First Data 2012 Annual Report Download - page 6

(4) other services including remittance processing.
Financial Services segment revenues from external customers, segment EBITDA, and assets represent the following percentages
of total segment and All Other and Corporate revenues from external customers, total segment and All Other and Corporate EBITDA
and consolidated assets:
Description of Financial Services segment operations. Financial Services provides issuer card and network solutions for
credit, retail and debit card processing, debit network services (including the STAR network), output services to financial institutions
and other organizations offering credit, debit and retail cards to consumers and businesses to manage customer accounts. Financial
Services also provides PIN debit network services through the STAR Network which enables PIN-secured debit transaction
acceptance at over approximately 2 million ATM and retail terminal locations in the U.S. as of December 31, 2012. Financial Services
also offers payment management solutions for recurring bill payment and services to improve customer communications, billing,
online banking and consumer bill payment as well as information and check clearing services. A substantial portion of the information
services as well as the check clearing services businesses had been divested as of December 31, 2012. Revenue and profit growth in
these businesses is derived from retaining and growing the core business and improving the overall cost structure. Growing the core
business comes primarily from an increase in debit and credit card usage, growth from existing clients and sales to new clients and the
related account conversions.
As of December 31, 2012, the Financial Services segment had more than 4,000 domestic client relationships. The Company has
relationships and many long-term customer contracts with card issuers providing credit and retail card processing, output services for
printing and embossing items, debit card processing services and STAR Network services. These contracts generally require a notice
period prior to the end of the contract if a client chooses not to renew. Additionally, some contracts may allow for early termination
upon the occurrence of certain events such as a change in control. The termination fees paid upon the occurrence of such events are
designed primarily to cover balance sheet exposure related to items such as capitalized conversion costs or signing bonuses associated
with the contract and, in some cases, may cover a portion of lost future revenue and profit. Although these contracts may be
terminated upon certain occurrences, the contracts provide the segment with a steady revenue stream since a vast majority of the
contracts are honored through the contracted expiration date.
Credit and retail card issuing and processing services. Credit and retail card issuing and processing services provide
outsourcing services to financial institutions and other issuers of cards, such as consumer finance companies and retailers. Financial
Services clients include a wide variety of banks, savings and loan associations, group service providers, retailers and credit unions.
Services provided include, among other things, account maintenance, transaction authorizing and posting, fraud and risk management
services and settlement.
The Company provides services throughout the period of each card’s use, starting from a card-issuing client processing an
application for a card. Services may include processing the card application, initiating service for the cardholder, processing each card
transaction for the issuing retailer or financial institution and accumulating the card’s transactions. The Company’s fraud management
services monitor the unauthorized use of cards which have been reported to be lost, stolen, or which exceed credit limits. The
Company’s fraud detection systems help identify fraudulent transactions by monitoring each cardholder’s purchasing patterns and
flagging unusual purchases. Other services provided include customized communications to cardholders, information verification
associated with granting credit, debt collection, and customer service.
Revenues for credit and retail card issuing and processing services are derived from fees payable under contracts that depend
primarily on the number of cardholder accounts on file. More revenue is derived from active accounts (those accounts on file that had
a balance or any monetary posting or authorization activity during the period) than inactive accounts.
Debit network and processing services. The Company provides STAR Network access, PIN-debit and signature debit card
processing services and ATM processing services, such as transaction routing, authorization, and settlement as well as ATM
management and monitoring. The STAR Network represents a telecommunications network which is connected to thousands of
financial institutions, merchants, payment processors, ATM processors, and card processors that participate in the network. In the
merchant acquiring process flow described above in the Retail and Alliance Services segment discussion, STAR Network represents a
debit network. When a merchant acquirer or ATM owner acquires a STAR Network transaction, it sends the transaction to the
network switch, which is operated by the Company, which in turn routes the transaction to the appropriate participant for
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Year ended December 31,
2012 2011 2010
Segment revenues from external customers 20% 20% 21%
Segment EBITDA 25% 26% 27%
Assets (at December 31) 12% 12% 13%