Risk Factors

(a) To the issuer

The Company’s possible inability to follow market trends and offer new payment methods may affect its results in a material and adverse manner.

The payment industry should constantly follow the changing expectations of Merchants and Holders and technological advances. New payment means, related to new technologies such as transactions performed from cell phones, are expected to be developed and implemented in order to meet the Holders’ needs for ease, speed and safety in using credit and debit cards. The Company’s possible inability to follow market trends in means of payment and the Merchants’ and Holders’ changing preferences, and offer new payment methods and implement new technologies, may affect its results.


(b) To the direct or indirect controlling Company, or joint venture

The interests of the Controlling Shareholders may conflict with the investors’ interests.

The Controlling Shareholders have the power to, among other things, elect a majority of the Board of Directors of the Company, as provided in the Shareholders Agreement and decide the outcome of any action requiring the approval of shareholders, including the related party transactions, corporate reorganizations, sales, partnerships, strategic alliances and payments of any future dividends, subject to the requirements of the mandatory dividend payment settled by the Corporate Law and the Company’s bylaws. The interests of Controlling Shareholders may conflict with the interests of minority shareholders.

In addition, the Controlling Shareholders (or their respective companies belonging to their respective financial conglomerates) act or may act in the same segments in which the Company operates and may be interested in offering similar services to the Company, including the service of receivables prepayment. This condition may represent a potential conflict of interest between the Company and its controlling shareholders, and it may influence the definition of the Company’s strategy in segments in which the Company and the Controlling Shareholders operate or may eventually operate.


(c) To its shareholders

The relative volatility and lack of liquidity of the Brazilian capital markets may substantially limit the ability of investors to sell the Company’s shares at the desired price and occasion.

Investing in Brazilian securities and bonds, such as debentures and shares, implies a higher risk level than upon investing in securities from issuing companies in countries with more stable political and economic environments. Investments in Brazilian securities are generally considered speculative in nature. These investments are subject to certain economic and political risks, such as, among others:

  • changes in the regulatory, fiscal, economic and political environment that may affect the ability of investors to receive payment, in whole or in part over their investments; and
  • restrictions on foreign investment and repatriation of invested capital.

The Brazilian securities market is essentially lower and with lower liquidity, and it can be more volatile and concentrated than the major international securities markets, such as the United States of America. These market characteristics can significantly limit the ability of investors in the Company’s shares or debentures to sell their shares or debentures at the price and time they wish, negatively affecting prices in the trading of shares or debentures.

The Company may require capital in the future that may not be available on favorable terms, or in any other way. If the Company raises capital by issuing new shares, the investor participation in the capital of the Company may be diluted.

The Company may eventually need to raise funds through public or private placement of debt or equity, or, if the shareholders so decide, resources can be obtained by increasing the share capital. Any funds raised through a primary offering of shares of the Company of securities convertible into or exchangeable for shares of the Company, or an increase of its share capital may dilute the percentage of investor participation in the capital of the Company and affect negative effect on the trading price of shares. In addition, any funding that the Company may need may not be available on favorable terms, or in any other way.


(d) To its subsidiaries and affiliates

The risks related to the subsidiaries and affiliates are mostly related to the Company’s risks.


(e) To its suppliers

IT and telecommunications systems used by the Company in its activities may fail due to factors that are out of its control.

The Company’s activities depend on the efficient and uninterrupted operation of technology systems and telecommunications, operated by the Company and third parties. Such systems may be subject to damage or interruption of several factors that are beyond the control of the Company or such third parties, such as human error, fire, natural disaster, power failure, failure telecommunication systems in violation of systems or information technology. Failures, interruptions or errors in capturing, processing or settlement of transactions by factors outside the control of the Company you may have an adverse effect and relevant.

The Company may be adversely affected if its suppliers and its service providers enter into insolvency or bankruptcy.

If the Company’s suppliers or service providers enter into an insolvency or bankruptcy process, they may compromise their activities and will no longer supply or provide adequate services for the smooth progress of our activities. Therefore, the interruption or inadequate supply of products or services that the Company needs to exercise its activities may adversely impact the Company’s results.


(f) To its clients

The possible unauthorized disclosure of information stored in the Company’s information systems may cause a relevant and adverse effect.

Technological progress allows the development of increasingly sophisticated methods to capture data from individuals and institutions to conduct illegal activities such as fraud and misrepresentation. Thus, the Company’s information systems are exposed to violations by third parties with the intent to be used fraudulently data from merchants and/or Cardholders.

If the Company’s information systems are being violated and there is unauthorized disclosure of information of establishments and/or Cardholders, the Company may be exposed to legal claims arising from fraud or ideological falsehoods for unauthorized use of data from businesses, loss of reputation and litigation, which may adversely and materially affect the Company.


(g) To the economic sectors in which the issuer operates

The Company’s strategy and operating results may be affected due to the multibrand scenario and competition in the Brazilian payment card industry

Since July of 2010, the Brazilian cards market has been marked by a new competitive scenario in which Acquirers operate simultaneously with the main credit and debit card brands, including Visa and MasterCard, which generates more competition among the various competitors and participants in the card market.

With the Multibrand Scenario and subsequent increase in competition among new and existing Acquirers in the market, the Company will suffer increased competitive pressions as Merchants can achieve better discount rates and conditions due to the plurality of Acquirers offering the main credit and debit card brands.

In this sense, the Company may be required to reduce its Merchant Discount Rates charged of Merchants to remain competitive, which may materially and adversely affect the Company’s results. Another of the Company’s revenues that may suffer impacts is POS terminal rental. In the Multibrand Scenario, a single POS terminal of a single Acquirer may offer multiple credit and debit card brands, so, some merchants may choose to work with a single acquirer.

Should this happen, the Company’s operating result may be adversely affected..

A further development of the business in prepayment of receivables (“ARV”) by the Company may be limited by the impossibility of performance with the facilities subject to contractual condition called Lock Domicile, which ensures that claims arising from card transactions are only deposited in the bank account of household with which the service was hired. Should this happen, the Company’s strategy in relation to the prepayment of receivables business may not be implemented as originally planned. For more information, see “Item 7 – Company Activities.”

Finally, the Company is subject to the effects to the increased Interchange Rates established by the Brands at any time. In February of 2008, the Visa Interchange Rate was increased and the Company is unable to foresee the imposition of new increased by Visa or the amount of said increased. In relation to MasterCard, this increase occurred in October of 2010. Should there be further increases in the Interchange Fees paid to Issuers, revenues and the respective margins of the Company may be materially and adversely affected.


(h) To the regulation of industries in which the issuer operates

Laws and regulations that may be passed to regulate the Brazilian payment card industry could be harmful to the Company.

Rules may be edited to change the regulation of the card industry, which could affect the Company adversely and materially. Also, several bills are pending in the National Congress to change the regulation of the cards payment industry. The main initiatives include:

  • (i) the limitation of Management Fees charged to merchants and payment deadlines:
  • (ii) the possibility of establishing different prices on the sales of goods or provision of services paid with credit and debit cards as compared to other other forms of single-installment payments; and
  • (iii) payment of ISS tax on services provided in a diffuse manner in the Brazilian municipalities where POSs are installed.

These projects are in different stages of discussion in Congress and represent uncertainties with regard to the regulatory context to be faced by the Company in the upcoming years.

Also, any increase in the Tax on Financial Operations rate (IOF) in transactions with card, may materially affect the use of cards and, consequently impact the Company’s results.

Provisional Measure (MP) no. 627, of November 11, 2013, converted into Law no. 12,973 on May 13, 2014, caused relevant changes in federal tax norms and its effectiveness will be mandatory as from fiscal year 2015. For more information on the sector’s regulation, see Section 7.5 of this Reference Form.


(i) To foreign countries where the issuer operates

As of this date, the Company does not see any risks in addition to those commen to the market and the international scenario, capable of significantly affecting the operations of its subsidary abroad.