First Data 2012 Annual Report Download - page 7

authorization. To be routed through the STAR Network switch, a transaction must be initiated with a card participating in the STAR
N
etwork at an ATM or POS terminal also participating in the STAR Network. STAR Networ
k
’s fees differ from those presented in
the example above in the Retail and Alliance Services segment description in that the debit network charges less for PIN-debit
transactions than do the card associations for credit and signature debit since there is substantially less risk involved in the PIN-debit
transaction because PIN authentication is generally required and transactions are not approved unless there are sufficient funds in the
customer’s bank account.
Revenues related to the STAR Network and debit card and ATM processing services are derived from fees payable under
contracts but are driven more by monetary transactions processed than by accounts on file. The Company provides services which are
driven by client transactions and are separately priced and negotiated with clients. In a situation in which a PIN-secured debit
transaction uses the Company’s debit network and the Company is the debit card processor for the financial institution as well as the
processor for the merchant, the Company receives: (1) a fee from the card issuing financial institution for running the transaction
through the STAR Network switch, recognized in the Financial Services segment; (2) a fee from the card issuer for obtaining the
authorization, recognized in the Financial Services segment; (3) a fee from the merchant for acquiring the transaction, which is
recognized in the Retail and Alliance Services segment; and (4) a network acquirer fee from the merchant for accessing the STAR
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etwork, which is recognized in the Financial Services segment. There are other possible configurations of transactions that result in
the Company receiving multiple fees for a transaction, depending on the role the Company plays.
Output services. Output services consist of statement and letter printing, card embossing and mailing services. Services
are provided to organizations that process accounts on the Company’s platform as described above and for clients that process
accounts on alternative platforms. The Company provides these services primarily through in-house facilities. Revenues for output
services are derived primarily on a per piece basis and consist of fees for the production and materials related to finished products. The
mailing services drive a majority of the Company’s postage revenue.
Other services. Other services consist of the Company’s remittance processing and other services. The remittance
processing business processes mail-in payments for third-
p
arty organizations. Revenues for remittance processing services are derived
primarily on a per transaction basis and consist of fees for processing consumer payments. Other services consist primarily of online
banking and bill payment services, voice services 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.
Financial Services segment competition. The Company’s Financial Services segment competes with several other third-
party card processors and debit networks in the U.S., as well as financial institutions with in-house operations to manage card issuance
and maintenance. The Company also faces significant competition from regional and national operators of debit networks.
The most significant competitive factors are price, system performance and reliability, breadth of features and functionality,
disaster recovery capabilities and business continuity preparedness, data security, scalability, and flexibility of infrastructure and
servicing capability. The Financial Services business is impacted by financial institution consolidation.
In both the Retail and Alliance Services and Financial Services segments, the card associations and payment networks—Visa,
MasterCard and Discover—are increasingly offering products and services that compete with the Company’s products and services.
Financial Services seasonality. Debit processing and STAR Network revenues and earnings are impacted by the volume
of consumer usage of debit cards at the point of sale. Such volumes are generally impacted by increased POS activity during the
traditional holiday shopping period in the fourth quarter, the back-to-school buying period in the third quarter, and significant
holidays.
Financial Services geographic mix and revenues. Revenues from external customers for the Financial Services segment
are substantially all earned in the U.S. Card issuing revenues outside of the U.S. are reported by the Company’s International segment.
Within the U.S., revenues from external customers are geographically dispersed throughout the country.
Financial Services significant customers. No individual customer makes up more than 10% of the Financial Services
segment revenue.
International segment. The International segment is comprised of:
• credit, retail, debit and prepaid card processing;
• merchant acquiring and processing; and
• ATM and POS processing, acquiring and switching services.
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