What changed in this filing

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Item 1. Business

2021-02-19 compared with 2020-02-21 · 84 added, 64 removed, 184 unchanged (45% of the section changed)

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The payments technology industry provides financial institutions, businesses and consumers with payment processing services, merchant acceptance solutions and related information and other value-added services.

The industry continues to grow as a result of wider merchant acceptance, increased consumer use of credit and debit cards and advances in payment processing technology.

The proliferation of credit and debit cards, as well as other digital payment solutions, has made the acceptance of electronic payments a virtual necessity for many businesses, regardless of size, in order to remain competitive.

This increased use of cards and the availability of more sophisticated technology services to all market segments has resulted in a highly competitive and specialized industry.

The industry continues to grow as a result of wider merchant acceptance and increased use of credit and debit cards, advances in payment processing technology and migration to ecommerce, omnichannel and contactless payment solutions.

The proliferation of credit and debit cards, as well as other digital payment solutions, has made the acceptance of electronic payments a necessity for many businesses, regardless of size, in order to remain competitive.

The outbreak of the COVID-19 virus in 2020 has further accelerated the use of electronic payments, the need for development of technologies and electronic-based solutions and expansion of ecommerce, omnichannel and contactless payment solutions.

This increased use of cards and the availability of more sophisticated technology services to all market segments has resulted in an increasingly competitive and specialized industry.

We seek to leverage the adoption of, and transition to, card, electronic and digital-based payments by expanding our share in our existing markets through our distribution channels and service innovation, as well as through acquisitions to improve our offerings and scale.

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The key tenets of our strategy include the following:

Grow and control our direct distribution by adding new channels and partners, including expanding our ownership of additional enterprise software solutions with a payments overlay in select vertical markets;

Deliver innovative services by developing value-added applications, enhancing existing services and developing new systems and services to blend technology with customer needs;

• Deepen our competitive advantage through our pure play payments strategy;

• Continue to scale the three pillars of our strategy:

software-driven focus, omnichannel expansion and exposure to faster growth markets;

• Further expand our leadership position in our technology-enabled businesses;

• Enhance and expand our offerings as a product-led, sales-driven company;

• Deliver operational excellence and outstanding customer experiences;

• Continue to develop seamless multinational solutions for leading global customers;

Leverage technology and operational advantages across our business segments and throughout our global footprint;

Provide customer service at levels that exceed our competition, while investing in technology, training and enhancements to our service offerings;

Pursue potential domestic and international acquisitions of, investments in and alliances with companies that have

high growth potential, significant market presence, sustainable distribution platforms and/or key technological capabilities.

• Pursue potential domestic and international acquisitions of, investments in and alliances with companies that have high growth potential, significant market presence, sustainable distribution platforms and/or key technological capabilities.

Competitive Strengths

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Business Segments

Prior to the completion of the Merger, we operated in three reportable segments:

North America, Europe and Asia-Pacific.

As a result of the Merger, we assessed changes in our internal management reporting structure to incorporate the acquired operations of TSYS and the effects it has on our reportable segments.

In the fourth quarter of 2019, we realigned our reportable segments to reflect the changes.

As of December 31, 2019 , we operated in three reportable segments:

We operate in three reportable segments:

Merchant Solutions, Issuer Solutions and Business and Consumer Solutions.

See "Note 16—Segment Information" in the notes to the accompanying consolidated financial statements for additional information about our segments, including revenues, operating income and depreciation and amortization by segment as well as financial information about geographic areas in which we operate.

In general, our consolidated results do not reflect pronounced seasonality.

However, revenues and operating income for each segment and/or geographic channel may reflect stronger or weaker quarters given the nature of the underlying customer portfolios.

Our foreign operations subject us to various risks, including, without limitation, currency exchange risks and political, economic and regulatory risks.

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In addition, we offer a wide array of enterprise software solutions that streamline business operations to customers in numerous vertical markets.

We also provide a variety of value-added services, including specialty point-of-sale solutions, analytic and engagement tools, payroll services and reporting that assist our customers with driving demand and operating their businesses more efficiently.

We also provide a variety of value-added services, including specialty point-of-sale solutions, analytic and customer engagement tools, payroll and human capital management services and reporting that assist our customers with driving demand and operating their businesses more efficiently.

Our value proposition is to provide distinctive high-quality, responsive and secure services to all of our customers.

We distribute our Merchant Solutions services globally through multiple channels and target customers in many vertical markets located throughout North America, Europe, Asia-Pacific and Latin America.

We distribute our Merchant Solutions services globally through multiple relationship-led and technology-enabled distribution channels and target customers in many vertical markets located throughout North America, Europe, Asia-Pacific and Latin

The majority of our revenues is generated by services priced as a percentage of transaction value or a specified fee per transaction, depending on the payment type or the market.

We also earn software subscription and licensing fees, as well as other fees based on specific value-added services that may be unrelated to the number or value of transactions.

Our primary mode of distribution is our direct distribution channels, including an extensive direct sales force selling our services and solutions across numerous vertical markets.

Our technology-enabled solutions represented a substantial component of our revenues in North America for the year ended December 31, 2019 .

Our technology-enabled distribution in North America includes integrated and vertical market software solutions and ecommerce and omnichannel solutions.

Our ecommerce and omnichannel solutions represent a growing percentage of the services we sell in Europe.

Direct Distribution

Our primary business model in the Merchant Solutions segment is to actively market and provide our payment services, enterprise software solutions and other value-added services directly to our customers through a variety of distribution channels.

Distribution Channels

In the Merchant Solutions segment, we actively market and provide our payment services, enterprise software solutions and other value-added services directly to our customers through a variety of relationship-led and technology-enabled distribution channels.

Through our relationship-led direct sales force worldwide, as well as bank and other referral partnerships, we offer our payments technology services, software and other value-added solutions directly to customers across numerous verticals in the markets we serve.

We offer high-touch services that provide our customers with reliable and secure solutions coupled with high quality and responsive support services.

Through our direct sales force worldwide, as well as bank partnerships, we offer our payments technology services, software and other value-added solutions directly to customers in the markets we serve.

Although our primary focus is on building high quality direct relationships with merchants, we also provide our services to merchants through independent sales organizations ("ISOs") and financial institutions.

Many of our payment solutions are technology-enabled in that they incorporate or are incorporated into innovative, technology-driven solutions, including enterprise software solutions, designed to enable merchants to better manage their businesses.

Our primary technology-enabled solutions include integrated solutions, vertical market software solutions and ecommerce and omnichannel solutions, each as described below.

Our technology-enabled solutions represent a substantial component of our revenues.

Our technology-enabled distribution includes integrated and vertical market software solutions and ecommerce and omnichannel solutions, each as described below.

Global Payments Integrated Solutions.

Our integrated solutions provide advanced payments technology that is deeply embedded into business management software solutions that are owned by our technology partners who operate in numerous vertical markets, primarily in North America.

We grow our integrated solutions business when new or existing merchants enable payments services through enterprise software solutions sold by our partners.

Through Ezidebit, we offer integrated payment technology solutions in the Asia-Pacific region that focus on recurring payments verticals.

Our integrated solutions provide advanced payments technology that is deeply embedded into business management software solutions owned by our technology partners who operate in numerous vertical markets, primarily in North America.

We grow our integrated solutions business when new or existing merchants enable payments services through enterprise software solutions sold by our partners, including existing and new partners.

Vertical Markets Software Solutions .

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• ACTIVE Network .

Through ACTIVE Network, we deliver cloud-based enterprise software, including payment technology solutions, to event organizers in the communities and health and fitness markets.

Through ACTIVE Network, we deliver cloud-based enterprise software, including payment technology solutions, to event organizers in the communities, government services and health and fitness markets.

• AdvancedMD .

Through AdvancedMD, we provide cloud-based enterprise solutions to small-to-medium sized ambulatory physician practices in the United States.

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For kindergarten through 12 th grade, we provide ecommerce and in-person payments, cafeteria POS solutions and back-office management software, hardware, technical support and training.

We offer a comprehensive suite of cash access solutions to the gaming market in North America.

These solutions include credit and debit card cash advance, traditional and electronic check processing and other services specific to this market.

We offer a comprehensive suite of solutions to the gaming market in North America.

These solutions include credit and debit card cash advance, cashless advance, iGaming solutions, traditional and electronic check processing and other services specific to this market.

Through Xenial, we offer leading-edge enterprise software solutions, integrated with our payment services and other adjacent business service applications, to the restaurant and hospitality and retail vertical markets.

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We offer ecommerce and omnichannel solutions to our customers that seamlessly blend payment gateway services, retail payment acceptance infrastructure and payment technology service capabilities through a unified commerce platform to allow merchants to accept various payment methods through any channel across our geographical footprint.

We sell ecommerce and omnichannel solutions to customers of all sizes, from small businesses accepting payments

in a single country, to enterprise and multinational businesses that have complex payment needs and operate retail and online businesses in multiple countries.

Wholesale Distribution

Although our primary business model in the Merchant Solutions segment is to build high quality direct relationships with merchants, we also provide our services through a wholesale distribution channel where we do not maintain the face-to-face relationship with the merchant.

Through our wholesale channel, our payment services are offered to merchants through independent sales organizations ("ISOs") and financial institutions.

We sell ecommerce and omnichannel solutions to customers of all sizes, from small businesses accepting payments in a single country, to enterprise and multinational businesses that have complex payment needs and operate retail and online businesses in multiple countries.

Credit and Debit Card Transaction Processing

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Under the sponsorship model, member clearing financial institutions ("Members") sponsor us and require our adherence to the standards of the networks.

In certain markets, we have sponsorship or depository and clearing agreements with financial institution sponsors.

In these markets, we have sponsorship or depository and clearing agreements with financial institution sponsors.

These agreements allow us to route transactions under the Members' control and identification numbers to clear card transactions through Mastercard and Visa.

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Under the direct membership model, we are direct members in various payment networks, allowing us to process and fund transactions without third-party sponsorship.

In this model, we route and clear transactions directly through the card brand’s network and are not restricted from performing funds settlement.

Under this model, we route and clear transactions directly through the card brand’s network and are not restricted from performing funds settlement.

Otherwise, we process these transactions similarly to how we process transactions in the sponsorship model.

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In a debit card transaction, we obtain authorization for the transaction from the card issuer through the payment network verifying that the cardholder has access to sufficient funds for the transaction amount.

As an illustration, shown below, on a $100.00 card transaction, the card issuer may fund the Member, our sponsor, (indirectly through the card network) $98.50 after retaining approximately $1.50 referred to as an interchange fee.

As an illustration, shown below in the sponsorship model, on a $100.00 card transaction, the card issuer may fund the Member, our sponsor, (indirectly through the card network) $98.50 after retaining approximately $1.50 referred to as an interchange fee.

The card issuer seeks reimbursement of $100.00 from the cardholder in the cardholder's monthly credit card statement.

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If our discount rate for the merchant in the above example was 2.00%, we would bill the merchant $2.00 after the end of the month for the transaction, reimburse ourselves for $1.50 in interchange fees and retain $0.50 as our fees for the transaction.

Under some arrangements, we remit the net amount

of $98.00 to the merchant, rather than funding the full $100.00 and subsequently billing the merchant at the end of the month.

Under some arrangements, we remit the net amount of $98.00 to the merchant, rather than funding the full $100.00 and subsequently billing the merchant at the end of the month.

Discount rates vary based on negotiations with merchants and the economic characteristics of transactions.

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Issuer Solutions segment revenues are derived from long-term processing contracts with financial institutions and other financial services providers.

Payment processing services revenues are generated primarily from charges based on the number of accounts on file, transactions and authorizations processed, statements generated and/or mailed, managed services, cards embossed and mailed, and other processing services for cardholders accounts on file.

Most of these contracts have prescribed annual minimums, penalties for early termination, and service level agreements that may affect contractual fees if specific service levels are not achieved.

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Business and Consumer Solutions Segment

Our Business and Consumer Solutions segment provides general purpose reloadable ("GPR") prepaid debit and payroll cards, demand deposit accounts and other financial service solutions to the underbanked and other consumers and businesses in the United States through our Netspend® brand.

Through our Business and Consumer Solutions segment, we provide customers with access to depository accounts insured by the Federal Deposit Insurance Corporation ("FDIC") with a menu of

features specifically tailored to their needs.

Business and Consumer Solutions has an extensive distribution and reload network comprising financial service centers and other retail locations throughout the United States, and is a program manager for FDIC-insured depository institutions that provide the services that the Business and Consumer Solutions segment develops, promotes and distributes.

Business and Consumer Solutions currently has active agreements with five card issuing banks.

Through our Business and Consumer Solutions segment, we provide customers with access to depository accounts insured by the Federal Deposit Insurance Corporation ("FDIC") with a menu of features specifically tailored to their needs.

The Business and Consumer Solutions segment has an extensive distribution and reload network comprised of financial service centers and other retail locations throughout the United States, and is a program manager for FDIC-insured depository institutions that provide the services that the Business and Consumer Solutions segment develops, promotes and distributes.

Business and Consumer Solutions currently has active agreements with four card issuing banks.

The Business and Consumer Solutions segment markets its services through multiple distribution channels, including alternative financial service providers, traditional retailers, direct-to-consumer and online marketing programs and contractual relationships with corporate employers.

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Bancorp, Wells Fargo Bank, N.A and Square, Inc.

While these are our primary competitors, some of our vertically focused business in the United States compete with other organizations.

While these are our primary competitors, our vertically focused business in the United States compete with other organizations.

Internationally, financial institutions remain the primary providers of payment technology services to merchants, although the outsourcing of these services to third-party service providers is becoming more prevalent.

Payment services have become increasingly complex, requiring significant capital commitments to develop, maintain and update the systems necessary to provide these advanced services at competitive prices.

In addition to financial institutions, competitors in Europe include Ayden N.V.

Our Issuer Solutions segment encounters competition from credit card processing firms, third-party card processing software vendors and various other firms that provide products and services to credit card issuers in the United States and internationally.

The United States market for third-party processing for credit card issuers is primarily serviced by three vendors, including TSYS, with our largest competitor being a subsidiary of Fiserv.

We believe that as of December 31, 2019, we were the largest third-party processor for credit card issuers in North America and one of the largest in Europe based on net revenue derived from solutions for credit card issuers.

Our Issuer Solutions segment encounters competition from third-party payment card issuer processors, core banking platform providers, independent software vendors and various other firms that provide products and services to payment card issuers in the markets we serve.

The United States market for third-party issuer processing is primarily serviced by three vendors, including TSYS, with our largest competitor being a subsidiary of Fiserv.

We believe that as of December 31, 2020, we were the largest third-party processor for credit card issuers in North America and one of the largest in Europe based on net revenue from solutions provided to credit card issuers.

Our Business and Consumer Solutions segment primarily competes with other demand deposit account and prepaid debit account program managers to provide financial service solutions to the underbanked and other consumers and businesses.

Our primary competitors in this space include Green Dot Corporation, InComm and Fiserv.

As of December 31, 2019, we believe that we were one of the two largest prepaid program managers in the United States based on gross dollar volume (total spending on the accounts we manage) processed during 2019.

As of December 31, 2020, we believe that we were one of the two largest prepaid program managers in the United States based on gross dollar volume (total spending on the accounts we manage) processed.

Safeguarding Our Business

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To strengthen our security and cyber defenses, we continue to deploy multiple methods at different layers to defend our systems against misuse, intrusions and cyberattacks and to protect the data we collect.

Further, we work with information security and forensics firms and employ advanced technologies to help

prevent, investigate and address issues relating to processing system security and availability.

Further, we work with information security and forensics firms and employ advanced technologies to help prevent, investigate and address issues relating to processing system security and availability.

We also collaborate with third parties, regulators and law enforcement, when appropriate, to resolve security incidents and assist in efforts to prevent unauthorized access to our processing systems.

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In addition to using our intellectual property in our own operations, we grant licenses to certain of our customers to use our intellectual property.

Employees and Labor

As of December 31, 2019 , we had approximately 24,000 employees, many of whom are highly skilled in technical areas specific to payment technology and software solutions.

Various aspects of our business are subject to regulation and supervision under federal, state and local laws in the United States, such as the California Consumer Privacy Act (the "CCPA"), and foreign laws, regulations and rules, including Directive 2007/64/EC in the European Union (the "Payment Services Directive"), as well as local escheat laws and privacy and information security regulations.

Human Capital Management

Our company currently does business in over 100 countries around the world, with team members living and working in 38 of them.

As of December 31, 2020, our approximately 24,000-employee workforce represented approximately 80 nationalities and 16 natively spoken languages, with approximately 68% residing in the Americas, 12.5% residing in Europe and 19.5% residing in Asia Pacific.

Many of our employees are highly skilled in technical areas specific to payment technology and software solutions.

Growth and Development

Our strategy to develop and retain the best talent includes an emphasis on employee development and training.

Our online training platform provides a vast array of tools and application resources for all team members to build learning experiences and skills.

In order to help our employees strengthen the skills and behaviors needed for career advancement, the enhanced curriculum has been mapped to each of our defined leadership capabilities.

Mandatory annual unconscious bias training is also required for all team members.

Well-being and Safety during COVID-19 Pandemic

The success of our business is connected to the well-being of our team members.

Accordingly, we are committed to the health, safety and wellness of our team members worldwide.

In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our team members as well as the communities in which we operate.

This included enabling the vast majority of our worldwide employees to seamlessly shift to work from home.

Over the past several years, we have made significant investments in our operating environments and technology that support day-to-day execution.

The largely cloud-based systems and collaboration tools we use globally facilitated this smooth transition of operations to business continuity mode.

Additional health and safety measures have been implemented for team members continuing critical work within office locations, such as:

• Increasing cleaning protocols across all our locations;

• Initiating regular communication regarding effects of the COVID-19 pandemic on our operations, including health and safety protocols and procedures;

• Adjusting attendance policies to encourage those who are sick to stay home;

• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure.

Inclusion and Diversity

Our inclusion and diversity program focuses on workforce (our people), workplace (culture, tools and programs) and community.

We believe that our business is strengthened by a diverse workforce that reflects the communities in which we operate.

We believe all of our employees should be treated with respect and equality, regardless of gender, ethnicity, sexual orientation, gender identity, religious beliefs, or other characteristics and to further this goal, we formally launched an inclusion and diversity initiative in 2018.

As part of this initiative, we became a signatory to the CEO Action for Diversity and Inclusion, the largest CEO-driven business commitment to advance inclusion and diversity in the workplace.

We have worked to make inclusion and diversity a common thread in all of our human resource practices so that we can attract, develop, and retain the best talent for our workforce.

Our focus on these efforts includes:

• Establishing an Inclusion and Diversity Advisory Council, consisting of team members worldwide who provide insight and input on our inclusion and diversity initiative;

• Launching employee resource groups whose mission is to foster support, professional development, and cultural inclusivity for LGBTQIA, women, veterans, and Black team members;

• Creating a sponsorship program to ensure that women and people of color are represented in succession planning for key leadership roles;

• Establishing the Social Justice and Equality fund as a part of our pre-established philanthropic giving, which is used to advocate for or support education, health and wellness, financial empowerment and social equality in underserved communities.

For more information on certain of our human capital practices, including inclusion and diversity, refer to the Proxy Statement Summary section of our 2021 Proxy Statement.

Various aspects of our business are subject to regulation and supervision under federal, state and local laws in the United States, and foreign laws, regulations and rules, as well as local escheat laws and privacy and information security regulations.

In addition, we are subject to rules promulgated by the various payment networks, including American Express, Discover, Interac, Mastercard and Visa.

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These descriptions are not exhaustive, and these laws, regulations and rules frequently change and are increasing in number.

We are currently in compliance with existing legal and regulatory requirements and do not expect that maintaining compliance with these regulations will have a material adverse effect on our capital expenditures, earnings or competitive and financial positions.

See "Item 1A - Risk Factors" for additional discussion of the potential risks associated with future changes in laws or regulations.

Dodd-Frank Act

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We have obtained licenses to operate as a money transmitter, seller of checks and/or provider of payment instruments in 49 states and the District of Columbia.

Our Business and Consumer Solutions segment is subject to direct supervision and regulation by the relevant state banking departments or similar agencies charged with enforcement of the relevant statutes and we must comply with various requirements, such as those related to the maintenance of a certain level of net worth, surety bonding, selection and oversight of our authorized agents, maintaining permissible investments in an amount equal to or in excess of our outstanding payment obligations, recordkeeping and reporting and disclosures to consumers.

of our authorized agents, maintaining permissible investments in an amount equal to or in excess of our outstanding payment obligations, recordkeeping and reporting and disclosures to consumers.

Our Business and Consumer Solutions segment is also subject to periodic examinations by the relevant licensing authorities, which may include reviews of our compliance practices, policies and procedures, financial position and related records, various agreements that we have with our issuing banks, distributors and other third parties, privacy and data security policies and procedures and other matters related to our business.

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Privacy, Information Security and Other Business Practices Regulation

Aspects of our business are also subject, directly or indirectly, to business and trade practices regulation in the United States, the European Union and elsewhere.

Aspects of our business are also subject, directly or indirectly, to business and trade practices regulation in the United States, the United Kingdom, the European Union and elsewhere.

For example, in the United States, we and our financial institution customers are, respectively, subject to the Federal Trade Commission’s and the federal banking regulators’ privacy and information safeguarding requirements under the Gramm-Leach-Bliley Act.

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State, consumers must be notified in the event of a data breach, and such notification requirements continue to increase in scope and cost.

The changing privacy laws in the United States, Europe and elsewhere, including the adoption by the European Union of the General Data Protection Regulation, which became effective in May 2018, and the CCPA, which became effective in January 2020, create new individual privacy rights and impose increased obligations on companies handling personal data.

The changing privacy laws in the United States, Europe and elsewhere, including the adoption by the European Union of the General Data Protection Regulation, and the California Consumer Privacy Act, which became effective in January 2020, create new individual privacy rights and impose increased obligations on companies handling personal data.

In addition, multiple states, Congress and regulators outside the United States are considering similar laws or regulations which could create new individual privacy rights and impose increased obligations on companies handling personal data.

Risk Factors - " Any new implementation of or changes made to laws, regulations, card network rules or other industry standards affecting our business in any of the geographic regions in which we operate may require significant development efforts or have an unfavorable effect on our financial results and our cash flows ."

See "Item 1A - Risk Factors" for additional discussion of the potential risks associated with future changes in laws or regulations.

Anti-Money Laundering and Counter Terrorist Requirements

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Certain of our operating subsidiaries have registered with FinCEN as a money services business.

This registration results in our having direct responsibility to maintain and implement an anti-money laundering compliance program.

This registration results in our having direct responsibility to maintain and implement an anti-money laundering compliance program for such subsidiaries.

State Wage Payment Laws and Regulations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business