First Data 2013 Annual Report Download - page 26

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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.
 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.
 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 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.
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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.
 Transaction and processing service fee revenue is comprised of fees related to merchant acquiring; check
processing; credit, retail and debit card processing; output and remittance processing; and payment management services. Revenues are based on a per
transaction fee, a percentage of dollar volume processed, accounts on file or some combination thereof. These revenues represent approximately 60% of FDC’s
2013 revenue and are most reflective of the Company’s core business performance. “Merchant related services” revenue is comprised primarily of fees charged
to merchants and processing
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