Wednesday, May 4, 2011

Regulatory Brawl over Debit Cards Sidesteps the Real Fee-Setters: Card Companies

Editor's Note: This article by Amy Biegelsen was originally published on The Center for Public Integrity's iWatch and has been republished with permission for the ePayment News Blog.

How much does it really cost to process debit card purchases?

Exactly how much it costs big U.S. banks to process a Visa or MasterCard debit card transaction has long been murky – until the Federal Reserve surveyed the industry a few months ago and came up with a figure of 12 cents per swipe.

MasterCard stock soars to 3-year high on earnings; debit card use up 16 percent

By The Associated Press 23 hours, 10 minutes ago

BOSTON - MasterCard Inc. shares rose to their highest level in nearly three years Tuesday after the payment processor posted a higher-than expected first-quarter profit.
Competition usually pushes prices lower. But in the case of debit card processing fees, aggressive competition between Visa and MasterCard to win banks’ business has helped keep swipe fees high and resulted in an annual $16 billion bonanza for U.S. banks.

This little-noticed aspect of debit processing fees has been lost in the lobbying brawl under way as banks try to delay or kill a cap on the fees included in the sweeping Dodd-Frank financial reform law last summer. Congress left it up to the Federal Reserve to work out the details, and the Fed proposed a ceiling of 12 cents to process each debit transaction — a sharp cut from the current average of around 44 cents per transaction.
Some have suggested the Durbin Amendment throws consumers under the bus
Why should consumers care? Debit cards are now the most popular payment mechanism used by American shoppers, accounting for half of all transactions. And each time a shopper swipes a card to buy a quick latte or to invest in a pricey DVD player, his or her bank earns a fee from the retailer. On the sale of a $100 television, for instance, the retailer may get $98 while the bank gets most of the rest.
Retailers welcome the Fed’s proposed cap, saying debit processing fees have forced them to raise prices. Consumer advocates say these higher prices are being borne by all customers, whether they pay with plastic or not. And banks say a cut in fees means they may have to make up the revenue by taking away free checking accounts and other services.
While both banks and retailers play starring roles in the unfolding regulatory drama, neither sets the actual processing fees. That’s up to companies such as Visa Inc. and MasterCard Inc., which dominate the card payments industry.
The fees that banks charge retailers for debit transactions have shot up in the past decade. Banks now collect an average 23 cents from every debit card PIN transaction, for example, up from just 7 cents a decade ago, according to Federal Reserve economists.
Critics, including dozens of large merchants who are suing Visa and MasterCard, say the underlying competition  between the two card companies helped drive up fees over the years, in part because their business interests are more aligned with banks than with retailers.
“This system is so buried and has been so esoteric that nobody has paid attention to it,” said Thomas Undlin, lead attorney in a merchants’ class action lawsuit accusing Visa and MasterCard of anti-competitive behavior.
Whether a customer’s bank is JPMorgan Chase or Bank of America, swipe fees the merchants pay to a specific card company are the same. All the banks that issue Visa cards get the Visa fee schedule, and all the banks that issue MasterCards get the MasterCard fee schedule. Undlin’s clients argue that amounts to price-fixing by the card companies.
Similar lawsuits have been filed by retailers such as Kroger Co., Rite Aid Corp. andPayless ShoeSource, Inc. Over the past decade, the Justice Departmentand mega-merchants like Wal-Mart have won concessions on grounds that Visa and MasterCard’s behavior has been anti-competitive. Most recently, Visa and MasterCard agreed in an October 2010 settlement with the government to stop prohibiting merchants from offering discounts to customers who use a card that carries lower interchange fees which can save the retailer money.
Visa and MasterCard did not respond to iWatchNews requests for comment.
But in the past, the companies have said they can’t be monopolistic because consumers have so many other ways of paying. When the antitrust lawsuit was initially filed in 2005, Visa argued that cash, credit and checks were available as alternative payment methods for consumers. The case has been tied up in pre-trial motions ever since.
The Electronic Payments Coalition, an industry group representing Visa, MasterCard, several big banks, and a number of state banking groups, says complaining merchants forget that the popularity of debit cards has spurred more sales for them.
“You have to be able to balance on one side being able to charge a small enough amount so that retailers will accept the cards, and on the other side offer enough revenue so that banks will be willing to issue those cards,” said Trish Wexler, spokeswoman for the Electronic Payments Coalition.
The debit processing fee helps pay for the electronic network that authorizes, clears and settles each purchase. It also helps defray the costs of fraud, fraud prevention, data security, customer assistance and disputes, and producing debit cards, according to banks.

Ads, websites, letters

With billions of dollars at stake, banks and merchants have mounted a major lobbying battle.
Advertisements on the Washington, D.C., subway system paid for by banks announce that “Washington is helping giant retailers clean out your wallet.” Hundreds of banks and credit unions across the country have sent letters to the Fed and to their House and Senate lawmakers criticizing the proposed fee cap and warning of dire consequences should it be enacted.
The American Bankers Association said last week that the Fed’s proposed 70 percent cut in debit processing fees means banks will lose money on every transaction. “The only options left will be to shift these costs to consumers or cease providing debit cards,” said ABA President Frank Keating.
The bankers group also scoffed at the notion that consumers would benefit from a cap on the fees, saying there was no assurance that retailers would pass along any savings to shoppers. The fee cap, according to bankers, amounts to price fixing by the government.
Retailers have fought back. The Merchants Payments Coalition launched the website, which is attacking interchange fees for both debit and credit cards. It says, for example, card companies and banks are collecting as much as 8 cents in processing fees for each gallon of gasoline bought by consumers.
Merchants also have a powerful supporter — Dick Durbin, the No. 2 Democrat in the U.S. Senate who authored the Dodd-Frank amendment requiring a cap on debit swipe fees. After JPMorgan Chase CEO Jamie Dimon criticized

Americans' Security Concerns Jump on Internet and National Security Worries, Unisys Security Index Shows

U.S. Unisys Security Index finds concern rises to highest levels ever following WikiLeaks incident, new unrest in the Middle East, and national and financial security threats

BLUE BELL, Pa.May 4, 2011 /PRNewswire/ -- Americans are significantly more concerned about nearly all aspects of their security compared to six months ago, according to new research conducted by Unisys Corporation (NYSE: UIS). The largest rise in concern centered on Internet security, measured at levels 35 percent higher than in August 2010, with approximately half of Americans seriously concerned about viruses, spam and the safety of online shopping.
The bi-annual Unisys Security Index surveys more than 1,000 Americans to gauge consumer opinion on four areas of security: financial, national, Internet and personal safety. The total U.S. Unisys Security Index score jumped more than 20 percent over the past six months, to a level of concern that researchers marked as "serious" -- the first time the U.S. index reading has warranted that designation since the survey began in 2007.
The survey, taken in February, also showed that Americans are conflicted about government data leaks associated with the WikiLeaks web site, with many stating the site should be shut down and others asserting that leaks can help to keep government accountable to citizens.
Growth in security concerns across the board
On a scale of zero to 300, the Unisys Security Index stands at 164 in the US, up from 136 six months ago. The increase is due largely to higher concerns related to the war or terrorism, identity theft and bankcard fraud. For example, 70% of Americans surveyed said they were seriously concerned about identity theft, and 68% of Americans surveyed said they were seriously concerned about falling victim to credit or debit card fraud. Also, 67% were seriously concerned about national security.
"Recent events such as the WikiLeaks incident and some of the recent well-publicized hacker attacks may be pushing Americans to an inflection point in understanding just how critical the Internet is to all dimensions of security, whether securing our nation or securing our personal information," said Steve Vinsik, vice president, enterprise security, Unisys. "We believe that awareness levels will continue to rise as the Internet becomes more woven into all of our day-to-day lives."
Beyond Internet security, the new Unisys survey shows that Americans are just as concerned about potential security attacks on critical infrastructure targets as they are about transportation such as airplanes, airports and mass transit.
For example, 61 percent of Americans were seriously concerned about the vulnerability of bridges, power plants and pipelines -- a greater number than those seriously concerned about airport or airplane security (59 percent). Other areas of serious concern included mass transit (57 percent), large public gatherings (57 percent) and cargo (56 percent).
Americans conflicted about WikiLeaks but not about the vulnerability of secrets
When asked about the recent WikiLeaks incident involving leaked classified U.S. government data, American respondents appeared to have mixed feelings on the issue. Nearly half (48 percent) of Americans surveyed were familiar with the WikiLeaks incident. Of those, 52 percent agreed "strongly" or "somewhat" with the statement that the release of the information was good and made the government accountable. However, 64 percent of Americans surveyed agreed with a statement that release of the information was harmful and that WikiLeaks should be shut down.
In addition, 73 percent of Americans surveyed who were familiar with the WikiLeaks incident expressed a lack of confidence in governments' ability to prevent future data leaks.
About the Unisys Security Index
The Unisys Security Index is a bi-annual global study that provides insights into the attitudes of consumers on a wide range of security related issues. Lieberman Research Group conducted the survey in Latin AmericaEurope and the U.S.; Newspoll conducted the research in Asia-Pacific. The Unisys Security Index surveys more than 10,000 people in twelve countries: Australia,BelgiumBrazilColombiaGermanyHong KongMexicothe NetherlandsNew ZealandSpain, the United Kingdom and the United States. The study measures consumer perceptions on a scale of zero to 300, with 300 representing the highest level of perceived concern. For more information, visit
About Unisys
Unisys is a worldwide information technology company. We provide a portfolio of IT services, software, and technology that solves critical problems for clients. We specialize in helping clients secure their operations, increase the efficiency and utilization of their data centers, enhance support to their end users and constituents, and modernize their enterprise applications. To provide these services and solutions, we bring together offerings and capabilities in outsourcing services, systems integration and consulting services, infrastructure services, maintenance services, and high-end server technology. With more than 23,000 employees, Unisys serves commercial organizations and government agencies throughout the world. For more information, visit
RELEASE NO.: 0504/9039
Unisys is a registered trademark of Unisys Corporation. All other brands and products referenced herein are acknowledged to be trademarks or registered trademarks of their respective holders.
SOURCE Unisys Corporation

Here's More on Why Isis Isnot Moving Forward with Ambitious NFC Mobile Payment Platform

Here's more on the announcement that AT&T, Verizon and T-Mobile are backing off their ambitious ISIS plans. GIGAOM is also reporting that "Isis Isn't" as they have decided to downsize their plans for an NFC Mobile Payment network for fears they have fallen behind...
Now, the carriers will have to find other ways to participate financially in the move to NFC payments, perhaps through revenue sharing with financial institutions that store payment credentials on a SIM card. Or they can try and make money by taking a cut of mobile marketing offers delivered to consumers. But increasingly it seems that the big credit card companies are going to a play a large role in NFC. Google, for instance, is reportedly working on a partnership with MasterCard and Citigroup to integrate NFC technology in Android devices. Research in Motion is also working on a trial with MasterCard to enable Bank of America customers to pay with their phones. The battle is turning to who can own the customer, their personal data and their payment credentials. Google and RIM would like to store credentials right on the phone, many of which will get NFC chips. But the operators are hoping to be in the loop by getting the secure information on a SIM card. Potential challengers like Apple could also connect NFC chips to its iTunes system for payments. Whatever happens, it’s critical to be part of that direct relationship with the consumer, not just to take a cut of the transaction but to be part of the potentially larger opportunity in delivering personalized marketing offers to a user. It’s still early days in the NFC space but the latest turn of events highlights the challenges of going up against the credit card companies.  <>

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Isis Becomes "Isisn't" as Plans are Shelved...Mobile Carriers to Work "with" Visa/MasterCard

The Wall Street Journal and The Register both are reporting that Isis...Isisn't

The venture known as Isis, formed by AT&T Inc., Verizon Wireless and T-Mobile USA, initially aspired to set up its own payments network and collect fees on every transaction. Customers would maintain accounts directly with their wireless carrier, rather than with a credit card company.The biggest U.S. wireless carriers are scaling back a joint venture for mobile payments that they originally hoped would compete with Visa Inc. and MasterCard Inc., reaffirming the traditional credit card companies' clout in the nascent market for mobile transactions.
Read more:

From The Register:  US operators' initiative Isis won't be an NFC payment system as originally planned, just a wallet to hold payment cards and without a revenue stream to call its own. The scaled-back plan will see Isis verifying payment applications from Visa, Mastercard and anyone else rather than creating anything new

Isis was set up last year, and backed by AT&T, T-Mobile, and Verizon, who had planned to create their own payment platform and logo for a proximity payment system base on Near Field Communications. The idea was to use terminals owned by the Discover Card to take the payments, and create a viable alternative to Visa or Mastercard.  But citing "people familiar with the matter" the Wall Street Journal reports that merchants didn't like the idea of a new player, and Isis has now downgraded its aspirations to acting as a gatekeeper verifying applications from those companies with whom it had planned to compete <>

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Retailers Accuse American Express of Antitrust Breach

Retailers Accuse AmEx of Antitrust Breach as Battle Over Debit Card Cap Heats Up

This ePayment News Post was Reprinted by Permission © 2011, The Center for Public Integrity®. All Rights Reserved

Retailers in a long-running lawsuit against American Express Co. over charge card swipe fees are now accusing the card giant of violating antitrust law to keep them from suing as a class.

American Express representatives were ordered to obtain “collective action waivers” from merchants as a condition of doing business with the company, according to a complaint filed Wednesday in U.S. District Court in New York. The waivers were designed by AmEx “with the specific intention of immunizing itself against liability that it might otherwise incur under the antitrust laws in connection with the rules it imposes upon merchants,” the lawsuit says.

A class action, filed by retailers more than six years ago, accuses the company of forcing merchants to accept all AmEx credit and debit cards as a cost of doing business and seeks to free the merchants to “steer” customers to credit cards with the lowest interchange fees. That would likely mean discounts for customers who pay for purchases with lower-fee credit and debit cards.

AmEx charges merchants about 2.5 percent of the cost of any transaction, the highest interchange fee in the industry.

In a settlement with the Department of Justice last October, Visa and MasterCard agreed to free retailers from similar steering restrictions. AmEx, which was also the subject of a DOJ investigation, vowed to fight on.

Meanwhile, a broader battle over interchange fees, which the Center for Public Integrity first wrote about last September, has gained momentum as banks of all sizes lobby to convince Congress to drop or delay a provision of the Dodd-Frank financial overhaul law that would prohibit big banks from charging merchants more than 12 cents to process each debit card transaction. Banks now charge an average 44 cents, and the Federal Reserve’s proposed cap would cost them billions of dollars.

Small banks, which do not have to abide by the new regulation, say that they won’t be able to compete with the big banks unless they also slash their fees. And big banks insist that 12 cents does not cover what it costs them to process a debit card transaction.

Card companies and their network banks reaped more than $35 billion from merchant fees in 2009 alone.

A bipartisan bill was introduced earlier this month in the U.S. Senate, where Democrats hold a slim majority, to delay a debit card fee cap for two years. The legislation is backed by three Democrats — Jon Tester of Montana, Ben Nelson of Nebraska, and Tom Carper of Delaware — but it remains to be seen whether the legislation can muster the 60 votes needed to defeat any filibuster threats.

Gary Friedman, a New York lawyer who represents the small merchants in the class action against AmEx, said that the card company must drop its restriction on retailers offering discounts to customers who use other credit or debit cards. Otherwise, the government deal with Visa and MasterCard doesn’t mean much. Any merchant that accepts AmEx would be violating that company’s policy.

But after six years, the parties to the lawsuit are still fighting over whether the merchants can sue as a class, or whether, as their contracts dictate, they must arbitrate individually with the company.

The U.S. Court of Appeals for the Second Circuit recently ruled that AmEx could not force merchants to resolve lawsuits with the company individually. The next stop for the case is likely the U.S. Supreme Court.

AmEx did not respond to a Center request for comment.

Reprinted by Permission for the ePayment News Blog by Ben Hallman © 2011, The Center for Public Integrity®. All Rights Reserved.
About The Author
Staff Writer
Benjamin Hallman covers business and finance for the Center. He joined in June 2010 after nearly five years as a legal affairs reporter at The American Lawyer, where he covered the business of law, white collar crime, and regulatory Washington. Hallman has reported on the accounting fraud prosecutions of HealthSouth’s Richard Scrushy and Qwest’s Joesph Nacchio; on the massive Google book search settlement; and, from Iraq, on American-led efforts to rebuild the Iraqi justice system. His story about the crash of Lehman Brothers was anthologized in The Best American Legal...

PayByPhone Approved by San Francisco Municipal Transportation Agency (SFMTA) to Pay for Parking

SFMTA Approves PayByPhone for On Street Parking in San Francisco

San Francisco drivers will be able to use their cell phones to pay for parking
VANCOUVER, British Columbia--(BUSINESS WIRE)--The San Francisco Municipal Transportation Agency (SFMTA) Board has approved a contract with PayByPhone (Verrus) to introduce pay-by-phone payment service across approximately 27,000 on-street parking spaces throughout San Francisco.
“Along with the SFpark initiatives, this technology will help improve the customer experience by making it more convenient to pay for parking at locations throughout San Francisco.”
When launched later this year, the service will enable drivers to use their mobile phones to pay for parking. Drivers can also choose to receive a text message reminder before their parking meters expire, add time remotely (subject to time limit restrictions) and receive parking receipts by email.
This program will be available at City meters, including those in SFpark and Port of San Francisco areas. In order to use the service, customers will first establish an account linked to a credit card, either online or by phone. Customers will then make payments by entering the unique parking location number found on each meter. The mobile web, mobile apps or an automated phone system can be used to enter the required information. The total price will include the regular meter rate plus a convenience fee of up to $0.45 per transaction for this optional service.
“The SFMTA is committed to improving parking throughout the city and this is one more tool to improve the driving and parking experience in San Francisco. To this end, we are excited to offer another parking payment option,” said Nathaniel P. Ford Sr., SFMTA’s Executive Director/CEO. “Along with the SFpark initiatives, this technology will help improve the customer experience by making it more convenient to pay for parking at locations throughout San Francisco.”
Many large cities in North America and Europe have adopted pay-by-phone parking technology. Miami, Vancouver, London and Paris are examples of places that have implemented parking payments by phone with the proven, secure system from PayByPhone.
Founded in 2001, PayByPhone ( is the world leader in mobile phone payment solutions for parking that eliminate the need for parking meters. Deployed with over 120 cities or municipalities around the world, it is the next generation of parking technology. PayByPhone is a division of PayPoint plc ( operating through subsidiaries Verrus Mobile Technologies, Inc, Verrus UK Limited and Mobile Payment Services SAS.


Chris Morisawa, 604-642-4286 x152
Marketing Coordinator

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MasterCard Advisors Releases April 2011 Spending Pulse

SpendingPulse April 2011 U.S. Retail Report: Mixed Results Driven by Shifting Weather, Higher Gasoline Prices and a Late Easter Holiday

Luxury, Apparel, and e-Commerce Remain Strong While Electronics Stores Lose Ground
PURCHASE, N.Y.--(BUSINESS WIRE)--MasterCard Advisors:
Data Source:
A macroeconomic indicator, SpendingPulse reports on national retail and services sales and is based on aggregate sales activity in the MasterCard payments network, coupled with survey-based estimates for certain other payment forms, such as cash and check. MasterCard SpendingPulse does not represent MasterCard financial performance. SpendingPulse is provided by MasterCard Advisors, the professional services arm of MasterCard Worldwide.
MasterCard Advisors SpendingPulse, a macroeconomic report tracking national retail and services sales, today provided summary results for performance of specific U.S. retail industries in April 2011. Luxury, e-Commerce and Apparel enjoyed strong growth, and the Restaurant category surpassed last month’s gains. That said, Electronics sales dipped back into negative territory. And while consumer spending in the hotel category continues to see robust year-over-year gains, airline spending retreated to under a 1% gain after several months of robust year-over-year growth.
Michael McNamara, Vice President, Research and Analysis for MasterCard Advisors SpendingPulse, notes, “Overall, retail sectors were mixed this month. Several sectors showed continued year-over-year growth, while others were flat or even negative. The shift in the Easter holiday between this year and last may have helped some of the comparisons, especially for Apparel, Groceries, Flowers, and Drug Stores. For those sectors, it might be more instructive to look at March and April combined. On the other hand, unusually stormy weather in the South and Midwest may have cut down on shopping trips, and may have worked against particular sectors such as Hardware.”
Mr. McNamara took note of the continued rise in gasoline prices. “Our experience over the past several years suggests that this can have a variety of repercussions for retail. First, we can expect consumers to make fewer shopping trips, especially on weekends, and this may contribute to an ever stronger growth for e-Commerce. Fewer miles driven also reduces demand for Auto Parts and Services. Finally, Casual Dining Restaurants can be negatively impacted.”
Here are details of some specific sectors for April 2011:
Up a notable 10.4% in April, Total U.S. Apparel sales recorded their ninth consecutive year‐over‐year gain. Some of this performance can be attributed to this year’s Easter pre‐holiday sales happening throughout April, in contrast to last year, when they took place almost entirely during March. All of Apparel’s sub-sectors recorded year-over‐year sales growth in April. Family apparel came in at 10.6%, posting the 11th straight positive year‐over‐year growth rate. Menswear weighed in at 12.4%, showing 6 straight months of positive growth. Women’s wearup 7.4%, posted its 7th straight month of growth and the sub-category’s highest year-over‐year growth rate since May 2007. At 6.3%, Footwear also made a comeback into positive territory, following a brief dip in March.
Showing its highest single month of year-over-year growth since July 2007, and the highest dollar levels spent for any April in SpendingPulse history, U.S. e-Commerce was up 19.2%, the category’s 6th straight month of double-digit growth and 21st straight month in positive territory. Many eCommerce sectors posted impressive growth with Footwear topping 20% and Women’swear continuing to surge, passing the 15% mark for the second straight month. Electronics online sales, at 9.1% posted their 8th straight month in positive territory.
For the 3rd time in the last four months Electronics and Appliances registered a decline, down 1.8% year-over-year. This is the largest March‐to‐April sales decrease since April 2006.
In its 7th month of year-over-year gains, the SpendingPulse Luxury Index (excluding Jewelry) was up 9.6%, the sector’s largest gain since May 2010. The SpendingPulse Luxury category measures luxury sales at high-end restaurants, food stores, department stores and general apparel categories.
About MasterCard Advisors
MasterCard Advisors provides payments consulting, information, analytics, and customized services to financial institutions and their merchant partners worldwide. Addressing complex challenges in strategy, marketing, risk, and operations, MasterCard Advisors helps clients maximize the value of their payments businesses. As the professional services arm of MasterCard Worldwide, MasterCard Advisors is uniquely qualified to provide clients with insights and solutions that drive tangible impact and financial gain. For more information, go to
About MasterCard Worldwide
As a leading global payments company, MasterCard Worldwide prides itself on being at the heart of commerce, helping to make life easier and more efficient for everyone, everywhere. MasterCard serves as a franchisor, processor and advisor to the payments industry, and makes commerce happen by providing a critical economic link among financial institutions, governments, businesses, merchants, and cardholders worldwide. In 2010, $2.7 trillion in gross dollar volume was generated on its products by consumers around the world. Powered by the MasterCard Worldwide Network – the fastest payment processing network in the world – MasterCard processes over 23 billion transactions each year and has the capacity to handle 160 million transactions per hour, with an average network response time of 130 milliseconds and with 99.99 percent reliability. MasterCard advances global commerce through its family of brands, including MasterCard®, Maestro®, and Cirrus®; its suite of core products such as credit, debit, and prepaid; and its innovative platforms and functionalities, such as MasterCard PayPass™ and MasterCard inControl®. MasterCard serves consumers, governments, and businesses in more than 210 countries and territories. For more information, please visit us at Follow us on Twitter: @mastercardnews.


Meir Kahtan Public Relations, LLC
Meir Kahtan, +1-212-575-8188
MasterCard Worldwide
Naya Larsson, +1-914-249-3916

First Data Releases Q1 Financials, up 6%

First Data Reports First Quarter 2011 Financial Results

  • First quarter 2011 consolidated revenue of $2.5 billion, up 6%; First quarter 2011 adjusted revenue of $1.5 billion, up 2%
  • Earnings growth in all three business segments
  • Extended $12 billion in debt maturities to 2018 and beyond
  • Generated $108 million in operating cash flow and ended the quarter with $1.9 billion in unrestricted liquidity
ATLANTA--(BUSINESS WIRE)--First Data Corporation today reported its financial results for the first quarter ended March 31, 2011. Consolidated revenue for the first quarter increased $142 million to $2.5 billion, up 6% compared to $2.4 billion a year ago. Revenue growth was primarily attributable to increases in debit network fees, merchant related services from the favorable impact of U.S. economic growth, and improved international volumes. Adjusted revenue, which excludes reimbursables, increased $29 million, or 2%, year-over-year to $1.5 billion.
“Higher volumes and good sales performance in our domestic and international merchant acquiring businesses coupled with lower expenses led to increased profitability across the board during the first quarter for First Data”
For the first quarter, the net loss attributable to First Data was $217 million, a year-over-year improvement of $23 million from $240 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $468 million was up 10% compared to $424 million in the first quarter of 2010, driven by growth across all three business segments.
First Data generated $108 million in operating cash flow, after interest payments of $353 million, for the quarter and finished the quarter with $1.9 billion in unrestricted liquidity—$150 million in cash available for corporate use plus $1.7 billion under the revolving credit facility.
“Higher volumes and good sales performance in our domestic and international merchant acquiring businesses coupled with lower expenses led to increased profitability across the board during the first quarter for First Data,” said Jonathan J. Judge, chief executive officer. “We continued to strengthen the capital structure by refinancing debt well ahead of maturities. This provides increased financial flexibility and the opportunity to invest for future top-line growth.”
Segment Results
Retail and Alliance Services segment revenue of $765 million increased $27.6 million, or 4%, in the first quarter of 2011 compared to $737 million in 2010. Revenue growth was driven by transaction growth of 9% and continued cross-selling of complementary products including prepaid card and point-of-sale equipment. Credit mix was stable at 72% and regional average ticket was $69.85, down 1% compared to the same quarter a year ago. Segment EBITDA was $286 million, up $36 million, or 15%, compared to 2010 as a result of revenue growth and related operating leverage, and lower expenses including reduced credit losses. Margin for the first quarter was 37%, up approximately 300 basis points compared to the same quarter a year ago. During the quarter, Retail and Alliance Services added nine referral agreements, 10 new independent sales organizations and one new revenue sharing agreement.
Financial Services segment revenue for the first quarter was $338 million, down $8.5 million, or 2%, compared to $346 million in the same quarter of 2010 as new business and growth in debit transaction volumes were offset by customer losses, pricing pressure, and a 1% decline in active card accounts on file. Debit issuer transactions were up 12% excluding the impact of the loss of Washington Mutual. Segment EBITDA was $137 million, up $4 million, or 3%, compared to $133 million in 2010, driven by lower technology and operations costs. Margin for the first quarter was 41%, up approximately 200 basis points compared to the same quarter a year ago. During the quarter, Financial Services renewed approximately 400 contracts with financial institutions.
International segment revenue for the first quarter was $415 million, up $23.6 million, or 6%, compared to $392 million in the prior year. On a constant currency basis, segment revenue was up 4%. Revenue increases were driven by growth in the merchant acquiring business, primarily due to growth in bank alliances in Europe and volumes in Argentina. The card issuing business was relatively stable, on a constant currency basis, as new business substantially offset lower volumes and lost business. The year-over-year comparison of the issuing business also improved as price compression from large contract extensions eased. Segment EBITDA was $92 million, up $14 million compared to $78 million in 2010 on higher revenue. Margin was 22%, up approximately 200 basis points compared to the same quarter of the previous year.
Recent Events
John Elkins Appointed President, First Data – International Regions
On March 16, 2011, First Data announced that John Elkins was appointed the President – International Regions, covering the company's business in Europe, the Middle East and Africa (EMEA), Asia Pacific (APAC) and Latin America (LA). Elkins has served as the company’s chief marketing and strategy officer since joining First Data in 2009. Prior to joining First Data, Elkins served as a senior advisor at McKinsey and Company. He also previously served as executive vice president and chief marketing officer for Visa International.
First Data Extends Additional Debt Maturities
In an effort to improve its overall capital structure, the company executed an amendment to its Credit Agreement which became effective on April 13, 2011, that extended the maturity date of approximately $1 billion (after a 20% reduction in commitments) of the Revolving Credit Facility to 2016 and approximately $5.0 billion of Term Loans under its senior secured facilities to 2018. In connection with the amendment and extension, on April 13, 2011, the company issued $750 million in senior secured notes with a coupon of 7.375% due in 2019 to refinance existing term loan debt and extend the company’s debt maturity profile.
First Data and SK C&C USA Initiate Landmark Trusted Service Manager Solution
On April 5, 2011, First Data and SK C&C USA, a pioneer in mobile commerce technology, announced the commercial release of a Trusted Service Manager (TSM) solution. The comprehensive First Data TSM solution is now available for enablement of Near Field Communication (NFC) devices for issuers, merchants and mobile network operators (MNOs) looking to prepare consumers for mobile payments through the most scalable, cost-effective and secure service available.
New Operations and Technology Service Center in Bratislava, Slovakia
Also on April 5, 2011, First Data announced the opening of its new operations and technology service center in Bratislava, Slovakia. The center will enable First Data to further improve its client service and operational efficiency across the EMEA region. First Data's regional technical operations in EMEA are already partially provided from Bratislava and this move continues the company's investment there, eventually bringing the total number of First Data staff in Bratislava to approximately 400 people.
Non-GAAP Measures
In certain circumstances, results have been presented that are non-GAAP (generally accepted accounting principles) measures and should be viewed in addition to, and not in lieu of, the company's reported results. Reconciliations to comparable GAAP measures are available in the accompanying schedules and in the "Investor Relations" section of the company's website
Investor Conference Call
The company will host an investor conference call and webcast on Wednesday, May 4, 2011 at 10 a.m. EDT to review first quarter 2011 financial results. First Data Chief Financial Officer Ray Winborne, will lead the call and will be joined by CEO Jon Judge.
The call will be webcast on the “Investor Relations” section of the First Data website at and a slide presentation will accompany the call.
To listen to the call via teleconference, dial 866-804-6923 (U.S.) or 857-350-1669 (outside the U.S.), pass code 33578587.
A replay of the call will be available through May 18, 2011, at 888-286-8010 (U.S.) or 617-801-6888 (outside the U.S.), pass code 85132052, and via webcast at
Please note: All statements made by First Data officers on this call are the property of First Data and subject to copyright protection. Other than the replay, First Data has not authorized, and disclaims responsibility for, any recording, replay or distribution of any transcription of this call.
Around the world, every second of every day, First Data makes payment transactions secure, fast and easy for merchants, financial institutions and their customers. First Data leverages its vast product portfolio and expertise to drive customer revenue and profitability. Whether the choice of payment is by debit or credit card, gift card, check or mobile phone, online or at the checkout counter, First Data takes every opportunity to go beyond the transaction.

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