eFunds Corp.

(480) 629-7700
8501 N. Scottsdale Road, Suite 300
Scottsdale, Arizona 85253
www.efunds.com

Sales

$532 million

Business Description 

We provide electronic transaction processing, ATM management, risk management and outsourcing services to issuers of transaction accounts. Our strategy is to offer products and services that are directed at enhancing the ability of our customers to manage the entire span of the transaction account lifecycle, from customer acquisition and screening, to account transaction processing and authorization through account closure and collections. We have four principal business lines:

• Electronic Payments

• ATM Management

• Risk Management

• Global Outsourcing


Electronic Payments
Our Electronic Payments segment provides electronic funds transfer (EFT) software sales, automated clearinghouse (ACH), EFT and other payment processing services as well as electronic benefit transfer (EBT) services for government agencies. This segment had net revenues of $183.6 million in 2003, which represented approximately 35% of our total net revenues in that year.

We license our electronic funds transfer software, the same software that drives our electronic funds transfer processing business, to in-house processors and regional networks in 70 foreign countries and in the United States. Our electronic funds transfer software runs on proprietary and, with the recent acquisition of Oasis Technology Ltd., open system computing platforms. We also provide software maintenance and support services.

We process transactions for regional automated teller machine, or ATM, networks in the United States. We also provide transaction processing for retail point-of-sale terminals that accept payments from debit cards and paper checks that have been converted into electronic transactions. Transaction processing involves electronically transferring money from a person’s checking or savings account according to his or her instructions. For example, when a cardholder inserts his or her debit card into an ATM machine and enters his or her PIN and the type and amount of the transaction, the device contacts our systems and transmits the request. We identify the institution that issued the card and work through the necessary validation and authorization routines, such as ensuring that the cardholder has entered the correct PIN, that the transaction is within the cardholder’s limits on withdrawals and that there are sufficient funds in the cardholder’s account. If all the routines are executed successfully, we signal the ATM or point-of-sale device to complete the transaction.

To carry out the tasks required, each ATM or point-of-sale device is typically connected to several computer networks. These networks include private networks that connect the devices of a single owner, shared networks that serve several device owners in a region and national shared networks that provide access to devices across regions. Each shared network has numerous financial institution members. For example, we provide network switching services for the CO-OP Network and processing services for 1,800 of its member credit unions. As part of our transaction processing services, we, and other gateway service providers like us, provide cardholders with access across these multiple networks.

We drive or operate more than 30,000 ATMs, including the ATMs managed by our ATM management business and ATMs owned by financial institutions and more than 53,000 point-of-sale terminals. These terminals include approximately 44,000 electronic benefits transfer terminals and approximately 9,000 retail terminals. We process virtually all types of debit-based transactions for our financial institution customers, including cash withdrawals, cash deposits, balance inquiries, purchases, purchases with cash back and purchase returns. In addition, we authorize cash advances and purchases initiated with credit cards at ATM or point-of-sale locations. We also provide 24 hour a day, 7 day a week monitoring of ATMs for system irregularities. Our processing systems are designed to operate continuously and in 2003 our systems were available 99.99% of the time.

In 2001, Concord EFS acquired the STAR debit network, formerly our largest transaction processing customer, and notified us that it intended to license our EFT software and perform the processing for this network at its own data centers. The transition of the processing for the STAR network was completed in September 2002. The transition of the STAR network from a processing customer to a software customer has materially diminished the number of point-of-sale debit transactions we process because these network transactions are no longer routed through our switch.

Our government services business was started in response to federal mandates that require state and local governmental agencies to convert to electronic payment methods for the distribution of benefits under entitlement programs, primarily food stamps and Transitional Aid to Needy Families (formerly Aid to Families with Dependant Children). Our EBT processing system manages, supports and controls the electronic payment and distribution of cash benefits to program participants through ATMs and point-of-sale networks. Our services reduce operating costs and fraud for the government agency administering the benefits program, eliminate the food stamp stigma for recipients through the use of a plastic ATM-like card and make benefits more readily available to recipients at retail point-of-sale terminals and ATMs.

We were providing services for 30 state and local governments at the end of 2003. All of our government services contracts relate to government entitlement programs. Our government contracts are for scheduled service periods of five to seven years, although all of these contracts are terminable by the contracting governmental entity at any time. The contracts are based on a fixed price per recipient, variable volume model. For three contracts with coalitions of states, we serve as a subcontractor for J.P. Morgan Chase.

We have historically incurred losses related to our government services EBT business and we have previously established reserves to provide for expected future losses on some of our existing long-term EBT service contracts. During 2003, 2002 and 2001, we recorded net reductions to our previous estimates for expected future losses on our government services contracts of $3.7 million, $2.0 million and $2.5 million, respectively. Our former parent company, Deluxe, has agreed to indemnify us under certain circumstances if we are required to increase our loss contract reserve for government services contracts that were in a loss position at the time of our IPO. We have not asserted any claims for indemnification to date and have no present expectation of doing so.

ATM Management
Our ATM Management segment provides ATM equipment sales, deployment, management, branding and consultative services. Our net revenues in this segment were $139.8 million, which represented approximately 26% of our total net revenues in 2003.

As an independent provider of ATMs, we place ATMs with financial institutions, convenience, grocery, general merchandise and drug stores, as well as gas stations, located throughout the United States and Canada. We also leverage a large network of third party distributors to help sell our processing services and ATM equipment. We are the largest independent provider of ATM services in North America and currently manage approximately 17,000 ATMs. We own or lease approximately 12% of these ATMs and the remaining ATMs are owned or leased by the merchants operating at the site where the ATM is located.

We collect both ATM surcharge fees from consumers using ATMs deployed by us and interchange fees from their banks. We also derive revenue from ATM equipment sales and maintenance services. In addition, financial institutions may contract to brand ATMs managed by us so that their customers can use them without paying a surcharge fee. During 2003, the operating margins generated by our ATM business improved from a negative 3.7% of net revenue for this segment to a positive 0.1%. Our efforts during 2004 will be directed towards further improving the performance of this business by marketing an end-to-end ATM management service to financial institutions and retailers.

Risk Management
Our Risk Management segment provides risk management based data and other products to financial institutions, retailers and other businesses that assist in detecting fraud and assessing the risk of opening a new account or accepting a check. This segment had net revenues of $133.1 million in 2003, which represented approximately 25% of our total net revenues for that year. This segment offers products and services that help:

• determine the likelihood of account fraud and identity manipulation; and

• assess the overall risks involved in opening new accounts or accepting payment transactions.

These products and services are based on or enhanced by our DebitBureau® database. DebitBureau contains over three billion records and includes data from our ChexSystems(SM) and SCAN(SM) databases and other sources. We use the data in DebitBureau to screen for potentially incorrect, inconsistent or fraudulent social security numbers, home addresses, telephone numbers, driver license information and other indicators of possible identity manipulation. Using our data, we can perform various tests to validate a consumer’s identity and assess and rank the risk of fraud associated with opening an account for or accepting a payment from that consumer.

Our ChexSystems business is a provider of new account applicant verification services for financial institutions. ChexSystems provides access to more than 18 million closed-for-cause accounts. An account is considered closed-for-cause when, for example, a consumer refuses to pay the account fee and the bank closes the account. ChexSystems helps financial institutions assess the risks involved in opening an account for a new customer by supporting real-time inquiries to our database of consumer debit account performance. The ChexSystems service is used by more than 95,000 financial institution locations. Financial institutions may access the service through a variety of online options, or by telephone. Service fees for our new account verification services are based on the number of inquiries a financial institution makes each month.

ChexSystems also offers DebitReport, a service pursuant to which our DebitBureau data is made available to credit grantors and telecommunications providers, directly and through credit bureaus or other data providers, to supplement their credit decisioning processes and for use in making pre-approved offers of credit.

Our SCAN, or Shared Check Authorization Network, product helps retailers reduce the risk of write-offs for dishonored checks due to insufficient funds and other forms of account fraud. When a check is presented as payment at the point-of-sale, SCAN members run the check through a scanner. The information on the check is then compared to the SCAN database to determine whether there have been previous payment problems with the check writer or his or her account. SCAN then reports any issues to the retailer and the merchant decides whether or not to accept the check. SCAN serves 14 of the 20 largest retailers in the United States based on recent market data. More than 77,000 retail locations report returned check activity to the SCAN network. Our larger retail customers host our SCAN database on their own computers. Others access the database through our SCAN Online product. Merchants pay a monthly service fee for SCAN based on their net monthly sales, if they host the SCAN file themselves, or by the number of inquiries submitted, if they use SCAN Online. Additional fees apply for inquiries by the retailers or consumers to our call centers.

Global Outsourcing
Our Global Outsourcing segment provides business process management and IT outsourcing services. Net revenues in this segment were $75.6 million in 2003, which represented 14% of our total net revenues for that year.

We provide end-to-end customer account management services to the financial services, retail, telecommunications and government sectors through both U.S. and India based delivery centers. Our services include account acquisition assistance, application processing, data entry, customer care, loan processing, account reconciliation, billing and collections services as well as information technology (IT) development, systems integration and systems maintenance. We build long-term continuing relationships with our clients, allowing them to significantly reduce costs and improve the quality and efficiency of their business processes.