Services provides check verification, settlement and guarantee services. The Company
continues to see a decrease in the use of checks which negatively affects the Company’s check verification, settlement and guarantee
business. The segment also manages prepaid stored-value card issuance and processing services (i.e. gift cards) for retailers and
others.
Financial Services segment. The Financial Services segment provides issuer card and network solutions and payment
management solutions for recurring bill payments. Financial Services also offers services to improve customer communications,
billing, online banking and consumer bill payment. Issuer card and network solutions includes credit, retail and debit card processing,
debit network services (including the STAR Network), and output services for financial institutions and other organizations offering
credit cards, debit cards and retail private label cards to consumers and businesses to manage customer accounts. Output services
include statement and letter printing, embossing and mailing services. The segment also provides remittance processing services,
information services and other payment services such as remote deposit, clearing services and processing for payments which occur in
such forms as checks, ACH, wire transfer and stored-value cards. A substantial portion of the information services as well as the check
clearing services businesses had been divested as of December 31, 2012. The segment’s largest components of revenue consist of fees
for account management, transaction authorization and posting and network switching.
Credit and retail based revenue is derived primarily from the card processing services offered to financial institutions and other
issuers of cards. Revenue from these markets is driven primarily by accounts on file, with active accounts having a larger impact on
revenue than inactive accounts. Retail account portfolios typically have a lower proportionate share of active accounts than credit
account portfolios and product usage is different between the card types resulting in lower revenue per active retail account. In
addition, contract pricing at the customer level is dependent upon the volume of accounts, mix of account types (e.g. retail, credit, co-
branded credit and debit) and product usage.
Debit processing revenue is derived mostly from the processing of transactions where the Company could receive multiple fees
for a transaction, depending on the role of the Company. The Company continues to see a shift to the use of debit cards from checks
and cash, a decrease that negatively affects the Company’s remittance processing business.
The underlying economic drivers of card issuance are population demographics and employment. Strengthening in the economy
typically results in an improved credit risk profile, allowing card issuers to be more aggressive in their marketing campaigns to issue
cards. Conversely, a weakening in the economy typically results in a tightening of the credit market with fewer consumers qualifying
for credit.
International segment. The International segment businesses provide the following services outside of the U.S.: credit, retail,
debit and prepaid card processing: merchant acquiring and processing; ATM and point-of-sale (“POS”) processing, driving, acquiring
and switching services; and card processing software. The primary service offerings of the International segment are substantially the
same as those provided in the Retail and Alliance Services and Financial Services segments. The largest components of the segment’s
revenue are fees for facilitating the merchant’s ability to accept credit, retail and debit cards by authorizing, capturing, and settling
merchants’ credit, retail, debit, stored-value and loyalty card transactions as well as for transaction authorization and posting, network
switching and account management.
All Other and Corporate. All Other and Corporate is comprised of the Company’s business units not included in the segments
noted above, primarily its government services business and its official check business that is winding down, as well as the
Company’s headquarter functions.
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 to the Company’s Consolidated Financial
Statements in Item 8 of this Form 10-K.
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