EVERTEC Stock

EVERTEC, Inc. engages in the full-service transaction-processing business in Puerto Rico, the Caribbean and Latin America.

The company provides a broad range of merchant acquiring, payment services and business process management services. The company is one of the largest merchant acquirers in Latin America based on total number of transactions. The company serves 26 countries out of 12 offices, including its headquarters in Puerto Rico. The company owns and operates the ATH network, which is one of the leading personal identification number (PIN) debit networks in Latin America. The company processes over six billion transactions annually and manages a system of electronic payment networks in Puerto Rico and Latin America and offers a comprehensive suite of services for core banking, cash processing, and fulfillment in Puerto Rico. Additionally, the company offers technology outsourcing and payment transactions fraud monitoring to all the regions it serves. The company serves a diversified customer base of leading financial institutions, merchants, corporations, and government agencies with mission-critical technology solutions that enable them to issue, process and accept transactions securely. The company’s business is well-positioned to continue to expand across the fast-growing Latin American region.

The company’s broad suite of services spans the entire transaction-processing value chain and includes a range of front-end customer-facing solutions, such as the electronic capture and authorization of transactions at the point-of-sale, as well as back-end support services, such as the clearing and settlement of transactions and account reconciliation for card issuers. These include merchant acquiring services, which enable point of sales (POS) and e-commerce merchants to accept and process electronic methods of payment, such as debit, credit, prepaid and electronic benefit transfer (EBT) cards; payment processing services, which enable financial institutions and other issuers to manage, support and facilitate the processing for credit, debit, prepaid, automated teller machines (ATM) and EBT card programs; and business process management solutions, which provide mission-critical technology solutions, such as core bank processing, as well as IT outsourcing and cash management services to financial institutions, corporations and governments. The company provides these services through scalable, end-to-end technology platforms that it manages and operates in-house and that generate significant operating efficiencies that enable it to maximize profitability.

The company sells and distributes its services primarily through a proprietary direct sales force with established customer relationships. The company continues to pursue joint ventures and merchant acquiring alliances. For the year ended December 31, 2022, approximately 39% of the company’s revenue was generated from its relationship with Popular, Inc. (Popular).

Strategy

The key elements of the company’s strategy are to continue cross-sales to existing customers; leverage its franchise to attract new customers in the markets it serves; expand in the Latin America region; and develop new products and services.

Business

The company offers its customers end-to-end products and solutions across the transaction-processing value chain from a single source across numerous channels and geographic markets, as further described below.

Merchant Acquiring

The company’s merchant acquiring business provides services to merchants that allow them to accept electronic methods of payment such as debit, credit, prepaid and EBT cards carrying the ATH, Visa, MasterCard, Discover and American Express brands. The company offers a full suite of merchant acquiring services that include, but is not limited to, the underwriting of each merchant’s contract, the deployment and rental of POS devices and other equipment necessary to capture merchant transactions, the processing of transactions at the point-of-sale, processing of transactions digitally through its online payment gateway, the settlement of funds with the participating financial institution, detailed sales reports, and customer support. The company also offers integrated and semi-integrated payment solutions to its merchants, which either connect to or convert their existing cash registers into points-of-sale that allow them to capture payment transactions using EVERTEC rails, consolidating payment transactions in a single device. In 2022, the company’s merchant acquiring business processed over 500 million transactions.

Payment Services

The company provides financial institutions and fintechs with processing, network and financial technology solutions. The company is the largest card processor and card network service provider in the Caribbean. The company’s main service offerings include authorization, switching, settlement, issuer credit and debit card processing, acquiring processing, and management and monitoring of ATMs and POS. At the point-of-sale, the company sells transaction-processing technology solutions, similar to the services in its merchant acquiring business, to other merchant acquirers enabling them to service their own merchant customers. Additionally, through its payment gateway, the company allows merchants to capture and process digital transactions. The company also offers terminal driving solutions to merchants, merchant acquirers (including its merchant acquiring business) and financial institutions, which provide the technology to securely operate, manage and monitor POS terminals and ATMs. The company also rents POS devices to financial institution customers who seek to deploy them across their own businesses. For its processing services, revenues are primarily driven by the number of transactions processed and the number of accounts on file / system (card accounts in the case of Issuers, merchant accounts in the case of Acquirers). These services provide the company’s clients with the technology necessary to facilitate the processing and routing of payments across the transaction-processing value chain. The company also provides value adding services for payment transactions such as fraud monitoring, management and control.

To enable financial institutions, governments and other businesses to issue and operate a range of payment products and services, the company offers an array of card processing and other payment technology services, such as internet and mobile banking software services, bill payment systems and EBT solutions. Financial institutions and certain retailers outsource to the company certain card processing services such as card issuance, processing card applications, cardholder account maintenance, transaction authorization and posting, high volume payment processing fraud and risk management services, and settlement. The company’s payment products include electronic check processing, automated clearing house (ACH), lockbox, online, interactive voice response and web-based payments through personalized websites, among others.

To connect the merchants to card issuers, the company owns and operates the ATH network, which is one of the leading PIN debit networks in Latin America. The ATH network connects the merchant or merchant acquirer to the card issuer and enables transactions to be routed or switched across the transaction-processing value chain. The ATH network offers the technology, communications standards, rules and procedures, security and encryption, funds settlement and common branding that allow consumers, merchants, merchant acquirers, ATMs, card issuer processors and card issuers to conduct commerce seamlessly, across a variety of channels, similar to the services provided by Visa and MasterCard. The company also owns and operates ATH Movil and ATH Business which is an ATH network product that allows individuals to transfer money instantly to individuals and merchants using only their phone number, and transfer money between an individual’s registered cards. ATH Business enables businesses through the download of the application to accept payments instantly for their services or products from individuals with ATH Movil in real time and to donate to non-profit organizations.

The company’s EBT application allows certain agencies to deliver government benefits to participants through a magnetic card system in Puerto Rico.

Business Solutions

The company provides its financial institutions, corporate and government customers with a wide suite of business process management solutions, including core bank processing, network hosting and management, information technology (IT) consulting, business process outsourcing, item and cash processing, and fulfillment. The company is the only non-bank provider of cash processing services to the U.S. Federal Reserve in the Caribbean.

Intellectual Property

For example, the company owns the ATH and EVERTEC trademarks in several jurisdictions, which are associated by the public, financial institutions and merchants with high quality and reliable electronic commerce, payments, and debit network solutions and services.

Government Regulation

As a technology service provider to financial institutions, the company is subject to regulatory oversight and examination by the Federal Financial Institutions Examination Council (the FFIEC), an interagency body of federal financial regulators that includes the Board of Governors of the Federal Reserve System.

The company’s services are also subject to a broad range of complex federal, state, Puerto Rico, and foreign regulation, including privacy laws, international trade regulations, the Bank Secrecy Act and other anti-money laundering laws, anti-trust and competition laws, the U.S. Internal Revenue Code, the Puerto Rico Internal Revenue Code of 2011 and the regulations promulgated and rulings issued thereunder, the Employee Retirement Income Security Act, the Health Insurance Portability and Accountability Act, and other Puerto Rico laws and regulations.

The company and its financial institution clients are required to comply with various U.S. state, federal and foreign privacy laws and regulations, including those imposed under the Gramm-Leach-Bliley Act of 1999, which applies directly to a broad range of financial institutions and to companies that provide services to financial institutions.

Specifically, the company must adhere to the requirements of the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (collectively, the ‘BSA’) regarding processing and facilitation of financial transactions, as well as other state, local and foreign laws relating to money laundering. Furthermore, as a data processing company that provides services to foreign parties and facilitates financial transactions between foreign parties, the company is obligated to screen transactions for compliance with the sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).

All persons engaged in commerce, including but not limited to, the company and its merchant and financial institution customers are subject to Section 5 of the Federal Trade Commission Act prohibiting Unfair or Deceptive Acts or Practices (UDAP).

The company is required to comply with various federal, local, and foreign competition and anti-trust laws, including the Sherman Act, Clayton Act, Hart-Scott-Rodino Antitrust Improvements Act, Robinson-Patman Act, Federal Trade Commission Act, and Puerto Rico Anti-Monopoly Act.

As a data processing company that services both foreign and domestic clients, the company’s business activities in foreign countries, and in particular its transactions with foreign governmental entities, subject the company to the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), as well as the laws and regulations of the foreign jurisdiction where the company operates. Finally, in the course of business with foreign clients and subsidiaries, the company exports certain software and hardware that is regulated by the Export Administration Regulations from the United States to the foreign parties.

The company is also subject to network operating rules promulgated by the National Automated Clearing House Association relating to payment transactions processed by the company using the Automated Clearing House Network and to various government laws regarding such operations, including laws pertaining to EBT.

Geographic Concentration

For the year ended December 31, 2022, 78% of revenues were generated from the company’s business in Puerto Rico, while the remaining 22% was generated from Latin America and the Caribbean. Latin America includes, among others, Costa Rica, Mexico, Guatemala, Colombia, Chile, Uruguay, Brazil, Peru and Panamá. The Caribbean primarily represents the Dominican Republic and the Virgin Islands.

Seasonality

The company’s payment businesses generally experience increased activity during the traditional holiday shopping periods and around other nationally recognized holidays, which follow consumer spending patterns.

Competition

In merchant acquiring, the company competes with several other service providers and financial institutions that are either in its markets or represented through Independent Sales Organizations (ISO), including Fidelity National Information Services, Inc., Fiserv, Inc., Global Payments, Inc., Elavon, Inc., Paypal, Square, Zelle and some local banks.

In payment services, the company competes with several other third-party card processors, debit networks, and financial technology providers, including Tecnocom Telecomunicaciones y Energía, S.A., Galileo Financial Technologies, LLC, Marqeta, Inc., Fidelity National Information Services, Inc., Fiserv, Inc., Total System Services, Inc., MasterCard, Visa, American Express, Discover, Global Payments, Inc., dLocal, Rappi, PayU and Paypal.

In business solutions, the company’s main competition includes internal technology departments within financial institutions, retailers, data processing or software development departments of large companies, large technology and consulting companies, and/or financial technology providers, such as Fidelity National Information Services, Inc., Jack Henry & Associates, Inc., CGI Inc. and Fiserv, Inc.

Intellectual Property

For example, the company owns the ATH and EVERTEC trademarks in several jurisdictions, which are associated by the public, financial institutions and merchants with high quality and reliable electronic commerce, payments, and debit network solutions and services.

History

EVERTEC, Inc. was founded in 1988.