What changed in this filing

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Item 1A. Risk Factors

2024-03-12 compared with 2023-03-23 · 66 added, 59 removed, 232 unchanged (35% of the section changed)

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Risk Factors Related to Our Business

Our business has been, and is likely to continue to be, negatively affected by the recent COVID-19 outbreak.

The COVID-19 pandemic and the mitigation efforts by governments and other parties to attempt to control the spread of the virus (including its variants) have adversely impacted the U.S.

and global economy, leading to significant changes in consumer and business spending and economic activity and disruptions and volatility in the U.S.

and global capital markets.

• merchant temporary closures and failures;

• third-party disruptions, including potential outages at network providers and other suppliers;

• increased cyber and payment fraud risk.

Although we have experienced increased demand for some of our service offerings as a result of an accelerated shift to electronic payments, we believe that the COVID-19 pandemic, the mitigation efforts and the resulting economic impact have had, and may continue to have, an overall adverse effect on our business, results of operations and financial condition.

The full effects of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and difficult to predict at this time, including, but not limited to, the severity of the pandemic, the restrictive/mitigation actions taken to contain the virus or treat its effects, and its effects on our customers.

Accordingly, while the COVID-19 pandemic could have an adverse effect on our revenues and financial results for reporting periods after 2022, the ultimate effects on our operations, financial condition and cash flows cannot be determined at this time.

Unauthorized access to our systems or unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems, computer viruses, or otherwise, could expose us to liability, protracted and costly litigation and damage our reputation.

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Our defensive measures may not prevent down-time, unauthorized access or use of sensitive data.

While we maintain insurance coverage that will cover certain aspects of cyber risks, such insurance coverage may be insufficient to

cover all losses.

While we maintain insurance coverage that will cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.

Furthermore, we do not control the actions of our third-party partners and customers in their systems.

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We depend on the efficient and uninterrupted operation of our computer systems, software, data centers and telecommunications networks, as well as the systems and services of third parties.

A system outage or data loss could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A system outage or data loss could have a

material adverse effect on our business, financial condition, results of operations and cash flows.

Not only could we suffer damage to our reputation in the event of a system outage or data loss, but we may also be liable to third parties.

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Increased merchant, referral partner or ISO attrition could cause our financial results to decline.

We experience attrition in merchant credit and debit card processing volume resulting from several factors, including business closures, transfers of merchant accounts to our competitors, unsuccessful contract renewal negotiations and account closures

that we initiate for various reasons such as heightened credit risks or contract breaches by merchants.

Our referral partners are a significant source of new business.

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Payment network rules are established and changed from time to time by each payment network as they may determine in their sole discretion and with or without advance notice to their participants.

The timelines imposed by the payment networks or sponsor banks for expected compliance with new rules have historically been, and may continue to be, highly compressed, requiring us to quickly implement changes to our systems which increases the risk of non-compliance with new standards or the reduction of certain types of merchant activity.

The timelines imposed by the payment networks or

sponsor banks for expected compliance with new rules have historically been, and may continue to be, highly compressed, requiring us to quickly implement changes to our systems which increases the risk of non-compliance with new standards or the reduction of certain types of merchant activity.

In addition, the payment networks could make changes to interchange or other elements of the pricing structure of the merchant acquiring industry that would have a negative impact on our results of operations.

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These risks include valuation (negotiating a fair price for the business and assets), integration (managing the process of integrating the acquired business' people, products, technology, and other assets to realize the projected value and synergies), regulatory (obtaining any applicable regulatory or other government approvals), and due diligence (identifying risks to the prospects of the business, including undisclosed or unknown liabilities or restrictions).

inability of the parties to agree to the structure or purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms.

There can be no assurances that we will be able to complete suitable acquisitions for a variety of reasons, including the identification of and competition for acquisition targets, the need for regulatory approvals, the inability of the parties to agree to the structure or purchase price of the transaction and our inability to finance the transaction on commercially acceptable terms.

In addition, any potential acquisition can subject us to a variety of other risks:

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and around the world, may contribute to increased market volatility, may have long-term effects and may cause economic uncertainties or deterioration in the U.S.

markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S.

economy was in a recession for several consecutive calendar quarters during the same period.

In addition, the fiscal and monetary policies of foreign nations, such as Russia and China, may have a severe impact on U.S.

financial markets.

We are monitoring the conflict between Russia and Ukraine.

While we do not expect that such conflict will itself be material to our business, geopolitical instability and adversity arising from such conflict (including additional conflicts that could arise from such conflict), the imposition of sanctions, taxes and/or tariffs against Russia and Russia's response to such sanctions (including retaliatory acts, such as cyber attacks and sanctions against other countries) could adversely affect the global economy or specific international, regional and domestic markets, which could have a material adverse effect on our business, results of operations or financial condition.

We are monitoring the conflicts between Russia and Ukraine and Israel and Hamas.

While we do not expect that such conflicts will themselves be material to our business, geopolitical instability and adversity arising from such conflict (including additional conflicts that could arise from such conflicts), the imposition of sanctions, taxes and/or tariffs against one of the countries or their response to such sanctions (including retaliatory acts, such as cyber attacks and sanctions against other countries) could adversely affect the global economy or specific international, regional and domestic markets, which could have a material adverse effect on our business, results of operations or financial condition.

Any new legislation that may be adopted in the U.S.

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may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S.

We cannot predict which, if any, of these actions will be taken or, if taken, their

effect on the financial stability of the U.S.

We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the U.S.

Such actions could have a significant adverse effect on our business, financial condition and results of operations, particularly in view of the regulatory oversight we presently face.

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If such FIs should stop providing clearing services, we must find other FIs to provide those services.

If we are unable to find a replacement financial institution, we may no longer be able to provide processing services to certain customers, which could negatively affect our revenues, earnings and cash flows.

Additionally, we rely on FIs to facilitate our B2B and money transmission services offerings.

If we are unable to find a replacement financial institution, we may no longer be able to provide these services to certain customers, which could negatively affect our revenues, earnings and cash flows.

We also rely on third parties to provide or supplement bankcard processing services and for infrastructure hosting services.

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The market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors.

We may be responsible for the actions of our vendors in some circumstances.

We use third parties to provide services to us including IT related services and sales related functions.

Should a cybersecurity related event or other act of negligence occur as a result of a third-party service provider, we may be liable for those actions.

Legal, Regulatory Compliance and Tax Risks

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The Dodd-Frank Act also created the CFPB, which has assumed responsibility for enforcing federal consumer protection laws, and the FSOC, which has the authority to determine whether any non-bank financial company, which may include us within the definitional scope, should be supervised by the Federal Reserve because it is systemically important to the U.S.

financial system.

Any such designation would result in increased regulatory burdens on our business, which increases our risk profile and may have an adverse impact on our business, financial condition and results of operations.

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Any of these third parties could make a claim of infringement against us with respect to our products, services or technology.

We may also be subject to claims by third parties for patent, copyright or trademark infringement, breach of license or violation of other third-party intellectual property rights.

We may also be subject to claims by third parties for patent, copyright or trademark

infringement, breach of license or violation of other third-party intellectual property rights.

Any claim from third parties may result in a limitation on our ability to use the intellectual property subject to these claims.

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Additionally, our risk detection system is subject to a high degree of "false positive" risks being detected, which makes it difficult for us to identify real risks in a timely manner.

our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.

If our policies and procedures are not fully effective or we are not always successful in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory actions that materially increase our costs and subject us to reputational damage that could limit our ability to grow and cause us to lose existing merchant clients.

The financial services industry continues to be highly regulated and subject to new laws or regulations in many jurisdictions, including the U.S.

states in which we operate, which could restrict the products and services we offer, impose additional compliance costs on us, render our current operations unprofitable or even prohibit our current or future operations.

We are required to comply with frequently changing federal, state, and local laws and regulations that regulate, among other things, the terms of the financial products and services we offer.

New laws or regulations may require us to incur significant expenses to ensure compliance.

Federal and state regulators of consumer financial products and services are also enforcing existing laws, regulations, and rules more aggressively, and enhancing their supervisory expectations regarding the management of legal and regulatory compliance risks.

For example, State attorneys general have indicated that they will take a more active role in enforcing consumer protection laws, including through the establishment of state consumer protection agencies as well as the use of Dodd-Frank Act provisions that authorize state attorneys general to enforce certain provisions of federal consumer financial laws and obtain civil money penalties and other relief available to the CFPB.

The application of traditional federal and state consumer protection statutes and related regulations to innovative products offered by financial technology companies such as us is often uncertain, evolving and unsettled.

To the extent that our products are deemed to be subject to any such laws, we could be subject to additional compliance obligations, including state licensing requirements, disclosure requirements and usury or fee limitations, among other things.

Application of such requirements and restrictions to our products and services could require us to make significant changes to our business practices (which may increase our operating expenses and/or decrease revenue) and, in the event of retroactive application of such laws, subject us to litigation or enforcement actions that could result in the payment of damages, restitution, monetary penalties, injunctive

restrictions, or other sanctions, any of which could have a material adverse effect on our business, financial position, and results of operations.

Recently, federal bank regulators have increasingly focused on the risks related to bank and non-bank financial service company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience.

This focus is demonstrated by recent regulatory enforcement actions against banks that have allegedly not adequately addressed these concerns while growing their non-bank financial service offerings.

Additionally, there are ongoing investigations by federal and state governmental entities concerning a prepaid debit card product program that was offered by the Company through an independent program manager.

We could be subject to additional regulatory scrutiny with respect to that portion of our business that could have a material adverse effect on the business, financial condition, results of operations and growth prospects of the Company.

Further, we may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer our existing or planned features, products, and services and/or increase our cost of doing business.

In addition, we expect to continue to launch new products and services in the coming years, which may subject us to additional legal and regulatory requirements under federal, state and local laws and regulations.

To the extent the application of these laws or regulations to our new offerings is unclear or evolving, including changing interpretations and the implementation of new or varying regulatory requirements by federal or state governments and regulators, this may significantly affect or change our proposed business model, increase our operating expenses and hinder or delay our anticipated launch timelines for new products and services.

Disruptions or security failures in our information technology systems, including as a result of cybersecurity incidents, could create liability for us and/or limit our ability to effectively monitor, operate and control our operations and adversely affect our reputation, business, financial condition, results of operation and cash flows.

We may face risks related to cybersecurity, such as unauthorized access, cybersecurity attacks and other security incidents, which could adversely affect our business and operations.

The Company relies upon operational and information systems, some of which are managed by third parties, to process, transmit and store electronic information and to manage or support a variety of our business processes, activities and products.

Additionally, we collect and store sensitive data, including the personally identifiable information of our customers and employees, in data centers and on information systems (including systems that may be controlled or maintained by third parties).

The Company’s business, and in particular, the debit card and cash management solutions business and global payments business, is dependent on its ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets.

These transactions, as well as the information technology services provided to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards.

Due to the breadth and geographical reach of the Company’s client base, developing and maintaining its operational and information systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts.

Although the Company continues to take protective measures to maintain the confidentiality, integrity and security of our operational and information systems and infrastructure, the techniques used in cyberattacks are becoming increasingly diverse and sophisticated.

For example, the Company’s operational and information systems or infrastructure, or those of our third-party providers, may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, disruptions of service, computer viruses or other malicious code, cyberattacks and other incidents that could create a cybersecurity event, any of which could remain undetected for an extended period of time.

Furthermore, the Company may not be able to ensure that all of its clients, suppliers, counterparties and other third parties have appropriate controls in place to protect themselves from cyberattacks or to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.

Given the increasingly high volume of transactions, certain errors may be repeated or compounded before they can be discovered and rectified.

In addition, the increasing reliance on information systems, and the occurrence and potential adverse impact of attacks on such systems, both generally and in the financial services industry, have encouraged increased government and regulatory scrutiny of the measures taken by companies to protect against cybersecurity threats and incidents.

As these threats, incidents and government and regulatory oversight of associated risks continue to evolve, the Company may be required to expend additional resources to enhance or expand upon the security measures it currently maintains.

Although the Company has developed, and continues to invest in, systems and processes that are designed to detect and prevent security breaches and cyberattacks, a breach of its

systems and global payments infrastructure or those of our non-bank financial service partners and processors could result in:

losses to the Company and its customers;

loss of business and/or customers;

damage to its reputation;

the incurrence of additional expenses (including the cost of notification to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks);

disruption to its business;

an inability to grow its online services or other businesses;

additional regulatory scrutiny or penalties;

and/or exposure to civil litigation and possible financial liability — any of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

We have not encountered cybersecurity threats or incidents that have materially and adversely affected, or are reasonably likely to materially and adversely affect, the Company’s business, results of operations or financial condition;

however, the impacts of such threats or incidents in the future may be material.

While the Company maintains cybersecurity insurance, the costs related to cybersecurity threats or disruptions may not be fully insured.

For information on our cybersecurity risk management, strategy and governance, see Part I, Item 1C., Cybersecurity

Risk Related to Our Capital Structure

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We have a substantial amount of indebtedness and may incur other debt in the future.

Our level of debt and the covenant to which we agreed could have negative consequences on us, including, among other things, (i) requiring us to dedicate a large portion of our cash flow from operations to servicing and repayment of the debt;

Our level of debt and the covenants to which we agreed could have negative consequences on us, including, among other things, (i) requiring us to dedicate a large portion of our cash flow from operations to servicing and repayment of the debt;

(ii) limiting funds available for strategic initiatives and opportunities, working capital and other general corporate needs and (iii) limiting our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our ability to react to changes in our business, our industry and economic conditions.

Substantially all of our indebtedness is variable rate debt, primarily based on LIBOR.

LIBOR has been the subject of recent national, international, and other regulatory guidance and proposals for reform, which will cause LIBOR to disappear entirely in 2023 and largely be replaced by SOFR.

Substantially all of our indebtedness is variable rate debt, primarily based on SOFR, which replaced LIBOR effective June 30, 2023.

As a result of this variable rate debt, an increase in interest rates generally, such as those we have recently experienced, would adversely affect our profitability.

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• merge or consolidate with other entities.

In addition, the credit agreements governing our senior credit facilities contain a total net leverage ratio financial covenant.

In addition, the credit agreement governing our revolving credit facility contains a total net leverage ratio financial covenant that is applicable when 35% or more of the revolving credit facility is drawn at quarter end.

A breach of any of these covenants (or any other covenant in the documents governing our Credit and Guaranty Agreement) could result in a default or event of default under our Credit and Guaranty Agreement.

If an event of default occurred, the applicable lenders or agents could elect to terminate borrowing commitments and declare all borrowings and loans outstanding thereunder, together with accrued and unpaid interest and any fees and other obligations, to be immediately due and payable.

In addition, or in the alternative, the applicable lenders or agents could exercise their rights under the security documents entered into in

connection with our Credit and Guaranty Agreement.

In addition, or in the alternative, the applicable lenders or agents could exercise their rights under the security documents entered into in connection with our Credit and Guaranty Agreement.

Any acceleration of amounts due under the Credit and Guaranty Agreement would likely have a material adverse effect on us.

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The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Common Stock as part of a sale of the Company and ultimately might affect the market price of our Common Stock.

We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.

We have the ability to redeem outstanding warrants (the "Warrants") at any time after they become exercisable and prior to their expiration, at $0.01 per warrant, if the last reported sales price (or the closing bid price of our Common Stock in the event the Common Stock is not traded on any specific trading day) of the Common Stock equals or exceeds $16.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date we send proper notice of such redemption, provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the Warrants, we have an effective registration statement under the Securities Act covering the Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available or cashless exercise is exempt from the registration requirements under the Securities Act.

If and when the Warrants become redeemable by us, we may exercise our

redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.

Redemption of the outstanding Warrants could force a warrant holder:

(i) to exercise Warrants and pay the exercise price therefore at a time when it may be disadvantageous for you to do so;

(ii) to sell Warrants at the then-current market price when you might otherwise wish to hold your Warrants;

or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, may be substantially less than the market value of your Warrants.

The liquidity of the Warrants may be limited.

There is a limited trading market for our Warrants, which might adversely affect the liquidity, market price and price volatility of the Warrants.

In addition, our publicly traded Warrants have been removed from quotation on The Nasdaq Capital Market.

As a result, investors in our Warrants may find it more difficult to dispose of or obtain accurate quotations as to the market value of our Warrants, and the ability of our stockholders to sell our Warrants in the secondary market has been materially limited.

Financial Risks

Changes in the method for determining the LIBOR and the potential replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, results of operations and cash flows.

The majority of our current indebtedness bears interest at a variable rate based on LIBOR, and we may incur additional indebtedness based on LIBOR.

In July 2017, the FCA, a regulator of financial services firms and financial markets in the United Kingdom, stated that they will plan for a phase out of regulatory oversight of LIBOR interest rates indices.

The FCA has indicated they will support the LIBOR indices through 2021, to allow for an orderly transition to an alternative reference rate.

The ICE Benchmark Administration Limited recently announced that LIBOR settings will cease at the end of June 2023.

The Alternative Reference Rates Committee has proposed the SOFR as its recommended alternative to LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in April 2018.

SOFR is intended to be a broad measure of the cost of borrowing cash overnight collateralized by U.S.

Treasury securities.

At this time, it is not possible to predict when LIBOR will be replaced as the reference rate in the agreements governing the Company's indebtedness or the effect any discontinuance, modification or other reforms to LIBOR, or the establishment of alternative reference rates such as SOFR, or any other reference rate, will have on the Company.

When LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form prior to LIBOR’s cessation, however, the Company's borrowing costs may be adversely affected.

Unresolved Staff Comments

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 1A. Risk Factors