Form 20FR12B Getnet Adquirencia E

September 20, 2021 7:07 AM EDT

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As filed with the Securities and Exchange Commission on September 20, 2021.

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

_______________ 

 

FORM 20-F 

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              .

OR 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report

 

Commission file number:

 

GETNET ADQUIRÊNCIA E SERVIÇOS PARA MEIOS DE PAGAMENTO S.A.

(Exact name of Registrant as specified in its charter)

 

GETNET MERCHANT ACQUISITION AND PAYMENT SERVICES, INC.
(Translation of Registrant’s name into English) 

 

Federative Republic of Brazil
(Jurisdiction of incorporation)

 

Avenida Presidente Juscelino Kubitschek, 2041, Suite 121, Block A

Condomínio WTORRE JK, Vila Nova Conceição
São Paulo, São Paulo, 04543-011
Federative Republic of Brazil
(Address of principal executive offices)
Pedro Carlos Araujo Coutinho, Chief Executive Officer
Getnet S.A.
Avenida Presidente Juscelino Kubitschek, 2041, suite 121, Block A

Condomínio WTORRE JK, Vila Nova Conceição
São Paulo, São Paulo, 04543-011
Federative Republic of Brazil
+55 (11) 5184-9002
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Copies to:
Nicholas A. Kronfeld, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Phone: (212) 450-4000
Fax: (212) 701-5800

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class 

Trading
Symbol 

Name of each exchange
on which registered 

Units, each composed of one common share, no par value, and one preferred share, no par value   Nasdaq Global Select Market*
Common Shares, no par value    
Preferred Shares, no par value    
American Depositary Shares, each representing one unit which is composed of one common share, no par value, and one preferred share, no par value, of Getnet Adquirência e Serviços para Meios de Pagamento S.A.   Nasdaq Global Select Market

_______________

*Not for trading purposes, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None 

(Title of Class) 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None 

(Title of Class) 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. Not applicable

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes      No  

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes      No  

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No  

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer Accelerated Filer Non-accelerated Filer Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

     U.S. GAAP 

     International Financial Reporting Standards as issued by the International Accounting Standards Board 

     Other 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17      Item 18 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No

 

 

 

 

table of contents

____________________

Page

 

 

Introduction 1
Presentation of Financial and Other Information 3
Forward-Looking Statements 6
The Spin-Off 8
Part I 15
Item 1. Identity of Directors, Senior Management and Advisers 15
1A. Directors and Senior Management 15
1B. Advisers 15
1C. Auditors 15
Item 2. Offer Statistics and Expected Timetable 15
2A. Offer Statistics 15
2B. Method and Expected Timetable 15
Item 3. Key Information 15
3A. Selected Financial Data 15
3B. Capitalization and Indebtedness 21
3C. Reasons for the Offer and Use of Proceeds 21
3D. Risk Factors 21
Item 4. Information on the Company 59
4A. History and Development of the Company 59
4B. Business Overview 68
4C. Organizational Structure 106
4D. Property, Plants and Equipment 106
Item 4A. Unresolved Staff Comments 106
Item 5. Operating and Financial Review and Prospects 107
5A. Operating Results 107
5B. Liquidity and Capital Resources 124
5C. Research and Development, Patents and Licenses, etc. 132
5D. Trend Information 132
5E. Critical Accounting Estimates 133
Item 6. Directors, Senior Management and Employees 133
6A. Board of Directors and Board of Executive Officers 133
6B. Compensation 137
6C. Board Practices 140
6D. Employees 142
6E. Share Ownership 143
Item 7. Major Shareholders and Related Party Transactions 143
7A. Major Shareholders 143
7B. Related Party Transactions 145
7C. Interests of Experts and Counsel 148
Item 8. Financial Information 148
8A. Consolidated Statements and Other Financial Information 148
8B. Significant Changes 152

 

i 

Item 9. The Offer and Listing 152
9A. Offer and Listing Details 152
9B. Plan of Distribution 152
9C. Markets 152
9D. Selling Shareholders 154
9E. Dilution 154
9F. Expenses of the Issue 154
Item 10. Additional Information 154
10A. Share Capital 154
10B. By-Laws 154
10C. Material Contracts 165
10D. Exchange Controls 165
10E. Taxation 167
10F. Dividends and Paying Agents 179
10G. Statement by Experts 170
10H. Documents on Display 180
10I. Subsidiary Information 180
Item 11. Quantitative and Qualitative Disclosures About Market Risk 180
Item 12. Description of Securities Other Than Equity Securities 181
12A. Debt Securities 181
12B. Warrants and Rights 181
12C. Other Securities 181
12D. American Depositary Shares 181
Part II 190
Item 13. Defaults, Dividend Arrearages and Delinquencies 190
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 190
Item 15. Controls and Procedures 190
Item 16. [Reserved] 190
16A. Audit Committee Financial Expert 190
16B. Getnet’s Code of Ethical Conduct 190
16C. Principal Accountant Fees and Services 190
16D. Exemptions from the Listing Standards for Audit Committees 190
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 190
16F. Change in Registrant’s Certifying Accountant 190
16G. Corporate Governance 190
16H. Mine Safety Disclosure 190
Part III 191
Item 17. Financial Statements 191
Item 18. Financial Statements 191
Item 19. Exhibits 191

 

 

ii 

Introduction

 

In this registration statement, except where the context otherwise requires, the terms “Getnet,” the “Company,” “we,” “us,” “our,” “our company” and “our organization” mean Getnet Adquirência e Serviços para Meios de Pagamento S.A. and its consolidated subsidiaries.

 

We have prepared this registration statement to register the Units (as defined below) of Getnet, some of which will be represented by Getnet ADSs (as defined below), under Section 12(b) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the trading of the Getnet ADSs on the Nasdaq Global Select Market (“Nasdaq”) as a result of the Spin-Off (as defined below).

 

In addition, unless otherwise indicated or the context otherwise requires, all references to:

 

“B3” means the B3 S.A. – Brasil, Bolsa, Balcão, or the São Paulo Stock Exchange.

 

“BNDES” means the Banco Nacional de Desenvolvimento Econômico e Social, or the Brazilian National Economic and Social Development Bank.

 

“Brazil” means the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.

 

“Brazilian Capital Markets Law” means Brazilian Law No. 6,385/76, as amended.

 

“Brazilian Central Bank” means Banco Central do Brasil, or the Central Bank of Brazil.

 

“Brazilian Corporation Law” means Brazilian Law No. 6,404/76, as amended.

 

“CDI” means the Certificado de Depósito Interbancário, or the Interbank Deposit Certificate, means the “over extra group” daily average rate for interbank deposits, expressed as an annual percentage, based on 252 business days, calculated daily and published by B3, or any other index as may be further used in substitution thereof.

 

“CMN” means the Conselho Monetário Nacional, or the Brazilian Monetary Council.

 

“CVM” means the Comissão de Valores Mobiliários, or the Brazilian Securities Commission.

 

“FGV” means the Fundação Getulio Vargas.

 

“Getnet ADRs” means the American Depositary Receipts that may be issued to evidence Getnet ADSs.

 

“Getnet ADS depositary” means The Bank of New York Mellon, as depositary with respect to the Getnet ADS facility.

 

“Getnet ADSs” means American Depositary Shares, each representing one Unit of Getnet.

 

“IASB” means the International Accounting Standards Board.

 

“IBGE” means Instituto Brasileiro de Geografia e Estatística, or the Brazilian Institute of Geography and Statistics.

 

“IFRS” means International Financial Reporting Standards as issued by the IASB.

 

“Novo Mercado Rules” means the listing rules of the Novo Mercado segment of the B3.

 

“retail customers” are customers which generate a TPV of up to R$250 million per year.

 

“Santander Brasil” means Banco Santander (Brasil) S.A., and its consolidated subsidiaries.

 

1 

“Santander Brasil ADRs” mean the American Depositary Receipts that may be issued to evidence Santander Brasil ADSs.

 

“Santander Brasil ADSs” mean the American Depositary Shares, each representing one unit which is composed of one common share, no par value, and one preferred share, no par value, of Santander Brasil.

 

“Santander Spain” mean Banco Santander, S.A. and its consolidated subsidiaries.

 

“Santander Group” mean the worldwide operations of the Santander Spain conglomerate, as indirectly controlled by Santander Spain and its consolidated subsidiaries, including Getnet and Santander Brasil.

 

“Securities Act” means the U.S. Securities Act of 1933, as amended.

 

“Spin-Off” means the proposed distribution of all of the Units, common shares and preferred shares of Getnet to holders of Santander Brasil units, common shares and preferred shares, including holders of Santander Brasil units represented by Santander Brasil ADSs, on a pro rata basis (excluding treasury shares). For more information about the Spin-Off, see “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off.”

 

“TPV” means total payments volume, which is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and is not included in our statement of income.

 

“United States” or “U.S.” means the United States of America.

 

“Units” means units issued by Getnet, each composed of one common share of Getnet, no par value, and one preferred share of Getnet, no par value.

 

“wholesale customers” are customers which generate a TPV of over R$250 million per year.

 

We are providing this registration statement solely to provide information to holders of Santander Brasil units, common shares and preferred and Santander Brasil ADSs who will receive Getnet Units, common shares or preferred shares or Getnet ADSs in the Spin-Off. You should not construe this registration statement as an inducement or encouragement to buy, hold or sell any of our securities or any securities of Santander Brasil. We believe that the information contained in this registration statement is accurate as of the date set forth on the cover. Changes to the information contained in this registration statement may occur after that date, and neither we nor Santander Brasil undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices.

 

 This registration statement does not constitute a proxy statement. Neither Santander Brasil nor Getnet is asking you for a proxy, and you are requested not to send Santander Brasil or Getnet a proxy.

 

2 

Presentation of Financial and Other Information

 

All references to “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil, and all references to “U.S. dollar,” “U.S. dollars” or “U.S.$” are to U.S. dollars, the official currency of the United States of America.

 

General

 

Solely for the convenience of the reader, we have translated certain amounts included in “Item 3. Key Information—A. Selected Financial Data” and elsewhere in this registration statement from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank (Banco Central do Brasil), as of June 30, 2021, which was R$5.002 to U.S.$1.00, or on the indicated dates (subject, on any applicable date, to rounding adjustments). We make no representation that the real or U.S. dollar amounts actually represent or could have been or could be converted into U.S. dollars at the rates indicated, at any particular exchange rate or at all.

 

The Spin-Off, as defined below, is required under Brazilian law to be approved by the shareholders of the Company’s parent company, Santander Brasil. On March 31, 2021, the shareholders of Getnet and Santander Brasil approved the consummation of the proposed Spin-Off at extraordinary general shareholders’ meetings. Once the conditions to the Spin-Off are satisfied, including this registration statement being declared effective, Santander Brasil will distribute our Units, common and preferred shares to its shareholders on a pro rata basis (excluding treasury shares) and the Spin-Off will be completed. Following the completion of the Spin-Off, we will no longer be a subsidiary of Santander Brasil.

 

The Spin-Off

 

We have prepared this registration statement to register our Units, preferred and common shares under the Exchange Act, in connection with the trading of the Getnet ADSs on the Nasdaq as a result of the Spin-Off. In connection with the Spin-Off, Santander Brasil’s shareholders will receive, as applicable, common shares and/or preferred shares issued by us and/or Units, at the rate of 0.25 common share, preferred share or Unit, as the case may be, for each one common share, preferred share or unit issued by Santander Brasil. Holders of Santander Brasil ADSs representing units of Santander Brasil shares will receive the Getnet ADSs, each representing one of our Units, at a rate of 0.25 Getnet ADSs for each Santander Brasil ADS held.

 

Consolidated Financial Statements

 

We maintain our books and records in reais, our functional currency and the presentation currency for our consolidated financial statements.

 

This registration statement includes financial information derived from:

 

·our unaudited interim consolidated financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020, and the related notes thereto, which are included in this registration statement. We refer to these financial statements and the related notes thereto collectively as our “unaudited interim consolidated financial statements”; and

 

·our audited consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018, and the related notes thereto, which are included in this registration statement. We refer to these financial statements and the related notes thereto collectively as our “audited consolidated financial statements.”

 

We refer to our unaudited interim consolidated financial statements and our audited consolidated financial statements collectively as our “consolidated financial statements.” Such consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or “IASB.”

 

3 

IFRS differs in certain significant aspects in comparison with the generally accepted accounting principles in the United States, or “U.S. GAAP.” IFRS also differs in certain significant aspects in comparison with Brazilian GAAP (as defined below).

 

As required by the Brazilian Central Bank and Brazilian law, we prepare consolidated financial statements according to IFRS. However, we will also continue to prepare statutory financial statements in accordance with accounting practices established by Law No. 6,404, dated December 15, 1976, as amended by Law 11,638, or the “Brazilian Corporate Law” and standards established by the National Monetary Council (Conselho Monetário Nacional), or “CMN,” the Brazilian Central Bank and document template provided in the Accounting Chart for National Financial System Institutions (Plano Contábil das Instituições do Sistema Financeiro Nacional), and the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários), or “CVM,” to the extent such practices do not conflict with the rules of the Brazilian Central Bank and the Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis), to the extent approved by the Brazilian Central Bank. We refer to such Brazilian accounting practices as “Brazilian GAAP.” See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Central Bank Resolution Regimes.”

 

Restatement of Our Audited Consolidated Financial Statements

 

Our audited consolidated financial statements have been restated to correct a classification error between “Selling, General and Administrative Expenses” and “Costs of services.” We identified expenses that should have been classified as costs of services. Accordingly, these costs were reclassified from “Selling, General and Administrative Expenses,” as originally reported, to “Costs of services” in our income statement to correct an error in compliance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. The financial information for the years ended December 31, 2020, 2019 and 2018 presented in this registration statement is derived from our restated audited consolidated financial statements and reflects the restatement of improperly classified expenses from “Selling, General and Administrative expenses” to “Costs of Services.” See note 1 to our audited consolidated financial statements included elsewhere in this registration statement.

 

Implications of Being an Emerging Growth Company

 

As a company with less than US$1.07 billion in revenue during the last fiscal year, we qualify as an “emerging growth company”, as defined in the Jumpstart our Business Startups Act of 2012, or the “JOBS Act.” An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

·a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; and

 

·an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, in the assessment of our internal control over financial reporting.

 

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in market value of our units held by non-affiliates or issue more than US$1.07 billion of non-convertible debt over a three-year period.

 

We may choose to take advantage of some or all of these exemptions. We have not taken advantage of any of these reduced reporting burdens in this registration statement, although we may choose to do so in future filings and if we do, the information that we provide shareholders may be different than you might get from other public companies in which you hold equity.

 

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.

 

4 

Market Share and Other Information

 

We obtained the market and competitive position data, including market forecasts, used throughout this registration statement from internal surveys, market research, publicly available information and industry publications. These data are updated to the latest available information, as of the date of this registration statement. We have made these statements on the basis of information from third-party sources that we believe are reliable, such as the Brazilian association of savings and mortgage financing entities (Associação Brasileira das Entidades de Crédito Imobiliário e Poupança), or “ABECIP”; the Brazilian association of credit card companies (Associação Brasileira de Empresas de Cartões de Crédito e Serviços), or “ABECS”; the Brazilian association of leasing companies (Associação Brasileira de Empresas de Leasing); the national association of financial and capital markets entities (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais), or “ANBIMA”; the Brazilian Central Bank; the Brazilian social and economic development bank (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES”; the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the “IBGE”; the Brazilian bank federation (Federação Brasileira de Bancos), or “FEBRABAN”; the national federation of private retirement and life insurance (Federação Nacional de Previdência Privada e Vida); the Getúlio Vargas Foundation (Fundação Getúlio Vargas), or “FGV”; the Brazilian Central Bank system (Sistema do Banco Central); the World Bank; and the CVM, among others.

 

Special Note Regarding Non-IFRS Financial Measures

 

We present non-IFRS financial measures when we believe that the additional information is useful and meaningful to investors. A non-IFRS financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. These non-IFRS financial measures are provided to enhance investors’ overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-IFRS financial measures provide useful information to both management and investors by excluding certain expenses, gains and losses, as the case may be, that may not be indicative of our core operating results and business outlook.

 

EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-IFRS financial measure. We calculate EBITDA as net income, plus net finance income, plus current and deferred income tax and social contribution expense, plus depreciation and amortization expenses. We calculate EBITDA margin for a given year as EBITDA divided by revenue from services for the respective year.

 

We believe that EBITDA and EBITDA Margin are useful for assessing our performance and as a comparison against other companies in the same sector as ours, although other companies may calculate EBITDA and EBITDA Margin differently. In addition, our management considers these measures in its administrative decision-making process. For a reconciliation of our EBITDA and EBITDA Margin to our net income (loss) for the relevant year, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-IFRS Financial Measures.”

 

These measures may be different from non-IFRS financial measures used by other companies. The presentation of this non-IFRS financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered separately from, or as a substitute for, our financial information prepared and presented in accordance with IFRS. Non-IFRS financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with IFRS. These measures should only be used to evaluate our results of operations in conjunction with the corresponding IFRS financial measures.

 

Rounding

 

We have made rounding adjustments to reach some of the figures included in this Form 20-F. As a result, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

 

5 

Forward-Looking Statements

 

This registration statement contains estimates and forward-looking statements subject to risks and uncertainties, principally in “Item 3. Key Information—D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 4. Information on the Company—B. Business Overview.” Some of the matters discussed concerning our business operations and financial performance include estimates and forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

 

Our estimates and forward-looking statements are based mainly on our current expectations and estimates or projections of future events and trends, which affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to certain risks and uncertainties and are made in light of information currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others:

 

·the COVID-19 pandemic and other actual or potential epidemics, pandemics, outbreaks or other public health crises, which could have an adverse impact on our business (see “Item 3. Key Information—3D. Risk Factors—Risks Relating to our Business and Industry—Actual or potential epidemics, pandemics, outbreaks or other public health crises, such as the COVID-19 pandemic, may have an adverse impact on our clients’ financial condition, particularly SME merchants, consequently impacting our business,” “Item 3. Key Information—3D. Risk Factors—Risks Relating to Brazil—The COVID-19 pandemic has had, and is expected to continue to have, a negative impact on global, regional and Brazilian economies, and we would be materially adversely affected by a protracted economic downturn,” “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments—Impact of COVID-19” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19”);

 

·the impact of the COVID-19 outbreak on general economic and business conditions in Brazil, Latin America and globally and any restrictive measures imposed by governmental authorities in response to the outbreak;

 

·our ability to implement, in a timely and efficient manner, any measure necessary to respond to or reduce the impacts of the COVID-19 outbreak on our business, operations, cash flow, prospects, liquidity and financial condition;

 

·general economic, political, social and business conditions in Brazil, including the impact of the current international economic environment and the macroeconomic conditions in Brazil, and the policies of the administration of Brazil which took office on January 1, 2019;

 

·fluctuations in interest, inflation and exchange rates in Brazil;

 

·infrastructure and labor force deficiencies in Brazil;

 

·economic developments and perception of risk in other countries, including a global downturn;

 

·our expectations regarding revenues generated by transaction activities, subscription and equipment rental fees and other services;

 

·our expectations regarding our operating and net profit margins;

 

·our ability to attract and retain a qualified management team and other team members while controlling our labor costs;

 

·competition adversely affecting our profitability;

 

·the occurrence of a natural disaster, widespread health epidemic or pandemics, including the coronavirus (COVID-19) pandemic;

 

6 

·the inherent risks related to the digital payments market, such as the interruption, failure or breach of our computer or information technology systems;

 

·our ability to anticipate market needs and develop and introduce new and enhanced products and service functionalities to adapt to changes in our industry;

 

·our ability to innovate and respond to technological advances and changing market needs and customer demands;

 

·changes in taxes or other fiscal assessments;

 

·our ability to maintain, protect and enhance our brand and intellectual property;

 

·changes in consumer demands and preferences and technological advances, and our ability to innovate in order to respond to such changes;

 

·failure to adequately protect ourselves against risks relating to cybersecurity;

 

·our dependence on the proper functioning of information technology systems;

 

·our ability to protect personal data;

 

·our ability to protect ourselves against cybersecurity risks;

 

·our ability to protect our reputation;

 

·our ability to implement technology initiatives successfully and to capture the anticipated benefits of such initiatives; and

 

·other risk factors as set forth under “Item 3. Key Information—D. Risk Factors” in this registration statement.

 

The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast,” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements are intended to be accurate only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. You should therefore not make any investment decision based on these estimates and forward-looking statements.

 

The forward-looking statements contained in this report speak only as of the date of this report. We do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

 

7 

The Spin-Off

 

The following provides only a summary of the Spin-Off and certain questions relating to the terms of the Spin-Off. You should read the section entitled “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off” in this registration statement for a more detailed description of the matters identified below.

 

Overview

 

Santander Brasil and Getnet, for the reasons described below, wish to carry out the Spin-Off of Getnet from Santander Brasil, pursuant to the applicable law currently in force, and with a reduction of Santander Brasil’s share capital.

 

The Spin-Off is being proposed in order to segregate Santander Brasil’s equity interest in Getnet. Thus, the intention is to enable Getnet to explore the full potential of its businesses as part of the strategy of the Santander Group to concentrate the technology and various payments solutions of the group within PagoNxt, a new technology-focused global payment platform. The Spin-Off will allow Getnet to have direct access to the capital markets and other sources of funding, thus allowing it to prioritize its investments according to its profile and scope of activities. Completion of the Spin-Off is subject to the satisfaction of a number of conditions. See “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off” for more detail.

 

In addition, on April 15, 2021, we entered into a partnership agreement with Santander Brasil, or the “Partnership Agreement,” which provides a framework for our relationship with Santander Brasil following the Spin-Off. For more information about the Partnership Agreement, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Principal Related Party Transactions—Partnership Agreement with Santander Brasil.”

 

Prior to the conclusion of the Spin-Off, Santander Brasil owned 100% of our total capital stock. As part of the Spin-Off, all of our Units and issued common and preferred shares will be transferred to the current shareholders of Santander Brasil, including the holder of Units represented by Santander Brasil ADSs (each representing one unit, which is composed of one common share and one preferred share). As a result, Santander Spain, the controlling shareholder of Santander Brasil, will become our controlling shareholder directly and indirectly through its subsidiaries, Grupo Empresarial Santander, S.L. and Sterrebeeck B.V. For additional information on our share capital following the Spin-Off, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” and “Item 10. Additional Information—A. Share Capital.”

 

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The charts below set forth a summary of our corporate structure as of the date of this registration statement and after the Spin-Off:

 

Corporate Structure Prior to the Spin-Off

 

 

Corporate Structure After the Spin-Off

 

 

 
*No common shares, preferred shares or Units of Getnet will be allocated to the treasury shares of Santander Brasil as part of the Spin-Off. As a result, the interests of the Santander Group and of each of Santander Brasil’s current shareholders in our total capital stock after the Spin-Off will be greater than their respective interests in Santander Brasil prior to the Spin-Off. Prior to the Spin-Off, the Santander Group owns approximately 89.5% of the total capital stock of Santander Brasil. However, the Santander Group will own approximately 89.9% of our total capital stock after the Spin-Off. See “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off” and “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”

 

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Questions and Answers about the Spin-Off

 

Q: What is the Spin-Off?

 

A: The Spin-Off refers to the proposed segregation from Santander Brasil of the total amount of shares issued by Getnet and held by Santander Brasil, or the “Spun-off Portion,” representing 100% of our Getnet share capital, which will result in the allotment of the Getnet shares to Santander Brasil’s shareholders, pro rata to their equity interests in Santander Brasil (excluding treasury shares). Following the Spin-Off, we will be a publicly traded company. See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.” We have applied to list our Units, common and preferred shares on the basic listing segment of the B3, and we intend to apply to list the Getnet ADSs representing our Units on the Nasdaq.

 

Q: Who is entitled to receive our Units, common and preferred shares or the Getnet ADSs in the Spin-Off?

 

A: Holders of Santander Brasil’s common shares, preferred shares and units, as well as Santander Brasil ADSs as of the applicable Record Dates (as defined below) will be entitled to receive our Units, common and preferred shares and the Getnet ADSs, respectively, in connection with the Spin-Off.

 

Each holder of Santander Brasil’s units, common and preferred shares, including the custodian for the Santander Brasil ADS facility, will receive Getnet common shares, preferred shares and Units, at the rate of 0.25 common share, preferred share or Unit, as the case may be, for each one common share, preferred share or unit issued by Santander Brasil held at close of trading on the B3 on a certain date, which is expected to be         , 2021, after (i) the conclusion of our publicly held company registration with the CVM; (ii) the approval of the listing of our common shares, preferred shares and Units on the B3; and (iii) the ratification of the Spin-Off by the Brazilian Central Bank (the “Brazilian Record Date”). Each holder of Santander Brasil ADSs will be entitled to receive Getnet ADSs, each representing one Getnet Unit, at a rate of 0.25 Getnet ADSs for each Santander Brasil ADS held at close of trading on the Nasdaq on a date following the Brazilian Record Date, which is expected to be            2021 (the “ADS Record Date” and, together with the Brazilian Record Date, the “Record Dates”).

 

Q: What is the expected date of completion of the Spin-Off?

 

A: The distribution of our Units, common and preferred shares is expected to occur on the business day immediately following the Brazilian Record Date (the “Brazilian Distribution Date”). The distribution of the Getnet ADSs is expected to occur on or about                 (the “ADS Distribution Date”), which would be the        business day following the ADS Record Date.

 

See “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off—When and How You Will Receive Getnet Units, Common and Preferred Shares and Getnet ADSs” for more information.

 

Q: How will fractional shares and Getnet ADSs be treated in the Spin-Off?

 

A: The fractions of common shares or preferred shares issued by Getnet or of Getnet Units will be segregated and sold in as many auctions as necessary, to be held at B3, with the sales proceeds being made available to the respective owners of the fractions, as per the notice to shareholders to be released in the future. Similarly, the Santander Brasil ADS depositary, the U.S. book-entry settlement system and participants in that system will sell fractional entitlements to Getnet ADSs and distribute the net proceeds to the holders of Santander Brasil ADSs entitled to them.

 

Q: What do I have to do to participate in the Spin-Off?

 

A: If you hold Santander Brasil’s common shares, preferred shares or units or Santander Brasil ADSs as of the applicable Record Date, you will not be required to take any action, pay any cash, deliver any other consideration, or surrender any of Santander Brasil’s common shares, preferred shares or units or Santander Brasil’s ADRs evidencing Santander Brasil ADSs in order to receive Getnet common shares, preferred shares or Units, or Getnet ADSs in the Spin-Off, except that if you hold Santander Brasil ADSs, you will be required to pay The Bank of New York Mellon a fee of U.S.$0.05 per Getnet ADS in order to receive Getnet ADSs. See “Item 4. Information on the

 

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Company—A. History and Development of the Company—The Spin-Off— When and How You Will Receive Getnet Units, Common and Preferred Shares and Getnet ADSs” for more information.

 

This registration statement does not constitute a proxy statement. Neither Santander Brasil nor Getnet is asking you for a proxy, and you are requested not to send Santander Brasil or Getnet a proxy.

 

The Spin-Off will not affect the number of outstanding Santander Brasil common shares, preferred shares, units or Santander Brasil ADSs or any rights of Santander Brasil’s shareholders, although it may affect the market value of outstanding Santander Brasil common shares, preferred shares, units or Santander Brasil ADSs. See “—Will the Spin-Off affect the trading price of my Santander Brasil units, common and preferred shares or Santander Brasil ADSs?” below.

 

We expect that the Spin-Off will be completed in the second half of 2021, provided that certain conditions shall have been satisfied. For more information, see “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off—Conditions to the Spin-Off.”

 

Q: If I sell my Santander Brasil units, common shares, preferred shares or Santander Brasil ADSs on or before the Brazilian Distribution Date or the ADS Distribution Date, as the case may be, will I still be entitled to receive Getnet Units, common shares and preferred shares and Getnet ADSs in the Spin-Off with respect to the sold shares or Santander Brasil ADSs?

 

A: To receive Getnet Units, common shares or preferred shares in connection with the Spin-Off, you must hold Santander Brasil’s units, common shares or preferred shares on the Brazilian Record Date. Immediately following the Brazilian Record Date, Santander Brasil’s units, common or preferred shares will trade “ex-distribution” on the B3. This means that if you purchase Santander Brasil’s units, common or preferred shares following the Brazilian Record Date, you will not receive Getnet Units, common or preferred shares in connection with the Spin-Off. Similarly, if you hold or purchase Santander Brasil’s units, common shares or preferred shares as of the Brazilian Record Date and you subsequently sell or otherwise dispose of your Santander Brasil units, common shares, preferred shares, up to and including through the Brazilian Distribution Date, you will still receive the Getnet Units, common and preferred shares that you would be entitled to receive in respect of your ownership, as of the Brazilian Record Date, of the Santander Brasil units, common and preferred shares that you sold.

 

With respect to Santander Brasil ADSs, beginning on the day prior to the ADS Record Date and continuing up to and including the ADS Distribution Date, we expect that there will be two markets in Santander Brasil ADSs: a “regular-way” market and an “ex-distribution” market. Santander Brasil ADSs that trade on the “regular-way” market will trade with the entitlement to receive Getnet ADSs in connection with the Spin-Off. Santander Brasil ADSs that trade on the “ex-distribution” market will trade without the entitlement to receive Getnet ADSs in connection with the Spin-Off. Therefore, if you sell Santander Brasil ADSs on the “regular-way” market, you will also be selling your right to receive Getnet ADSs in connection with the Spin-Off. If you own Santander Brasil ADSs as of the ADS Record Date and sell or otherwise dispose of these shares on the “ex-distribution” market, up to and including through the ADS Distribution Date, you will still receive the Getnet ADSs that you would be entitled to receive in respect of your ownership, as of the ADS Record Date, of the Santander Brasil ADSs that you sold. You are encouraged to consult with your financial advisor regarding the specific implications of selling your Santander Brasil ADSs prior to or on the ADS Distribution Date.

 

Q: When will Getnet Units, common shares, preferred shares and Getnet ADSs begin to trade on a stand-alone basis?

 

A: We expect that our Units, common and preferred shares will commence trading on a stand-alone basis on the B3 at market open on the Brazilian Distribution Date.

 

We expect that the Getnet ADSs will commence “regular-way” trading on a stand-alone basis on the Nasdaq at market open on                 . In addition, we expect that the Getnet ADSs will begin trading on a “when-issued” basis on the Nasdaq from market open on                 and continue up to and including the ADS Distribution Date, which we expect to be on or about                 .

 

See also “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off—Listing and Trading of Getnet Units, Common and Preferred Shares and Getnet ADSs.”

 

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Q: What will be the ticker symbol of the Getnet common shares and Getnet ADSs?

 

A: We have applied to list Getnet’s common shares on the basic listing segment of the B3 under the ticker symbol “   .” We intend to apply to list the Getnet ADSs on the Nasdaq under the ticker symbol “   .”

 

Q: Will the Santander Brasil ADS depositary suspend the issuance and cancellation of Santander Brasil in connection with the Spin-Off?

 

A: Yes. The Santander Brasil depositary will suspend the issuance and cancellation of Santander Brasil ADSs from     until    . This means that during this time, you will not be able to, surrender your Santander Brasil ADSs and receive underlying Santander Brasil’s units, or deposit your Santander Brasil units and receive Santander Brasil ADSs. However, the closing of the issuance and cancellation books does not impact trading, and you may continue to trade your Santander Brasil ADSs during this period.

 

Q: How many Getnet Units, common and preferred shares are expected to be outstanding immediately following the Spin-Off?

 

A: Based on                 issued shares of Santander Brasil as of                 , 2021 and the application of the distribution ratio, Getnet will have                 Units,                 common shares and                 preferred shares issued and outstanding immediately following the Spin-Off. For additional information on the share capital of Getnet following the Spin-Off, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” and “Item 10. Additional Information—A. Share Capital.”

 

Q: What will happen to the listing of Santander Brasil’s units, common or preferred shares and Santander Brasil ADSs?

 

A: After the Spin-Off, Santander Brasil’s units, common or preferred shares will continue to trade on the B3 under the symbol “SANB” and Santander Brasil ADSs will continue to trade on the NYSE under the symbol “BSBR.”

 

Q: Will the number of Santander Brasil units, common or preferred shares or Santander Brasil ADSs I own change as a result of the Spin-Off?

 

A: No, the number of Santander Brasil’s units, common or preferred shares or Santander Brasil ADSs you own will not change as a result of the Spin-Off.

 

Q: Will the Spin-Off affect the trading price of my Santander Brasil units, common or preferred shares or Santander Brasil ADSs?

 

A: Yes. The trading price of the Santander Brasil units, common or preferred shares and the Santander Brasil ADSs immediately following the Spin-Off could be lower than immediately prior to the Spin-Off because the trading price will no longer reflect the value of Getnet and its subsidiaries. We cannot provide you with any assurance regarding the price at which the Santander Brasil or Getnet units, common or preferred shares and Santander Brasil and Getnet ADSs will trade following the Spin-Off.

 

Q: What are the conditions to the Spin-Off?

 

A. We expect that the Spin-Off will be completed in the second half of 2021, provided that the following conditions shall have been satisfied:

 

·the SEC declaring effective, under the Exchange Act, this registration statement, with no stop order in effect or pending before or threatened by the SEC with respect to this registration statement;

 

·the B3 approving the listing of Getnet and the admission of our common shares, preferred shares and Units on the B3;

 

·the Nasdaq approving the listing of the Getnet ADSs;

 

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·conclusion of the Publicly held Company Registration before the CVM and the registration of the Getnet Units, common and preferred shares under the U.S. Securities Exchange Act;

 

·ratification of the Spin-Off by the Brazilian Central Bank; and

 

·no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal or administrative restraint or prohibition preventing consummation of the Spin-Off being in effect, and no other event outside the control of Santander Brasil having occurred or failed to occur that prevents the consummation of the Spin-Off.

 

Santander Brasil and Getnet cannot assure you that any or all of the conditions to the Spin-Off will be met. See also “—Can Santander Brasil decide to cancel the Spin-Off of Getnet’s shares even if all the conditions are met?” below and “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off—Conditions to the Spin-Off.”

 

Q: Can Santander Brasil decide to cancel the Spin-Off even if all the conditions are met?

 

A: No. The Spin-Off is subject to the satisfaction of certain conditions. However, if all such conditions have been satisfied in a timely manner, Santander Brasil will not have the right to subsequently terminate the planned distribution without the approval of its shareholders. See also “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off—Conditions to the Spin-Off.”

 

Q: What are the tax consequences to me of the Spin-Off?

 

A: See “Item 10. Additional Information—E. Taxation” for more information regarding the material tax consequences of the Spin-Off.

 

Q: What will the relationship between Santander Brasil and Getnet be following the Spin-Off?

 

A: On April 15, 2021, we entered into a Partnership Agreement with Santander Brasil related to the Spin-Off. The Partnership Agreement provides a framework for our relationship with Santander Brasil following the Spin-Off. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Principal Related Party Transactions—Partnership Agreement with Santander Brasil” for more detail.

 

Q: Are there risks associated with owning Getnet Units, common and preferred shares and Getnet ADSs?

 

A: Yes. Ownership of Getnet Units, common and preferred shares is subject to both general and specific risks relating to our business, the industry in which we operate and our status as a separate, publicly traded company. Ownership of Getnet Units, common and preferred shares and Getnet ADSs is also subject to risks relating to the Spin-Off. Accordingly, you should carefully read the information set forth under “Item 3. Key Information—D. Risk Factors” in this registration statement.

 

Q: Where can I get more information?

 

A: If you have any questions relating to the business performance of Santander Brasil, Getnet or the Spin-Off, you may contact the investor relations departments of Santander Brasil or Getnet at:

 

Getnet Adquirência e Serviços para Meios de Pagamento S.A.
Avenida Presidente Juscelino Kubitschek, 2041, suite 121, Block A
Condomínio WTORRE JK, Vila Nova Conceição
São Paulo, São Paulo, 04543-011
Federative Republic of Brazil
Luciano Decourt Ferrari, Investor Relations Officer
Telephone: +55 (11) 5184-9002
Email: ir@getnet.com.br

 

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If you hold Santander Brasil ADRs and have any questions with respect to the mechanics of the Spin-Off as they relate to your Santander Brasil ADRs, you may contact Santander Brasil, at:

 

Avenida Presidente Juscelino Kubitschek, 2041, suite 121, Block A
Condomínio WTORRE JK, Vila Nova Conceição
São Paulo, São Paulo, 04543-011
Federative Republic of Brazil
Telephone: +55-11-3553-3300
Email: ri@santander.com.br

 

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Part I

 

Item 1. Identity of Directors, Senior Management and Advisers

 

1A. Directors and Senior Management

 

For information regarding our directors and senior management, see “Item 6. Directors, Senior Management and Employees—A. Board of Directors and Board of Executive Officers.”

 

1B. Advisers

 

Our U.S. legal counsel is Davis Polk & Wardwell LLP, 450 Lexington Avenue, New York, New York 10017, United States. Our Brazilian legal counsel is Pinheiro Neto Advogados, Rua Hungria, 1100, São Paulo, São Paulo 01455-906, Brazil.

 

1C. Auditors

 

The Company’s auditors are PricewaterhouseCoopers Auditores Independentes, with registered office at Avenida Francisco Matarazzo, 1400, Torre Torino, 05001-903, São Paulo, SP, Brazil, registered with the Public Company Accounting Oversight Board (United States).

 

Item 2. Offer Statistics and Expected Timetable

 

2A. Offer Statistics

 

Not applicable.

 

2B. Method and Expected Timetable

 

Not applicable.

 

Item 3. Key Information

 

3A. Selected Financial Data

 

Financial information for Getnet as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 has been derived from our unaudited interim consolidated financial statements and the financial information for Getnet as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 has been derived from our restated audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB and reflects the restatement of improperly classified expenses from “Selling, General and Administrative expenses” to “Costs of Services.” See “Presentation of Financial and Other Information—Restatement of Our Audited Consolidated Financial Statements” and note 1 to our audited consolidated financial statements included elsewhere in this registration statement.

 

This financial information should be read in conjunction with our audited consolidated financial statements, the related notes and “Item 5. Operating and Financial Review and Prospects” included within this registration statement.

 

 

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Income Statement Data

 

   For the Six Months Ended June 30,  For the Year Ended December 31,
   2021  2021  2020  2020  
(As restated)
  2020  
(As restated)
  2019  
(As restated)
  2018  
(As restated)
   (in millions of U.S.$)(1)  (in millions of R$)  (in millions of U.S.$)(1)  (in millions of R$)
Revenue from services    251.9    1,259.9    1,098.5    463.9    2,320.5    2,662.9    2,231.6 
Costs of services    (149.8)   (749.1)   (623.2)   (285.1)   (1,426.2)   (1,086.5)   (898.5)
Gross profit    102.1    510.8    475.3    178.8    894.3    1,576.4    1,333.1 
Selling, General and Administrative expenses, net    (37.4)   (187.5)   (159.4)   (69.7)   (348.5)   (440.7)   (329.3)
Other expenses, net    (7.8)   (38.8)   (19.8)   (11.1)   (55.8)   (109.7)   (129.9)
Operating profit    56.9    284.5    296.1    98.0    490.0    1,026.0    873.9 
Finance income, net    (1.3)   (6.3)   27.8    1.2    6.2    73.8    67.9 
Profit before income taxes    55.6    278.2    323.9    99.2    496.2    1,099.8    941.8 
Current income tax and social
contribution
   (13.4)   (67.2)   (62.7)   (25.6)   (128.0)   (330.0)   (256.5)
Deferred income tax and social
contribution
   (4.6)   (23.0)   (24.4)   (1.4)   (7.2)   24.2    7.0 
Net income for the period    37.6    188.0    236.8    72.2    361.0    794.0    692.3 
Net income margin(2)    14.9%   14.9%   21.6%   15.6%   15.6%   29.8%   31.0%
 
(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2021 and for the year ended December 31, 2020 have been translated to U.S. dollars using an exchange rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other.

 

(2)Net income margin is net income divided by revenue from services.

 

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Earnings Per Share Data

 

   For the Six Months Ended June 30,  For the Year Ended December 31,
   2021  2021  2020  2020  2020  2019  2018
   (in U.S.$)(1)  (in R$)  (in U.S.$)(1)  (in R$)
Actual                     
Basic earnings per share                     
Common shares(2)    0.02    0.10    0.13    0.04    0.19    0.43    0.37 
Preferred shares(3)    0.02    0.11    N/A    N/A    N/A    N/A    N/A 
Diluted earnings per share                                   
Common shares(2)    0.02    0.10    0.13    0.04    0.19    0.43    0.37 
Preferred shares(3)    0.02    0.11    N/A    N/A    N/A    N/A    N/A 
Pro forma(4)                                   
Basic earnings per share                                   
Common shares(5)    0.02    0.10    0.12    0.04    0.18    0.41    0.35 
Preferred shares(6)    0.02    0.11    0.13    0.04    0.20    0.45    0.39 
Diluted earnings per share                                   
Common shares(5)    0.02    0.10    0.12    0.04    0.18    0.41    0.35 
Preferred shares(6)    0.02    0.11    0.13    0.04    0.20    0.45    0.39 
 

(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2021 and for the year ended December 31, 2020 have been translated to U.S. dollars using an exchange rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other.

 

(2)Basic and diluted earnings per common share for the six months ended June 30, 2021 are calculated by dividing our net income attributable to holders of common shares for the six months ended June 30, 2021 (R$119.4 million) by the weighted average number of common shares for the six months ended June 30, 2021 (1,229,062,000). Basic and diluted earnings per common share for the six months ended June 30, 2020 and for the years ended December 31, 2020, 2019 and 2018 are calculated by dividing our net income for the period (R$236.8 million, R$361.0 million, R$794.0 million and R$692.3 million, respectively) by the weighted average number of common shares as of the end of each period presented (1,866,722,202 as of June 30, 2020, December 31, 2020, 2019 and 2018). Net income attributable to common and preferred shareholders reflects the allocation of total net income based on the weighted average number of each of common and preferred shares, adjusted to reflect a 10% higher allocation of profit per share for preferred shareholders compared to common shareholders in line with the 10% higher preference in dividend distribution.

 

(3)Basic and diluted earnings per preferred share for the six months ended June 30, 2021 are calculated by dividing our net income attributable to holders of preferred shares for the applicable period (R$68.1 million) by the weighted average number of preferred shares over the applicable period (637,660,000). We did not have any preferred shares outstanding prior to the six months ended June 30, 2021. Net income attributable to common and preferred shareholders reflects the allocation of total net income based on the weighted average number of each of common and preferred shares, adjusted to reflect a 10% higher allocation of profit per share for preferred shareholders compared to common shareholders in line with the 10% higher preference in dividend distribution.

 

(4)Pro forma earnings per share reflects the stock split and the conversion of common to preferred shares undertaken in February 2021 related to the Spin-Off for all periods and years presented as if it had occurred at January 1, 2018. For more information about the stock split and the conversion, see “Item 4. Information on the Company—History and Development of the Company—Recent Developments—Stock Split and Conversion of Shares.”

 

(5)Calculated by dividing our net income attributable to common shares for the applicable period by the number of common shares calculated as described in note (4) above. Net income attributable to common and preferred shareholders reflects the allocation of total net income based on the number of each of common and preferred shares, adjusted to reflect a 10% higher allocation of profit per share for preferred shareholders compared to common shareholders in line with the 10% higher preference in dividend distribution. The following table summarizes how pro forma earnings per common share were calculated.

 

   For the Six Months Ended June 30,  For the Year Ended December 31,
   2021  2021  2020  2020  2020  2019  2018
   (in millions of U.S.$)(a)  (in millions of R$, except as otherwise indicated)  (in millions of U.S.$)(a)  (in millions of R$, except as otherwise indicated)
Net income for the period attributable to common shareholders    18.2    91.3    115.0    35.1    175.3    385.5    336.1 
Number of common shares(b)    950,718,477    950,718,477    950,718,477    950,718,477    950,718,477    950,718,477    950,718,477 
Basic and diluted earnings per share for profit attributable to common shareholders (in R$)(c)    0.02    0.10    0.12    0.04    0.18    0.41    0.35 

____________

(a) See note (1) above.

(b) See note (4) above.

(c) See note (5) above.

 

(6)Calculated by dividing our net income attributable to preferred shares for the applicable period by the number of preferred shares calculated as described in note (4) above. Net income attributable to common and preferred shareholders reflects the allocation of total net income based on the number of each of common and preferred shares, adjusted to reflect a 10% higher allocation of profit per share for preferred shareholders compared to common shareholders in line with the 10% higher preference in dividend distribution. The following table summarizes how pro forma earnings per preferred share were calculated.

 

   For the Six Months Ended June 30,  For the Year Ended December 31,
   2021  2021  2020  2020  2020  2019  2018
   (in millions of U.S.$)(a)  (in millions of R$, except as otherwise indicated)  (in millions of U.S.$)(a)  (in millions of R$, except as otherwise indicated)
Net income for the period attributable to preferred shareholders    19.4    96.7    121.8    37.1    185.7    408.5    356.2 
Number of preferred shares(b)    916,003,725    916,003,725    916,003,725    916,003,725    916,003,725    916,003,725    916,003,725 
Basic and diluted earnings per share for profit attributable to preferred shareholders (in R$)(c)    0.02    0.11    0.13    0.04    0.20    0.45    0.39 

____________

(a) See note (1) above.

(b) See note (4) above.

(c) See note (6) above.

 

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Balance Sheet Data

 

   As of June 30,  As of December 31,
   2021  2021  2020  2020  2019  2018
   (in millions of U.S.$)(1)  (in millions of R$)  (in millions of U.S.$)(1)  (in millions of R$)
Current Assets            
Cash and cash equivalents    19.1    95.6    53.0    265.1    211.7    1,793.9 
Financial investments    229.4    1,147.4    185.0    925.4    1,425.1    1,800.6 
Derivatives                    4.2     
Accounts receivable    9,164.7    45,842.0    7,990.5    39,968.2    23,735.6    22,503.6 
Prepaid and recoverable taxes    10.4    51.9    10.5    52.3    31.2    19.8 
Inventories    11.8    59.1    12.3    61.6    49.6     
Other assets    33.7    168.3    41.1    205.7    105.2    100.7 
Total current assets    9,469.1    47,364.3    8,292.3    41,478.3    25,562.5    26,218.6 
Noncurrent Assets                              
Deferred income tax and social contribution    89.9    449.3    14.8    73.9    82.1    55.2 
Property and equipment    122.8    614.5    122.7    613.9    657.2    461.3 
Right-of-use assets    3.2    16.1    4.4    21.9    30.0    21.2 
Intangible assets    169.0    845.6    166.7    833.8    809.3    813.4 
Total noncurrent assets    384.9    1,925.4    308.6    1,543.4    1,578.6    1,351.1 
Total Assets    9,854.0    49,289.7    8,600.9    43,021.7    27,141.1    27,569.7 
Current Liabilities                               
Accounts payable    8,831.7    44,176.2    7,750.3    38,767.2    22,844.6    24,546.5 
Derivatives                    9.7     
Loans and borrowing    293.3    1,467.3    212.6    1,063.3    639.2    50.9 
Lease liabilities    0.9    4.5    0.9    4.3    5.1    6.2 
Income taxes payable and other tax payables    4.8    24.2    8.3    41.7    51.9    81.1 
Dividends payable    8.9    44.6    5.8    29.2    67.5    59.8 
Other liabilities    40.8    204.3    54.3    271.4    232.0    186.4 
Total current liabilities    9,180.4    45,921.0    8,032.2    40,177.1    23,850.0    24,930.9 
Noncurrent Liabilities                              
Loans and borrowings    6.1    30.6    5.6    27.8    13.3    45.7 
Lease liabilities    2.7    13.5    3.8    18.8    25.5    16.6 
Provision for contingencies    2.7    13.5    2.3    11.4    7.5    6.1 
Deferred income tax and social contribution    0.6    3.1    1.5    7.9    8.6    4.1 
Other liabilities    4.6    23.0    7.2    35.8    24.4    9.6 
Total noncurrent liabilities    16.7    83.8    20.4    101.7    79.4    82.2 
Equity                               
Share capital    284.4    1,422.5    284.4    1,422.5    1,189.5    1,189.5 
Capital reserve    81.0    404.9    1.3    6.4    6.4    6.4 
Accumulated other comprehensive income    (0.1)   (0.6)   (0.1)   (0.7)   (0.2)   (0.3)
Retained earnings and other reserves    291.5    1,458.1    262.8    1,314.6    2,016.1    1,361.1 
Total equity    656.7    3,284.9    548.4    2,742.9    3,211.8    2,556.7 
Total Liabilities and Equity    9,854.0    49,289.7    8,600.9    43,021.7    27,141.1    27,569.7 
 
(1)For convenience purposes only, amounts in reais as of June 30, 2021 and December 31, 2020 have been translated to U.S. dollars using an exchange rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 

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Operating Data

 

The following table presents our number of active merchants at year-end and our TPV as of the dates and for the periods indicated. We present this operating data because we believe that the additional information is useful and meaningful to investors. Specifically, we believe this operating data provides a useful information to both management and investors in understanding of our current performance and our prospects for the future as it the number of active merchants and TPV are key drivers of our business, financial condition and results of operations.

 

   As of and for the Six Months
Ended June 30,
  As of and for the Years Ended December 31,
   2021  2021  2020  2020  2020  2019  2018
Operating statistics  (in billions of U.S.$, except as otherwise stated)(1) 

(in billions of R$, except

as otherwise stated)

  (in billions of U.S.$, except as otherwise stated)(1)  (in billions of R$, except as otherwise stated)
Active merchants at period-end (units)(2)        876,051    735,098        891,361    771,079    506,156 
Total Payments Volume(3)    36.6    183.2    111.7    52.7    273.7    207.5    187.4 
 
(1)For convenience purposes only, amounts in reais as of and for the six months ended June 30, 2021 and for the year ended December 31, 2020 have been translated to U.S. dollars using an exchange rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 

(2)We define active merchants as a merchant that makes at least one transaction within any given 90-day period.

 

(3)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and is not included in our statement of income.

 

Non-IFRS Financial Measures

 

The following table presents our non-IFRS financial measures for the years indicated:

 

   For the Six Months Ended June 30,  For the Year Ended December 31,
   2021  2021  2020  2020  2020  2019  2018
   (in millions of U.S.$, except percentages)
(1)
  (in millions of R$, except percentages)  (in millions of U.S.$, except percentages)
(1)
  (in millions of R$, except percentages)
EBITDA(2)    90.0    450.6    508.4    162.4    812.2    1,303.9    1,130.1 
EBITDA Margin(3)    35.8%   35.8%   46.3%   35.0%   35.0%   49.0%   50.6%
 
(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2021 and for the year ended December 31, 2020 have been translated to U.S. dollars using an exchange rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 

(2)EBITDA is calculated as net income, plus net financial result, plus current and deferred income tax and social contribution expense, plus depreciation and amortization expenses. EBITDA does not have standardized meaning and is not a recognized measure under IFRS. For a reconciliation of EBITDA, see “—Reconciliation of Non-IFRS Financial Measures.”

 

(3)EBITDA Margin is EBITDA divided by revenue from services, expressed as a percentage. EBITDA Margin does not have standardized meaning and is not a recognized measure under IFRS. For a reconciliation of EBITDA Margin, see “—Reconciliation of Non-IFRS Financial Measures.”

 

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For further information on why our management chooses to use these non-IFRS financial measures, and on the limits of using these non-IFRS financial measures, please see “Presentation of Financial and Other Information—Special Note Regarding Non-IFRS Financial Measures.”

 

Reconciliation of Non-IFRS Financial Measures

 

The following table presents a reconciliation of our non-IFRS financial measures to the most directly comparable IFRS measures for the years indicated:

 

   For the Six Months Ended June 30,  For the Year Ended December 31,
   2021  2021  2020  2020  2020  2019  2018
   (in millions of U.S.$, except percentages)(1)  (in millions of R$, except percentages)  (in millions of U.S.$, except percentages)(1)  (in millions of R$,
except percentages)
Operating statistics:                     
Net Income for the period    37.6    188.0    236.8    72.2    361.0    794.0    692.3 
(+/-) Net Financial Result    (1.3)   (6.3)   27.8    (1.2)   (6.2)   (73.8)   (67.9)
(+) Income Tax and Social Contribution    18.0    90.2    87.0    27.0    135.2    305.8    249.5 
(+) Depreciation and Amortization    35.7    178.7    156.8    64.4    322.2    277.9    256.3 
EBITDA(2)    90.0    450.6    508.4    162.4    812.2    1,303.9    1,130.1 
Revenue from services    251.9    1,259.9    1,098.5    463.9    2,320.5    2,662.9    2,231.6 
Net income margin(3)    14.9%   14.9%   21.6%   15.6%   15.6%   29.8%   31.0%
EBITDA Margin(4)    35.8%   35.8%   46.3%   35.0%   35.0%   49.0%   50.6%
 
(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2021 and for the year ended December 31, 2020 have been translated to U.S. dollars using an exchange rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 

(2)EBITDA is calculated as net income, plus net financial result, plus current and deferred income tax and social contribution expense, plus depreciation and amortization expenses. EBITDA does not have standardized meaning and is not a recognized measure under IFRS.

 

(3)Net income margin is net income divided by revenue from services.

 

(4)EBITDA Margin is EBITDA divided by revenue from services, expressed as a percentage. EBITDA Margin does not have standardized meaning and is not a recognized measure under IFRS.

 

For further information on why our management chooses to use these non-IFRS financial measures, and on the limits of using these non-IFRS financial measures, please see “Presentation of Financial and Other Information—Special Note Regarding Non-IFRS Financial Measures.”

 

Financial Information in U.S. Dollars

 

We have translated some of the real amounts included in this registration statement into U.S. dollars. You should not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated. Unless otherwise indicated, we have translated real amounts into U.S. dollars using a rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021 as reported by the Brazilian Central Bank. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Foreign Exchange Rates” for more information regarding the real/U.S. dollar exchange rate.

 

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3B. Capitalization and Indebtedness

 

The following table presents our current debt (consisting of current loans and borrowings and current lease liabilities), non-current debt (consisting of non-current loans and borrowings and non-current lease liabilities) our shareholders’ equity and total capitalization as of June 30, 2021.

 

The table should be read in conjunction with the unaudited interim consolidated financial statements and the related notes included elsewhere in this registration statement and with “Presentation of Financial and Other Information,” “Item 3. Key Information—A. Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects.”

 

   As of June 30, 2021
   (in millions of U.S.$)(1)  (in R$ millions)
Current debt(2)    294.2    1,471.8 
Non-current debt(3)    8.8    44.1 
Total shareholders’ equity    656.7    3,284.9 
Total capitalization(4)    959.7    4,800.8 
 
(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2021 have been translated to U.S. dollars using an exchange rate of R$5.002 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2021 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 

(2)Current debt is the sum of current loans and borrowings and current lease liabilities.

 

(3)Non-current debt is the sum of non-current loans and borrowings and non-current lease liabilities.

 

(4)Total capitalization is the sum of our current debt (consisting of current loans and borrowings and current lease liabilities), non-current debt (consisting of non-current loans and borrowings and non-current lease liabilities) and our shareholders’ equity.

 

3C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

3D. Risk Factors

 

This section is intended to be a summary of more detailed discussions contained elsewhere in this registration statement. The risks described below are not the only ones we face. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of our Units or Getnet ADSs could decline.

 

Summary of Risks Relating to Our Business and Industry

 

·Actual or potential epidemics, pandemics, outbreaks or other public health crises, such as the COVID-19 pandemic, may have an adverse impact on our clients’ financial condition, particularly SME merchants, consequently impacting our business.

 

·If we cannot keep pace with rapid developments and change in our industry and continue to acquire new customers as rapidly as in the past, the use of our services could decline, reducing our revenues.

 

·Substantial and increasingly intense competition may adversely affect us.

 

·Our operating results are affected by decreases in consumer discretionary spending and we are subject to economic and political risk, the business cycles and credit risk of our clients and issuing banks and volatility in the overall level of consumer, business and government spending, which could negatively impact our business, financial condition and results of operations.

 

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·Our business depends on a well-regarded and widely known brand, and any failure to maintain, protect, and enhance our brand would harm our business.

 

·If we fail to manage our growth effectively, our business could be harmed.

 

·Interruption or failure of our information technology and communications systems could impair our operations, which could damage our reputation and harm our results of operations. Our business is also subject to cyberattacks and security and privacy breaches.

 

·Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risks, which could expose us to losses and liability and otherwise harm our business.

 

·Our business is subject to extensive government regulation and oversight in Brazil and our status under these regulations may change. Violation of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our business practices, any of which could seriously harm our business and results of operations.

 

·Material weaknesses in our internal control over financial reporting have been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.

 

·A decline in the use of credit, debit or prepaid cards as a payment mechanism for consumers or adverse developments with respect to the payment processing industry in general could have a materially adverse effect on our business, financial condition and results of operations.

 

·As part of our strategy, we intend to provide credit to our clients in the future. If this strategy is implemented, we will become exposed to individual or institutional credit risk, or credit trends that can affect spending on card products and the ability of customers and partners to pay us. We may not be able to manage these risks effectively, which could have a material adverse effect on our results of operations and financial condition.

 

·We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.

 

·We are susceptible to illegal or improper uses of our platform, which could expose us to additional liability and harm our business. In addition, we incur chargeback and refund expenses when our merchants refuse to or cannot reimburse chargebacks and refunds resolved in favor of their customers. A significant increase in chargebacks and refunds not paid by our merchants may adversely affect us.

 

·The costs and effects of pending and future litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, financial position and results of operations.

 

·We rely on card issuers or payment schemes to process our transactions. If we fail to comply with their requirements, those payment schemes could seek to fine us, suspend us or terminate our registrations, which could have a material adverse effect on our business, financial condition or results of operations.

 

·We rely upon third-party data center service providers to host certain aspects of our platform. Any disruption to, or interference with, our use of such services, could impair our ability to deliver our platform, resulting in customer dissatisfaction, damaging our reputation and harming our business.

 

22 


Summary of Risks Relating to the Spin-Off

 

·We may not realize the anticipated benefits from the Spin-Off, and the Spin-Off could harm our business.

 

·We have no history of operating as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.

 

·The combined post-distribution value of Santander Brasil and Getnet shares may not equal or exceed the pre-distribution value of Santander Brasil shares.

 

·We potentially could have received better terms from unaffiliated third parties than the terms we received in our agreements with Santander Brasil.

 

·Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the Spin-Off.

 

·Santander Brasil believes it is reasonable to treat the Spin-Off as a transaction that is tax-free to holders of Santander Brasil ADSs or units for U.S. federal income tax purposes, but no assurance can be given that this treatment will be sustained.

 

Summary of Risks Relating to Brazil

 

·The COVID-19 pandemic has had, and is expected to continue to have, a negative impact on global, regional and Brazilian economies, and we would be materially adversely affected by a protracted economic downturn.

 

·The Brazilian government has exercised significant influence over the Brazilian economy. The Brazilian government’s macroeconomic management strategies, as well as Brazilian political and economic conditions, could adversely affect us and the trading price of our securities.

 

·Political instability in Brazil may adversely affect Brazil’s economy and investment levels, and have a material adverse effect on us.

 

·Developments and the perception of risk in other countries may adversely affect the Brazilian economy and market price of Brazilian issuers’ securities. In addition, a global economic downturn could have a material adverse effect on us.

 

Summary of Risks Relating to Our Controlling Shareholder, Our Units and Getnet ADSs

 

·Our ultimate controlling shareholder has a great deal of influence over our business and its interests could conflict with ours.

 

·Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the Nasdaq Global Select Market limiting the protections afforded to investors.

 

·The liquidity and market prices of the Units and the Getnet ADSs may be adversely affected by the cancellation of units or substantial sale of Units and the Getnet ADSs in the market, or by the relative volatility and limited liquidity of the Brazilian securities markets.

 

·As a holder of Getnet ADSs you will have different shareholders’ rights than do shareholders of companies incorporated in the United States and certain other jurisdictions.

 

23 


·Holders of our units and the Getnet ADS may not receive any dividends or interest on shareholders’ equity. They may find it difficult to exercise voting rights at our shareholders’ meetings. Holders of Getnet ADSs may be unable to exercise preemptive rights with respect to our units underlying the Getnet ADSs.

 

·Holders of Getnet ADSs could be subject to Brazilian income tax on capital gains from sales of Getnet ADSs.

 

·Our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the United States.

 

·Investors may find it difficult to enforce civil liabilities against us or our directors and officers. In addition, judgments of Brazilian courts with respect to our Units or the Getnet ADSs will be payable only in reais.

 

·It is possible that we will be a passive foreign investment company in 2021 or in one or more future taxable years, which could result in adverse U.S. federal income tax consequences for our U.S. shareholders.

 

Risks Relating to Our Business and Industry

 

Actual or potential epidemics, pandemics, outbreaks or other public health crises, such as the COVID-19 pandemic, may have an adverse impact on our clients’ financial condition, particularly SME merchants, consequently impacting our business.

 

Our business and the businesses of our clients could be materially and adversely affected by the risks (or the public perception of the risks) related to an epidemic, pandemic, outbreak or other public health crisis, such as the recent outbreak of novel coronavirus (COVID-19).

 

The risk (or public perception of the risk) of a pandemic, such as the COVID-19 pandemic, may cause customers to avoid our clients’ storefronts, leading to temporary disruptions in our clients’ businesses and in some cases closures. The COVID-19 pandemic has led to some of our clients’ employees being unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks. Additionally, the COVID-19 pandemic has resulted in the temporary or permanent closure of many of our clients’ stores or facilities and, in some cases, our clients’ businesses. Furthermore, if our clients’ businesses continue to be adversely affected, default rates for clients using our credit solutions will likely rise.

 

These factors have adversely impacted our clients’ sales and severely disrupted the operations of our clients, contributing to a 16% decline in revenues, despite the 32% increase in total payments volume in 2020 compared to 2019. This decline has been driven by a decrease in the total payments volume and revenue generated by SMEs, which represent a majority of our business and which conduct commerce primarily through brick-and-mortar storefronts, which have been closed for extended periods during the COVID-19 pandemic. We experienced a 14% decline in total payments volume from non-digital SMEs in 2020 compared to 2019, and a 19% decline in revenues from non-digital SMEs in 2020 compared to 2019. This was offset by increases of 194% and 60% in total payments volume and revenues from digital clients, who were able to continue trading and benefited from a shift toward more digital consumption patterns during the COVID-19 pandemic.

 

The ultimate extent of the impact of any epidemic, pandemic or other health crisis, such as the COVID-19 pandemic, on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations, and it may also have the effect of heightening many of the other risks described in this “Item 3. Key Information—D. Risk Factors” section.

 

24 


If we cannot keep pace with rapid developments and change in our industry and continue to acquire new customers as rapidly as in the past, the use of our services could decline, reducing our revenues.

 

The electronic payments market in which we compete is subject to rapid and significant changes. This market is characterized by rapid technological change, new product and service introductions, evolving industry standards, changing client needs and the entrance of nontraditional competitors. In order to remain competitive and continue to acquire new customers, we are continually involved in a number of projects to develop new services or compete with established payment systems providers, and new market entrants, including projects in respect of mobile phone payment applications, e-commerce services, digital banking, digital wallet accounts and bank cards, prepaid card offerings, credit offerings and other new offerings emerging in the electronic payments industry. These projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of client adoption. Any delay in the delivery of new services or the failure to differentiate our services or to accurately predict and address market demand could render our services less desirable, or even obsolete, to our clients. Furthermore, even though the market for alternative payment processing services is evolving, it may not continue to develop rapidly enough for us to recover the costs we have incurred in developing new services targeted at this market.

 

In addition, the services we deliver are designed to process very complex transactions and provide reports and other information concerning those transactions, all at high volumes and processing speeds. Any failure to deliver an effective and secure service or any performance issue that arises with a new service could result in significant processing or reporting errors or other losses. As a result of these factors, our development efforts could result in increased costs and/or we could also experience a loss in business that could reduce our earnings or could cause a loss of revenue if promised new services are not timely delivered to our clients or do not perform as anticipated. We also rely in part, and may in the future rely in part, on third parties, including some of our competitors and potential competitors, for the development of, and access to, new technologies. Our future success will depend in part on our ability to develop or adapt to technological changes and evolving industry standards. We cannot predict the effects of technological changes on our business. If we are unable to develop, adapt to or access technological changes or evolving industry standards on a timely and cost-effective basis, our business, financial condition and results of operations could be materially and adversely affected.

 

Furthermore, our competitors may have the ability to devote more financial and operational resources than we can to the development of new technologies and services, including e-commerce and mobile payment processing services, that provide improved operating functionality and features to their existing service offerings. If successful, their development efforts could render our services less desirable to clients, resulting in the loss of clients or a reduction in the fees we could generate from our offerings.

 

Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.

 

The market for payment processing services is highly competitive. Other providers of payment processing services have established a sizable market share in the small and mid-sized merchant processing and servicing sector, which are the markets in which we are mainly focused, as well as servicing large merchants. Our growth will depend on a combination of the continued growth of electronic payments and our ability to maintain or increase our market share.

 

Our primary competitors include merchant acquirers, such as affiliates of financial institutions and well-established payment processing companies, including Cielo S.A., a company controlled by Banco Bradesco S.A. and Banco do Brasil S.A.; and Redecard S.A., a subsidiary of Itaú Unibanco Holding SA; as well as new entrants or startups and other payment processing companies, such as PagSeguro Digital Ltd., StoneCo Ltd, PayPal Holdings, Inc., and SafraPay, a unit of Banco Safra S.A. We also face competition from nontraditional payment processors that have significant financial resources and develop different kinds of services, including from new competitors and the consolidation of competitors and the expansion of their services. We may also face competition from traditional and established financial institutions, such as credit lenders that have significant financial resources and Brazilian credit industry experience, including from new competitors and the consolidation of competitors and the expansion of their services.

 

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Our competitors that are affiliated with financial institutions may not incur the sponsorship costs we incur for registration with the payment schemes. Many of our competitors also have substantially greater financial, technological, operational and marketing resources than we have. Accordingly, these competitors may be able to offer more attractive fees to our current and prospective clients, especially our competitors that are affiliated with financial institutions. The effect of competition has resulted in a steady erosion in the payment processing commission charged to the merchant, or “MDR,” and prepayment fees over the last three years, which we have offset in part with cost reductions. If competition causes us to continue reduce the fees we charge for our services, we will need to aggressively control our costs in order to maintain our profit margins and our revenues and earnings may be adversely affected. In particular, we may need to continue reducing the fees we charge in order to maintain market share, as merchants may demand more customized and favorable pricing from us. We may also decide to terminate client relationships that may no longer be profitable to us due to such pricing pressure. Furthermore, our ability to control our costs is limited because we are subject to fixed transaction costs related to payment schemes. Competition could also result in a loss of existing clients and greater difficulty in attracting new clients. One or more of these factors could have a material adverse effect on our business, financial condition and results of operations.

 

In addition, in 2019, the CMN and the Brazilian Central Bank enacted new rules on (i) prepayment transactions related to receivables from credit and debit cards issued within the Brazilian payments system; (ii) credit transactions secured by such receivables; and (iii) the creation of liens and encumbrances on such receivables. With this new regulatory framework, the Brazilian Central Bank intends to provide greater efficiency and security for such transactions in order to increase competition and reduce the cost of credit.

 

These new rules, especially those set forth by Brazilian Central Bank Circular No. 3,952/19, bring substantial changes to transactions involving receivables from credit and debit cards. From June 7, 2021, acquirers will be required to register the receivables from credit and debit cards at a registration system authorized by the Brazilian Central Bank. There may be disruption in technology and systems as part of the transition to this new registration system, which could delay its implementation and/or affect our ability to operate normally. Once the new registration system is in place, there will be increased competition in prepayment and credit transactions related to such receivables as a result of such registration, which may adversely affect our business. Furthermore, we will be dependent to an extent on the proper functioning of the registration system, over which we have no control, and any interruptions in this registration system could result in disruptions to our operations.

 

Our operating results are affected by decreases in consumer discretionary spending and we are subject to economic and political risk, the business cycles and credit risk of our clients and issuing banks and volatility in the overall level of consumer, business and government spending, which could negatively impact our business, financial condition and results of operations.

 

The electronic payments industry depends heavily on the overall level of consumer, business and government spending. We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income or changes in consumer purchasing habits. A sustained deterioration in general economic conditions, including a reduction in the availability of credit, increased unemployment levels, higher energy and fuel costs, rising interest rates, financial market volatility and recession may adversely affect our financial performance by reducing the number or average purchase amount of transactions made using electronic payments. A reduction in the amount of consumer spending could result in a decrease in our revenue and profits. If cardholders make fewer transactions with their cards, our merchants make fewer sales of their products and services using electronic payments or people spend less money per transaction, we will have fewer transactions to process at lower amounts, resulting in lower revenue.

 

Additionally, we may experience difficulties in operating and growing our operations as a result of economic pressures. A recessionary economic environment could affect our merchants through a higher rate of bankruptcy filings, resulting in lower revenues and earnings for us. Our

 

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merchants are liable for any charges properly reversed by the card issuer on behalf of the cardholder. Our associated participants are also liable for any fines, or penalties, that may be assessed by any payment schemes. In the event that we are not able to collect such amounts from the associated participants, whether due to fraud, breach of contract, insolvency, bankruptcy or any other reason, we may be liable for any such charges. Furthermore, in the event of a closure of a merchant, we are unlikely to receive our fees for any services rendered to that merchant in its final months of operation, including subscription revenue owed to us from such merchant’s equipment rental obligations. In turn, we also face a default risk from issuing banks that are counterparty to our receivables pursuant to our credit card payment arrangements. Accordingly, a default by an issuing bank, due to insolvency, bankruptcy, intervention, operational error or otherwise, could negatively impact our cash flows as we are required to make payments to merchants independently of the issuing banks’ payments owed to us.

 

Our business depends on a well-regarded and widely known brand, and any failure to maintain, protect and enhance our brand would harm our business.

 

We have developed a well-regarded and widely known brand that has contributed significantly to the success of our business. Our brand is predicated on the idea that sellers and buyers will know and trust us and find value in building and growing their businesses with our products and services. Maintaining, protecting and enhancing our brand are critical to expanding our base of merchants, and other third-party partners, as well as increasing engagement with our products and services. This will depend largely on our ability to remain widely known, maintain trust, be a technology leader, and continue to provide high-quality and secure products and services. Any negative publicity about our industry or our company, the quality and reliability of our products and services, our risk management processes, changes to our products and services, our ability to effectively manage and resolve seller and buyer complaints, our privacy and security practices, litigation, regulatory activity, and the experience of sellers and buyers with our products or services, could adversely affect our reputation and the confidence in and use of our products and services. Harm to our brand can arise from many sources, including failure by us or our partners to satisfy expectations of service and quality; inadequate protection of sensitive information; compliance failures and claims; litigation and other claims; third-party trademark infringement claims; employee misconduct; and misconduct by our associated participants, partners, service providers or other counterparties. If we do not successfully maintain a well-regarded and widely known brand, our business could be materially and adversely affected.

 

We have been from time to time in the past, and may in the future be, the target of incomplete, inaccurate, and misleading or false statements about our company, our business, and our products and services that could damage our brand and materially deter people from adopting our services. Negative publicity about our company or our management, including about our product quality and reliability, changes to our products and services, privacy and security practices, litigation, regulatory enforcement, and other actions, as well as the actions of our clients and other users of our services, even if inaccurate, could cause a loss of confidence in us. Our ability to respond to negative statements about us may be limited by legal prohibitions on permissible public communications by us during future periods.

 

If we are unable to maintain, promote and grow our brand through effective marketing and communications strategies, our brand and business may be harmed.

 

We believe that maintaining and promoting our brand in a cost-effective manner is critical to achieving widespread acceptance of our products and services and to expand our base of clients. Maintaining and promoting our brand will depend largely on our ability to continue to provide useful, reliable, and innovative products and services, which we may not do successfully. We may introduce, or make changes to, features, products, services or terms of service that clients do not like, which may materially and adversely affect our brand. Our brand promotion activities may not generate customer awareness or increase revenue, and even if they do, any increase in revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business could be materially and adversely affected.

 

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The introduction and promotion of new services, as well as the promotion of existing services, may be partly dependent on our visibility on third-party advertising platforms, such as Globo, Google or Facebook. Changes in the way these platforms operate or changes in their advertising prices or other terms could make the maintenance and promotion of our products and services and our brand more expensive or more difficult. If we are unable to market and promote our brand on third-party platforms effectively, our ability to acquire new merchants would be materially harmed.

 

Degradation of the quality of the products and services we offer, including support services, could adversely affect our ability to attract and retain merchants and partners.

 

Our merchants expect a consistent level of quality in the provision of our products and services. The support services that we provide are also a key element of the value proposition to our clients. If the reliability or functionality of our products and services is compromised, or the quality of those products or services is otherwise degraded, such as due to malfunction of our devices, failure or a delay in the connection of the POS with our systems, or if we fail to continue to provide a high level of support, e.g., by means of the support provided by the Santander Brasil group call center, with longer TMA, or a failure to provide solutions in line, we could lose existing merchants and find it harder to attract new merchants and partners. If we are unable to scale our support functions to address the growth of our merchant and partner network, the quality of our support may decrease, which could adversely affect our ability to attract and retain merchants and partners.

 

If we fail to manage our growth effectively, our business could be harmed.

 

In order to manage our growth effectively, we must continue to strengthen our existing infrastructure, develop and improve our internal controls, create and improve our reporting systems, and timely address issues as they arise. These efforts may require substantial financial expenditures, commitments of resources, developments of our processes, and other investments and innovations. Furthermore, we encourage employees to quickly develop and launch new features for our products and services. As we grow, we may not be able to execute as quickly as smaller, more efficient organizations. If we do not successfully manage our growth, our business will suffer.

 

We might not successfully implement strategies to increase adoption of our digital payment methods, which would limit our growth.

 

Our future profitability will depend, in part, on our ability to successfully implement our strategy to increase adoption of our digital payment methods. We cannot assure you that the market for digital payments will continue to grow or will remain viable. We expect to invest substantial amounts to:

 

·drive consumer and merchant awareness of digital payments;

 

·encourage consumers and merchants to sign up for and use our digital payment products;

 

·enhance our infrastructure to handle seamless processing of transactions;

 

·continue to develop state-of-the-art, easy-to-use technology;

 

·expand our operations;

 

·increase the number of users who collect and pay digitally; and

 

·grow and diversify our customer base.

 

We may fail to implement these programs successfully or to increase substantially the number of customers who pay for our digital payment methods. This would hold back any growth in our revenues and harm our business.

 

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Interruption or failure of our information technology and communications systems could impair our operations, which could damage our reputation and harm our results of operations.

 

Our success and ability to process payments and provide high-quality customer service depend on the efficient and uninterrupted operation of our computer and information technology systems. Any failure of our computer systems and information technology to operate effectively or to integrate with other systems, performance inadequacy or breach in security may cause interruptions in the availability of our sites, delays in product fulfillment and reduced efficiency of our operations. Any failures, problems or security breaches may mean that fewer customers are willing to purchase the products we offer in the future. Factors that could occur and significantly disrupt our operations include system failures and outages caused by fire, floods, earthquakes, power loss, telecommunications failures, sabotage, vandalism, terrorist attacks and similar events, software errors, computer viruses, worms, physical or electronic break-ins and similar disruptions from unauthorized tampering with our computer systems and data centers, in addition to security breaches related to the storage and transmission of proprietary information or customer information, such as credit card numbers or other personal information. Our planning may not be able to mitigate all possible scenarios.

 

Any disruptions or service interruptions that affect our sites could damage our reputation, require us to spend significant capital and other resources and expose us to a risk of loss or litigation and possible liability. Certain of our agreements with third-party service providers do not require those providers to indemnify us for losses resulting from any disruption in service. Any of the above disruptions could seriously harm our results of operations.

 

Our services must integrate with a variety of operating systems, software, hardware, web browsers and networks, and the hardware that enables merchants to accept payment cards must interoperate with mobile networks offered by telecom operators and third-party mobile devices utilizing those operating systems, software, hardware, web browsers and networks. If we are unable to ensure that our services or hardware interoperate with such operating systems, software, hardware, web browsers and networks, our business may be materially and adversely affected.

 

We are dependent on the ability of our products and services to integrate with a variety of operating systems, software, hardware and networks, as well as web browsers that we do not control. Any changes in these systems or networks that degrade the functionality of our products and services, impose additional costs or requirements on us, or give preferential treatment to competitive services, including their own services, could materially and adversely affect usage of our products and services. In the event that it is difficult for our merchants to access and use our products and services, our business may be materially and adversely affected. We also rely on bank platforms and others, including card issuers, to process some of our transactions. If there are any issues with, or service interruptions in, these bank platforms, users may be unable to have their transactions completed, which would seriously harm our business.

 

In addition, our solutions, including hardware and software, interoperate with mobile networks offered by telecom operators and mobile devices developed by third parties. Changes in these networks or in the design of these mobile devices may limit the interoperability of our solutions with such networks and devices and require modifications to our solutions. If we are unable to ensure that our hardware continues to interoperate effectively with such networks and devices, or if doing so is costly, our business may be materially and adversely affected.

 

Our business is subject to cyberattacks and security and privacy breaches.

 

Our business involves the collection, storage, processing and transmission of customers’ personal data, including financial information. A significant risk associated with e-commerce and communications is the secure transmission of confidential information over public networks. In addition, a significant number of our customers authorize us to bill their payment card or bank accounts directly for all transaction and other fees charged by us. We have built our reputation on the premise that our platform offers customers a secure way to make payments, and privacy concerns, whether or not valid, may harm our business and results of operations. An increasing number of organizations, including large merchants and businesses, other large

 

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technology companies, financial institutions and government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on portions of their websites or infrastructure.

 

The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, may be difficult to detect quickly and often are not recognized until launched against a target. Unauthorized parties may attempt to gain access to our systems or facilities through various means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems into disclosing usernames, passwords, payment card information or other sensitive information, which may in turn be used to access our information technology systems. Certain efforts may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. These security measures may not provide absolute security. Our information technology and infrastructure may be vulnerable to cyberattacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events, and third parties may be able to access our customers’ personal or proprietary information and card data that are stored on or accessible through those systems. Our security measures may also be breached due to human error, malfeasance, system errors or vulnerabilities, or other irregularities. Any actual or perceived breach of our security could interrupt our operations, result in our systems or services being unavailable, result in improper disclosure of data, materially harm our reputation and brand, result in significant legal and financial exposure, lead to loss of customer confidence in, or decreased use of, our products and services, and adversely affect our business and results of operations. In addition, any breaches of network or data security of our customers, partners or vendors (including data center and cloud computing providers) could have similar negative effects. Actual or perceived vulnerabilities or data breaches may lead to claims against us.

 

In addition, under card rules and our contracts with our card processors, if there is a breach of card information that we store, we could be liable to the payment card issuers for their cost of issuing new cards and related expenses. We also expect to spend significant additional resources to protect against security or privacy breaches, and may be required to address problems caused by breaches. Additionally, while we maintain insurance policies, we do not maintain insurance policies specifically for cyberattacks and our current insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies.

 

We are subject to new and evolving regulations in respect of protection of personal data, and any failure to comply with these regulations could have a material adverse effect on our business and financial condition.

 

Currently, several rules regulate personal data processing in Brazil. In 2018, the Brazilian Law No. 13,709/2018 (Lei Geral de Proteção de Dados), or the “LGPD,” a comprehensive data protection law, established the general principles and obligations that apply across multiple economic sectors and contractual relationships. The LGPD lays down detailed rules for the collection, use, processing and storage of personal data, regardless of whether such data is collected in a digital or physical environment. The enactment of Provisional Measure No. 959 (Medida Provisória n.º 959), or “MP 959,” dated April 29, 2020, resulted in the LGPD entering into force on September 18, 2020, with the exception of the LGPD Articles 52, 53 and 54, which address administrative penalties entering into force on August 1, 2021.

 

On November 6, 2020, the Brazilian Decree No. 10,474 of August 26, 2020, which regulates the organizational structure of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or the “ANPD,” came into force, and the ANPD’s first board of directors was appointed. This is the entity responsible for regulating and supervising the application of the LGPD as well as imposing sanctions in the event of noncompliance with such legal rules and obligations.

 

We may incur penalties for violations of the LGPD, as efforts to protect personal data processed by our systems may not guarantee that these protections are fully complied with. If we are not able to adapt our processes and implement the measures required for full compliance with the LGPD, we may in the future be subject to ANDP administrative penalties, as set forth in the law, including, but not limited to (i) legal

 

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notices and the required adoption of corrective measures, (ii) fines of up to 2% of company or group revenues limited up to R$50.0 million per infraction, (iii) publication of such infraction after the confirmation of its occurrence and (iv) blocking and erasing personal data involved in the infraction. In the event of repeated violations, more severe penalties may be imposed on us, such as suspending the operation of the database or personal data processing to which the violation refers for a maximum period of six months. This suspension may be extended for an equal period of time until the error, that gave rise to the violation, is rectified by the controller and prohibition, in whole or in part, from carrying out data processing activities. Despite the administrative sanctions not yet being effective until August 2021, other authorities in Brazil could still apply the LGPD through administrative procedures or lawsuits. The Department of Consumer Protection and Defense or the Public Ministry responsible for consumer rights and individuals and nongovernmental or private associations, for example, could file complaints or bring lawsuits based on violations of the LGPD that have caused or may cause harm to individuals. In this sense, we may be liable for property, moral, individual or collective damages caused by us, including third-party providers that process personal data for us, and jointly liable for property, moral, individual or collective damages caused by our subsidiaries, due to noncompliance with the LGPD established obligations. If we are unable to use sufficient measures to protect the personal data that we manage and store or to maintain compliance with the LGPD, we may incur material costs, which could have an adverse effect on our reputation and results of operations.

 

Further, as a consequence of the COVID-19 pandemic, most of our employees are working remotely from home. Based on thorough assessments of the well-being and performance of our workforce, our management announced the company-wide adoption of the home-office model. This may cause increases in the unavailability of our systems and infrastructure, interruption of telecommunication services, generalized system failures and heightened vulnerability to cyberattacks. Accordingly, our ability to conduct our business may be adversely impacted.

 

We are subject to costs and risks associated with increased or changing laws and regulations affecting our business, including those relating to the sale of consumer products.

 

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks that could materially affect our results of operations. These laws may change, sometimes significantly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations that affect us include those relating to consumer products, product liability or consumer protection; those relating to the manner in which we advertise, market or sell products; labor and employment laws, including wage and hour laws; tax laws or interpretations thereof; data protection and privacy laws and regulations; and securities and exchange laws and regulations. There can be no guarantee that we will have sufficient financial resources to comply with any new regulations or successfully compete in the context of a shifting regulatory environment.

 

We are subject to anticorruption, anti-bribery and anti-money laundering laws and regulations.

 

We are subject to various anticorruption, anti-bribery and anti-money laundering laws and regulations of Brazil and of other jurisdictions, including the United States, that prohibit, among other things, our involvement in improper payments to certain public officials for the purpose of obtaining advantages or in transferring the proceeds of criminal activities. We have programs designed to comply with new and existing legal and regulatory requirements. However, any errors, failures or delays in complying with anticorruption, anti-bribery and anti-money laundering laws and regulations could result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm.

 

Regulators may increase enforcement of these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor our transactions. Regulators regularly reexamine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers, and any change in such thresholds could result in greater costs for compliance. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations

 

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on our ability to grow could harm our business and any new requirements or changes to existing requirements could impose significant costs, result in delays to planned product improvements, make it more difficult for new customers to join our network and reduce the attractiveness of our products and services.

 

We are subject to regulatory activity and antitrust litigation under competition laws.

 

We receive scrutiny from various governmental agencies under competition laws; specifically, in Brazil, from the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica), or CADE.” Other companies or governmental agencies may allege that our actions violate antitrust or competition laws, or otherwise constitute unfair competition. Contractual agreements with buyers, sellers or other companies could give rise to regulatory action or antitrust investigations or litigation. Also, our unilateral business practices could give rise to regulatory action or antitrust investigations or litigation. Any such claims and investigations, even if they are unfounded, are usually very expensive to defend, involve negative publicity and substantial diversion of management time and effort, and could result in significant judgments against us.

 

We may face restrictions and penalties under the Brazilian Consumer Protection Code in the future.

 

Brazil has a series of strict consumer protection statutes, collectively known as the Consumer Protection Code (Código de Defesa do Consumidor). These laws apply only to instances where there is a supplier, on the one part, and the supply of a product or provision of a service under the contract and an end user, on the other part. If the person or entity acquires supplies that will be used in its manufacturing process, it should not be considered the “end user” of the respective inputs. These statutes include protection against misleading and deceptive advertising, protection against coercive or unfair business practices and protection in the formation and interpretation of contracts, usually in the form of civil liabilities and administrative penalties for violations.

 

These penalties are often levied by the Brazilian Consumer Protection Agencies (Fundação de Proteção e Defesa do Consumidor), or “PROCONs,” local consumer protection bodies which oversee consumer issues on a district-by-district basis. Companies that operate across Brazil may face penalties from multiple PROCONs, as well as the National Secretariat for Consumers (Secretaria Nacional do Consumidor), or “SENACON.” Should the consumer protection agencies identify a violation of the Consumer Protection Code, said authorities could impose the penalties set forth in section 56 of the Code (the most common is a fine that varies from R$800 up to R$9,500,000, depending on the size of the company, the advantage obtained as a result of the practice and the seriousness of the infraction). Consumers may also file civil lawsuits seeking compensation for damages. Companies may settle claims made by consumers via PROCONs by paying compensation for violations directly to consumers and through a mechanism that allows them to adjust their conduct, called a conduct adjustment agreement (Termo de Ajustamento de Conduta), or “TAC.”

 

Brazilian Public Prosecutor Offices may also commence investigations related to consumer rights violations, and the above-mentioned TAC mechanism is also available for them. Companies that violate TACs face potential automatic fines. Brazilian Public Prosecutor Offices may also file public civil actions against companies in violation of consumer rights, seeking strict observation of the consumer protection law provisions and compensation for the damages consumers may have suffered. In certain cases, certain of our portfolio companies may also face investigations and/or sanctions by CADE, in the event our business practices are found to affect the competitiveness of the markets in which we operate.

 

As of June 30, 2021, we were party to 1,393 claims, including 230 claims with PROCONS and 1,093 in Special Civil Courts for small claims relating to consumer rights. To the extent consumers file such claims against us in the future, we may face reduced revenue due to refunds and fines for noncompliance that could negatively impact our results of operations.

 

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Our insurance policies may not be sufficient to cover all claims.

 

Our insurance policies may not adequately cover all risks to which we are exposed. A significant claim not covered by our insurance, in full or in part, may result in significant expenditures by us. Moreover, we may not be able to maintain insurance policies in the future at reasonable costs or on acceptable terms, which may adversely affect our business and the trading price of our Units and Getnet ADSs.

 

Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risks, which could expose us to losses and liability and otherwise harm our business.

 

We operate in a rapidly changing industry, and we have experienced significant change in recent years, including certain acquisitions. Accordingly, our risk management policies and procedures may not be fully effective in identifying, monitoring and managing our risks. Some of our risk evaluation methods depend upon information provided by others and public information regarding markets, clients or other matters that are otherwise inaccessible by us. In some cases, however, that information may not be accurate, complete or up to date. 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 could have a material adverse effect on our business, financial condition and results of operations.

 

We offer payments services as well as other products and services to a large number of clients. We are responsible for vetting and monitoring these clients and determining whether the transactions we process for them are lawful and legitimate. When our products and services are used to process illegitimate transactions, and we settle those funds to merchants and are unable to recover them, we suffer losses and liability. These types of illegitimate, as well as unlawful, transactions can also expose us to governmental and regulatory sanctions, including outside Brazil (e.g., U.S. anti-money laundering and economic sanctions violations). The highly automated nature of, and liquidity offered by, our payments services make us a target for illegal or improper uses, including fraudulent or illegal sales of goods or services, money laundering, and terrorist financing. Identity thieves and those committing fraud using stolen or fabricated credit card or bank account numbers, or other deceptive or malicious practices, including the hacking of bank accounts, can potentially steal significant amounts of money from businesses like ours. In configuring our payments, digital banking and credit services, we face an inherent trade-off between security and client convenience. Our risk management policies, procedures, techniques and processes may not be sufficient to identify all of the risks to which we are exposed, to enable us to mitigate the risks we have identified, or to identify additional risks to which we may become subject in the future. As a greater number of larger merchants use our services, we expect our exposure to material losses from a single merchant, or from a small number of merchants, to increase. In addition, when we introduce new services, focus on new business types, or begin to operate in markets in which we have a limited history of fraud loss, we may be less able to forecast and reserve accurately for those losses. Moreover, we rely on third-party service providers, such as PSP providers, and our risk management policies and processes may not be sufficient to monitor compliance by such third parties with applicable laws and regulations, including anti-money laundering laws and settlement of sub-acquirers. We may incur significant costs with respect to monitoring third-party service providers. Furthermore, if our risk management policies and processes contain errors or are otherwise ineffective, we may suffer large financial losses, we may be subject to civil and criminal liability, and our business may be materially and adversely affected.

 

Our business is subject to extensive government regulation and oversight in Brazil and our status under these regulations may change. Violation of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our business practices, any of which could seriously harm our business and results of operations.

 

As a payment institution (instituição de pagamento), our business is subject to Brazilian laws and regulations relating to electronic payments, composed of Brazilian Federal Law No. 12,865/13 as well as its related rules and regulations. In addition, on February 19, 2021, the Brazilian Central Bank granted us authorization to incorporate a direct credit corporation (sociedade de crédito direto), which is a financial institution subject to Brazilian Federal Law No. 4,595/64 and its related rules and regulations. If we fail to

 

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comply with the requirements of the Brazilian legal and regulatory framework, we could be prevented from carrying out our regulated activities, and we could be (i) required to pay substantial fines (including per transaction fines) and face disgorgement of our profits, (ii) required to change our business practices or (iii) subjected to insolvency proceedings such as an intervention by the Brazilian Central Bank or out-of-court liquidations. Any disciplinary or punitive action by our regulators or failure to obtain required operating licenses could seriously harm our business and results of operations.

 

We offer, currently through partnerships with financial institutions, working capital solutions to our merchants, which constitutes a significant portion of our activities. We currently rely on financial institutions in order to do so as Law No. 12,865/13 prohibits payment institutions like us from performing activities that are restricted to financial institutions. In Brazil, only financial institutions are authorized to grant loans with interest rates above the limits set by Decree No. 22,623, of April 7, 1933, or the Brazilian Usury Law. There is some debate under Brazilian law as to whether providing prepayment of receivables to merchants could be characterized as “lending,” which is an activity that is restricted to financial institutions. Similarly, there is some debate as to whether the discount rates applicable to this early payment feature should be considered as “interest” under Brazilian law, in which case the limits set by the Brazilian Usury Law would apply to these rates whenever the early payments are not carried out by a financial institution. If the financial institutions we collaborate with stop providing us with such services, new laws are enacted or the courts’ interpretation of this activity changes, either preventing us from providing this feature or limiting the fees we usually charge, our financial performance could be negatively affected. In addition, while we have received authorization from the Brazilian Central Bank to incorporate a direct credit corporation, our ability to do so and to operate it is contingent on our development of the necessary infrastructure and internal expertise to conduct this business, as well as our continued compliance with the applicable legal and regulatory requirements.

 

A material weakness in our internal control over financial reporting has been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.

 

Following the completion of the Spin-Off, we will no longer be a subsidiary of Santander Brasil. Accordingly, our monitoring of our internal control over financial reporting is not carried out in accordance, or for the purpose of compliance, with the requirements of the Rule 13a-15(c) under the Exchange Act, as we are not currently required to carry out an assessment under that rule. Similarly, our auditors are not currently required to audit our assessment of our internal controls under SEC rules. Any such assessment by us and audit by our auditors could conclude that our internal control over financial reporting is not effective.

 

Following the Spin-Off, we will be subject to the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. Under the SEC’s current rules, starting in 2022, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls. Our testing may reveal deficiencies in our internal controls that are deemed to be material weaknesses or significant deficiencies and render our internal controls over financial reporting ineffective. We expect to incur additional accounting and auditing expenses and to spend significant management time in complying with these requirements. If we are not able to comply with these requirements in a timely manner, or if we or our management identifies additional material weaknesses or significant deficiencies in our internal controls over financial reporting that are deemed to be, in the aggregate, material weaknesses, the market price of our Units and Getnet ADSs may decline and we may be subject to investigations or sanctions by the SEC, the Financial Industry Regulatory Authority, Inc., or “FINRA,” or other regulatory authorities. In addition, we may be required to expend significant management time and financial resources to correct any material weaknesses that may be identified or to respond to any regulatory investigations or proceedings.

 

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In connection with the preparation of our consolidated financial statements for the year ended December 31, 2020, we concluded that there is a material weakness in the design and operating effectiveness of our internal control over financial reporting as defined in Regulation S-X. A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness in internal control over financial reporting is that the design and operating effectiveness of internal controls related to our financial reporting process were not sufficient to allow for accurate and timely reporting of our consolidated IFRS financial results. This was principally due to use of manual process related to controls in relation to the financial reporting closing process and due to a lack of personnel with adequate knowledge and experience in IFRS. As a result, we recorded certain late manual adjustments in order to prepare our consolidated IFRS financial statements. This material weakness resulted in a restatement of our consolidated financial statements included herein due to an incorrect classification between cost of services and selling, general and administrative expenses. See “Presentation of Financial and Other Information—Restatement of Our Audited Consolidated Financial Statements” and note 1 to our audited consolidated financial statements included elsewhere in this registration statement.

 

We have taken steps to remedy this material weakness. We are investing in training our existing staff and hiring experienced professionals to better prepare our financial statements in accordance with IFRS in order to ensure that our financial reporting meets the applicable requirements. In addition, we have engaged specialized consultants to assist us in the preparation of financial statements and in assessing complex accounting matters. During 2021, we intend to take steps to formalize our reporting processes and put in place controls on the preparation and review of our financial statements and the accounting of transactions, as required by SEC rules. However, we cannot assure you that our efforts will be effective in remedying our current material weakness, or in remedying or preventing any future material weaknesses or significant deficiencies in our internal control over financial reporting.

 

A decline in the use of credit, debit or prepaid cards as a payment mechanism for consumers or adverse developments with respect to the payment processing industry in general could have a material adverse effect on our business, financial condition and results of operations.

 

If consumers do not continue to use credit, debit or prepaid cards as a payment mechanism for their transactions or if there is a change in the mix of payments between cash, alternative currencies and technologies, credit, debit and prepaid cards, or the corresponding methodologies used for each, which is adverse to us, it could have a material adverse effect on our business, financial condition and results of operations. In 2020, the Brazilian Central Bank launched PIX, a new payment system that allows real-time payments and transfers, which may lead to a decrease in the use of other payment methods, such as credit, debit and prepaid cards, and may also increase competitive pressures within the payments industry. While we do provide PIX-based services to our customers, the margins we make on these services are lower than those we achieve on more traditional payment processing services. Therefore, any increase in the use of PIX-based payments may adversely affect our financial results. Moreover, if there is an adverse development in the payments industry in general, such as new legislation or regulation that makes it more difficult for our clients to do business, our business, financial condition and results of operations may be adversely affected.

 

As part of our strategy, we intend to provide credit to our clients in the future. If this strategy is implemented, we will become exposed to individual or institutional credit risk, or credit trends that can affect spending on card products and the ability of customers and partners to pay us. We may not be able to manage these risks effectively, which could have a material adverse effect on our results of operations and financial condition.

 

As part of our strategy, we intend to provide credit to our clients in the future. If this strategy is implemented, we will become exposed to institutional credit risk, principally from loans to our clients. Clients may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. General economic factors, such as the rate of inflation, unemployment levels and interest rates, may result in greater delinquencies that lead to greater

 

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credit losses. A client’s ability and willingness to repay us can be negatively impacted not only by economic, market, political and social conditions but by a customer’s other payment obligations, and increasing leverage can result in a higher risk that customers will default or become delinquent in their obligations to us.

 

We expect that we will rely principally on the client’s creditworthiness and their ability to generate receivables for repayment of the loan, which will not be secured. We do not currently have expertise in managing credit risk because we have not been in the business of extending credit. Our ability to develop this expertise is uncertain and our ability to assess creditworthiness may be impaired if the criteria or models used to manage our credit risk prove inaccurate in predicting future losses, which could cause our losses to rise and have a negative impact on our results of operations. Further, our pricing strategies may not offset the negative impact on profitability caused by increases in delinquencies and losses; thus, any material increases in delinquencies and losses beyond our current estimates could have a material adverse impact on us.

 

Rising delinquencies and rising rates of bankruptcy are often precursors of future write-offs and may require us to increase our reserve for loan losses. Although we intend to regularly review our credit exposure to specific clients and counterparties and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to foresee or detect, such as fraud. In addition, our ability to manage credit risk may be adversely affected by legal or regulatory changes, such as restrictions on collections or changes in bankruptcy laws. Increased credit risk, whether resulting from underestimating the credit losses inherent in our portfolio of loans, deteriorating economic conditions, increases in the level of loan balances, changes in our mix of business or otherwise, could require us to increase our provisions for losses and could have a material adverse effect on our results of operations and financial condition.

 

We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.

 

We have funded our operations since inception primarily from our results of operations, but also from external sources, including Santander Brasil. Following the Spin-Off, we expect that we will continue to fund our operations primarily from our results of operations, while also having access to funding from the Santander Group on substantially the same terms as currently. Nevertheless, in the future, we may require additional capital to respond to business opportunities, refinancing needs, challenges, acquisitions or unforeseen circumstances and may decide to engage in equity or debt financings or enter into credit facilities for other reasons, and we may not be able to secure any such additional debt or equity financing or refinancing on favorable terms, in a timely manner or at all. While we will continue to be a part of the Santander Group and to have access to capital from within the Santander Group, we may also seek to obtain capital from third parties, including banks, other financial institutions and capital markets. Any debt financing obtained by us in the future could also include restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants could result in a default under our credit facilities, debentures and any future financing agreements into which we may enter. If not waived, defaults could cause our outstanding indebtedness under our credit facilities and any future financing agreements that we may enter into under these terms to become immediately due and payable. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

 

Potential clients may be reluctant to switch to a new vendor, which may adversely affect our growth.

 

Many potential clients worry about disadvantages associated with switching payment processing vendors, such as a loss of accustomed functionality, increased costs and business disruption. For potential

 

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clients, switching from one vendor of core processing or related software and services (or from an internally developed system) to a new vendor is a significant undertaking. As a result, potential clients often resist changing vendors. We seek to overcome this resistance through strategies such as making investments to enhance the functionality of our software. However, there can be no assurance that our strategies for overcoming potential clients’ reluctance to change vendors will be successful, and this resistance may adversely affect our growth.

 

Customer complaints or negative publicity about our customer service could reduce usage of our products, and, as a result, our business could suffer.

 

Customer complaints or negative publicity about our customer service could severely diminish consumer confidence in and use of our product. Breaches of our customers’ privacy and our security measures could have the same effect. Measures we sometimes take to combat risks of fraud and breaches of privacy and security, such as freezing customer funds, can damage relations with our customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities. Effective customer service requires significant expenses, which, if not managed properly, could impact our profitability significantly. Any inability by us to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we may lose the trust of our customers.

 

We are susceptible to illegal or improper uses of our platform, which could expose us to additional liability and harm our business.

 

Our payment platforms are susceptible to potentially illegal or improper uses. These may include illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, software and other intellectual property piracy, money laundering, bank fraud, child pornography trafficking, terrorist financing, prohibited sales of alcoholic beverages and tobacco products, and online securities fraud. The owners of intellectual property rights or government authorities may seek to bring legal action against us if our platform is used for the sale of infringing items. These claims could result in reputational harm, and any resulting liabilities, loss of transaction volume or increased costs could harm our business.

 

In addition, our services could be subject to unauthorized credit card use, identity theft, employee fraud or other internal security breaches. We may incur significant costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by any breaches. Laws may require us to notify regulators, customers or employees of security breaches and we may be required to reimburse customers or banks for any funds stolen as a result of any breaches or to provide credit monitoring or identity theft protection in the event of a privacy breach. These requirements, as well as any additional restrictions that may be imposed by credit card companies, could raise our costs significantly and reduce our attractiveness.

 

In addition to the direct costs of such losses, if they are related to credit card transactions and become excessive, they could result in us losing the right to accept credit cards for payment. Since credit cards are the most widely used method for our customers to pay for the products we sell, our business will be harmed if we are unable to accept credit cards.

 

We incur chargeback and refund expenses when our merchants refuse to or cannot reimburse chargebacks and refunds resolved in favor of their customers. A significant increase in chargebacks and refunds not paid by our merchants may adversely affect our business, financial condition or results of operations.

 

We are currently, and will continue to be, exposed to risks associated with chargebacks and refunds in connection with payment card fraud or relating to the goods or services provided by our sellers. In the event that a billing dispute between a cardholder and a merchant is not resolved in favor of the merchant, including in situations in which the merchant is engaged in fraud, the transaction is typically “charged back” to the merchant and the purchase price is credited or otherwise refunded to the cardholder. If we are unable to collect chargeback from the merchant’s account, or if the merchant refuses to or is unable to reimburse us for a chargeback due to closure, bankruptcy or other reasons, we may bear the loss for the amounts paid to the cardholder. In the six months ended June 30, 2021 and 2020 and in the years ended December 31, 2020, 2019 and 2018, we recorded losses as a result of chargebacks net of refunds of R$17.6 million, R$20.5 million, R$37.7 million, R$47.0 million and R$13.5 million, respectively. Our financial results would be adversely affected to the extent these merchants do not fully reimburse us for the related chargebacks.

 

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In addition, our exposure to these potential losses from chargebacks increases to the extent that we have provided working capital solutions to such merchants, as the full amount of the payment is provided upfront rather than in installments. We do not collect and maintain reserves from our merchants to cover these potential losses, and for customer relations purposes we sometimes decline to seek reimbursement for certain chargebacks. Historically, chargebacks occur more frequently in online transactions than in in-person transactions, and more frequently for goods than for services. In addition, the risk of chargebacks is typically greater with those of our merchants that promise future delivery of goods and services, which we allow on our service. If we are unable to maintain our losses from chargebacks at acceptable levels, the payment schemes could fine us, increase our transaction fees or terminate our ability to process payment cards. Any increase in our transaction fees could damage our business, and if we were unable to accept payment cards, our business would be materially and adversely affected.

 

If we cannot pass increases in fees from payment schemes, including assessment, interchange, transaction and other fees, along to our merchants, our operating margins will decline.

 

We pay assessment, interchange and other fees set by the payment schemes for each transaction we process. From time to time, the payment schemes increase the assessment, interchange and other fees that they charge payment processors. Under our existing contracts with merchants, we are generally permitted to pass these fee increases along to our merchants through corresponding increases in our processing fees. If we are unable to pass through these and other fees in the future due to contractual or regulatory restrictions, competitive pressures or other considerations, it could have a material adverse effect on our business, financial condition and results of operations.

 

Fraud by merchants, clients using our credit or digital banking solutions or others could have a material adverse effect on our business, financial condition and results of operations.

 

We may be subject to potential liability for fraudulent electronic payment transactions or credits initiated by merchants or others, as well as by clients using our credit or digital banking solutions. Examples of merchant fraud include when a merchant or other party knowingly uses a stolen or counterfeit credit, debit or prepaid card, card number, or other credentials to record a false sales transaction, processes an invalid card, or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeiting and fraud.

 

We bear the risk of consumer fraud in a transaction involving us, a consumer and a merchant client, and we generally have no recourse to the merchant to collect the amount owed by the consumer. Significant amounts of fraudulent cancellations or chargebacks could adversely affect our business or financial condition. High-profile cases of fraudulent activity or significant increases in fraudulent activity could also lead to regulatory intervention, negative publicity, and the erosion of trust from our consumers and merchants, and could materially and adversely affect our business, results of operations, financial condition, future prospects and cash flows.

 

Our resources, technology and fraud prevention tools may be insufficient to accurately detect and prevent fraud. Furthermore, it is possible that incidents of fraud could increase in the future, and our failure to catch such incidents may result in sanctions and/or fines from regulators, lawsuits and the degradation of our reputation. Failure to effectively manage risk and prevent fraud would increase our chargeback and credit liabilities and default rates on our credit solutions, among

 

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others, and subject us to potential fines by regulators. Increases in chargebacks and credit liabilities, default rates on our credit solutions and potential fines under our digital banking solutions, among others, as well as any fines by regulators, could have a material adverse effect on our business, financial condition and results of operations.

 

We have only a limited ability to protect our intellectual property rights, which are important to our success.

 

We believe that the protection of our intellectual property, including our trademarks, patents, copyrights, domain names, trade dress and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality agreements with parties with whom we conduct business.

 

However, contractual arrangements and other steps we have taken to protect our intellectual property may not prevent third parties from infringing or misappropriating our intellectual property or deter independent development of equivalent or superior intellectual property rights by others. Trademark, copyright, patent, domain name, trade dress and trade secret protection is expensive to maintain and may require litigation. Protecting our intellectual property rights and other proprietary rights is expensive and time-consuming and may not be successful in every jurisdiction. Also, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. We have licensed certain of our proprietary rights, such as trademarks or copyrighted material, to others in the past, and expect to do so in the future. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation. Any failure to protect or enforce our intellectual property rights adequately, or significant costs incurred in doing so, could materially harm our business.

 

As the number of products in the software industry increases and the functionalities of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringement claims, including patent, copyright and trademark infringement claims. We may be required to enter into litigation to determine the validity and scope of the patents or other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costly litigation, divert management’s time and attention from our business, require us to stop selling, delay shipping, or redesign our products, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our customers. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may harm our business.

 

Changes in tax laws, tax incentives, benefits or differing interpretations of tax laws may adversely affect our results of operations.

 

Changes in tax laws, regulations, related interpretations and tax accounting standards in Brazil and the United States may result in a higher tax rate on our earnings and revenues, which may significantly reduce our profits and cash flows from operations. For example, in 2015, the Brazilian government increased the rate of PIS/COFINS tax (which is a tax levied on revenues) from 0% to approximately 4.65% on financial income realized by Brazilian companies that are taxed under the non-cumulative regime (which is the tax regime that applies to us). In addition, our results of operations and financial condition may decline if certain tax incentives are not retained or renewed. For example, Brazilian Law No. 11,196 currently grants tax benefits to companies that invest in research and development, provided that some requirements are met, which significantly reduces our annual income tax expense. If the taxes applicable to our business increase or any tax benefits are revoked and we cannot alter our cost structure to pass our tax increases on to clients, our financial condition, results of operations and cash flows could be seriously harmed. Our payment processing activities are also subject to a Municipal Tax on Services (Imposto Sobre Serviços), or “ISS.” Any increases in ISS rates would also harm our profitability.

 

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In addition, Brazilian government authorities at the federal, state and local levels are considering changes in tax laws in order to cover budgetary shortfalls resulting from the recent economic downturn in Brazil. If these proposals are enacted, they may harm our profitability by increasing our tax burden, increasing our tax compliance costs, or otherwise affecting our financial condition, results of operations and cash flows. Tax rules in Brazil, particularly at the local level, can change without notice. We may not always be aware of all such changes that affect our business and we may therefore fail to pay the applicable taxes or otherwise comply with tax regulations, which may result in additional tax assessments and penalties for our company.

 

At the municipal level, the Brazilian government enacted Supplementary Law No. 157/16, which imposed changes regarding the tax collection applied to the rendering of our services. These changes created new obligations, since taxes will now be due in the municipality in which the acquirer of our services is located rather than in the municipality in which the service provider’s facilities are located. This obligation took force in January 2018, but has been delayed by Direct Unconstitutionality Action No. 5835, or ADI, filed by taxpayers. The ADI challenges Supplementary Law No. 157/16’s constitutionality before the Supreme Court, arguing that the new legislation would adversely affect companies’ activities due to the increase of costs and bureaucracy related to the ISS payment to several municipalities and the compliance with tax reporting obligations connected therewith. As a result, the Supreme Court granted an injunction to suspend Supplementary Law No. 157/16’s enforcement. A final decision on this matter is currently pending. Recently, the Brazilian government enacted Supplementary Law No. 175/20, aimed at regulating the enforcement of Supplementary Law No. 157/16 provisions. There could be future discussion on whether ADI No. 5835 has ceased to be enforceable following the enactment of Supplementary Law No. 175/20, but the Brazilian Supreme Court has not yet taken a position on this matter.

 

Furthermore, we are subject to tax laws and regulations that may be interpreted differently by tax authorities and us. The application of indirect taxes, such as sales and use tax, value-added tax, or “VAT,” provincial taxes, goods and services tax, business tax and gross receipt tax, to businesses like ours is a complex and evolving issue. Significant judgment is required to evaluate applicable tax obligations. In many cases, the ultimate tax determination is uncertain because it is not clear how existing statutes apply to our business. One or more states, or municipalities, the federal government or other countries may seek to challenge the taxation or procedures applied to our transactions, imposing the charge of taxes or additional reporting, record-keeping or indirect tax collection obligations on businesses like ours. New taxes could also require us to incur substantial costs to capture data and collect and remit taxes. If such obligations were imposed, the additional costs associated with tax collection, remittance and audit requirements could have a material adverse effect on our business and financial results.

 

The Brazilian government has been studying a substantial tax reform in Brazil. It is not possible to precisely predict if and how potential changes may affect our business, but one or more states, or municipalities, the federal government or other countries may seek to challenge the taxation or procedures applied to our transactions, imposing the charge of taxes or additional reporting, record-keeping or indirect tax collection obligations on businesses like ours. New taxes could also require us to incur substantial costs to capture data and collect and remit taxes. If such obligations were imposed, the additional costs associated with tax collection, remittance and audit requirements could have a material adverse effect on our business and financial results.

 

The costs and effects of pending and future litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, financial position and results of operations.

 

We are, and may be in the future, party to legal, arbitration and administrative investigations, inspections and proceedings arising in the ordinary course of our business or from extraordinary corporate, tax or regulatory events involving our clients, suppliers, customers, as well as competition, government agencies, tax and environmental authorities, particularly with respect to civil, tax and labor claims. Our indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Furthermore, there is no guarantee that we will be successful in defending ourselves in pending or future litigation or similar matters under various laws. Should the ultimate judgments or settlements in any pending litigation or future litigation or

 

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investigation significantly exceed our indemnity rights, they could have a material adverse effect on our business, financial condition and results of operations and the price of our Units and ADRs. Further, even if we adequately address issues raised by an inspection conducted by an agency or successfully defend our case in an administrative proceeding or court action, we may have to set aside significant financial and management resources to settle issues raised by such proceedings or to those lawsuits or claims, which could adversely affect our business.

 

We may pursue strategic acquisitions or investments. The failure of an acquisition or investment to produce the anticipated results, or the inability to integrate an acquired company fully, could harm our business.

 

We may from time to time acquire or invest in complementary companies or businesses. The success of an acquisition or investment will depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into or complete a given transaction. Furthermore, acquisitions may result in difficulties integrating the acquired companies, and may result in the diversion of our capital and our management’s attention from other business issues and opportunities. We may not be able to integrate successfully the operations that we acquire, including their personnel, financial systems, and distribution or operating procedures. If we fail to integrate acquisitions successfully, our business could suffer. In addition, the expense of integrating any acquired business and their results of operations may harm our operating results.

 

We rely on card issuers or payment schemes to process our transactions. If we fail to comply with the applicable requirements of Visa, Mastercard, American Express, Elo, Hipercard, Hiper or others, those payment schemes could seek to fine us, suspend us or terminate our registrations, which could have a material adverse effect on our business, financial condition or results of operations.

 

We rely on card issuers or payment schemes to process our transactions and must pay a fee for this service. From time to time, payment schemes such as Mastercard, Visa, American Express, Elo, Hipercard and Hiper may increase the interchange fees that they charge for each transaction using one of their cards. A significant source of our revenue comes from processing transactions through Visa, Mastercard, American Express, Elo, Hipercard, Hiper and other payment schemes. The payment schemes routinely update and modify their requirements. Changes in the requirements, including changes to risk management and collateral requirements, may impact our ongoing cost of doing business and we may not, in every circumstance, be able to pass through such costs to our clients or associated participants. Furthermore, if we do not comply with the payment scheme requirements (e.g., their rules, bylaws and charter documentation), the payment schemes could seek to fine us, suspend us or terminate our registrations that allow us to process transactions on their schemes. On occasion, we have received notices of noncompliance and fines, which have typically related to transactional or messaging requisites, as well as excessive chargebacks by a merchant or data security failures on the part of a merchant. If we are unable to recover amounts relating to fines from or pass through costs to our merchants or other associated participants, we would experience a financial loss. The termination of our registration due to failure to comply with the applicable requirements of Visa, Mastercard, American Express, Elo, Hipercard, Hiper or other payment schemes, or any changes in the payment scheme rules that would impair our registration, could require us to stop providing payment services to Visa, Mastercard, American Express, Elo, Hipercard, Hiper or other payment schemes, which could have a material adverse effect on our business, financial condition and results of operations.

 

We rely upon third-party data center service providers to host certain aspects of our platform. Any disruption to, or interference with, our use of such services could impair our ability to deliver our platform, resulting in customer dissatisfaction, damaging our reputation and harming our business.

 

We utilize data center hosting facilities from third-party service providers to make certain products and services available on our platform. Our primary data center is in Campinas, in the state of São Paulo (Centro de Processamento de Dados Santander), the only tier IV certified data center in Brazil. Our operations depend, in part, on our providers’ ability to protect their facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. The

 

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occurrence of spikes in user volume, traffic, natural disasters, acts of terrorism, vandalism or sabotage, or a decision to close a facility without adequate notice, or other unanticipated problems at our providers’ facilities could result in lengthy interruptions in the availability of our platform, which would adversely affect our business.

 

Our systems and our third-party providers’ systems may fail due to factors beyond our control, which could interrupt our service, cause us to lose business and increase our costs.

 

We depend on the efficient and uninterrupted operation of numerous systems, including our computer systems, software, data centers and telecommunications networks, as well as the systems of third parties. Our systems and operations, or those of our third-party providers, could be exposed to damage or interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, unauthorized entry and computer viruses. We do not maintain insurance policies specifically for property and business interruptions.

 

Defects in our systems or those of third parties, errors or delays in the processing of payment transactions, telecommunications failures or other difficulties could result in:

 

·loss of revenues, including subscription revenues owed from equipment rentals;

 

·loss of clients;

 

·loss of merchant and cardholder data;

 

·loss of licenses with payment schemes;

 

·fines imposed by payment scheme associations and other issues relating to noncompliance with applicable payment scheme requirements;

 

·loss of Brazilian Central Bank authorizations to operate as a payment institution (instituição de pagamento) or as a payment scheme settlor (instituidor de arranjo de pagamento) in Brazil;

 

·fines or other penalties imposed by the Brazilian Central Bank, as well as other measures taken by the Brazilian Central Bank, including intervention, temporary special management systems, the imposition of insolvency proceedings, and/or the out-of-court liquidation of Getnet Adquirência e Serviços para Meios de Pagamentos S.A. or any of our subsidiaries to whom licenses may be granted in the future;

 

·harm to our business or reputation resulting from negative publicity;

 

·exposure to fraud losses or other liabilities;

 

·additional operating and development costs; and/or

 

·diversion of technical and other resources.

 

Our use of open source software could negatively affect our ability to sell our solutions and subject us to possible litigation.

 

Our solutions incorporate and are dependent to some extent on the use and development of open source software and we intend to continue our use and development of open source software in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses and is typically freely accessible, usable and modifiable. Pursuant to such open source licenses, we may be subject to certain conditions, including requirements that we offer our proprietary software that incorporates the open source software for no cost, that we make available source code for modifications or derivative works we create based upon incorporating or using the open source software and that we license such modifications or derivative works under the terms of the particular open source license. If an author or

 

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other third party that uses or distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our solutions that contained or are dependent upon the open source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our solutions. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our platform. The terms of many open source licenses to which we are subject have not been interpreted by courts. As there is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses, the potential impact of these terms on our business is uncertain and may result in unanticipated obligations regarding our solutions and technologies.

 

Any requirement to disclose our proprietary source code, termination of open source license rights or payments of damages for breach of contract could be harmful to our business, results of operations or financial condition, and could help our competitors develop products and services that are similar to or better than ours.

 

In addition to risks related to license requirements, use of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties, controls on the origin or development of the software, or remedies against the licensors. Many of the risks associated with usage of open source software cannot be eliminated and could adversely affect our business.

 

It is possible that we may not be aware of all instances where open source software has been incorporated into our proprietary software or used in connection with our solutions or our corresponding obligations under open source licenses. We do not have open source software usage policies or monitoring procedures in place. We rely on multiple software programmers to design our proprietary software and we cannot be certain that our programmers have not incorporated open source software into our proprietary software that we intend to maintain as confidential or that they will not do so in the future. To the extent that we are required to disclose the source code of certain of our proprietary software developments to third parties, including our competitors, in order to comply with applicable open source license terms, such disclosure could harm our intellectual property position, competitive advantage, results of operations and financial condition. In addition, to the extent that we have failed to comply with our obligations under particular licenses for open source software, we may lose the right to continue to use and exploit such open source software in connection with our operations and solutions, which could disrupt and adversely affect our business.

 

We are reliant on third–party developers to offer products and services through our platform.

 

We rely on third-party developers, with restricted access to application programming interfaces, software development kits and other tools, to produce applications for use, with a particular focus on mobile applications. There can be no assurance that merchants or third-party developers will continue to develop and maintain applications and services on our open platforms on a timely basis or at all. A number of factors could cause them to curtail or stop development for our platforms, which would restrict our ability to offer new products and services to our clients, and could materially and adversely affect our business, results of operations, financial condition, future prospects and cash flows.

 

If we lose key personnel, our business, financial condition and results of operations may be adversely affected.

 

We are dependent upon the ability and experience of a number of key personnel who have substantial experience with our operations, the rapidly changing payment processing industry and the markets in which we offer our services. It is possible that the loss of the services of one or a combination of our senior executives or key managers, including our chief executive officer, could have a material adverse effect on our business, financial condition and results of operations.

 

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In a dynamic industry like ours, the ability to attract, recruit, develop and retain qualified employees is critical to our success and growth. If we are not able to do so, our business and prospects may be materially and adversely affected.

 

Our business functions at the intersection of rapidly changing technological, social, economic and regulatory developments that require a wide-ranging set of expertise and intellectual capital. In order for us to successfully compete and grow, we must attract, recruit, develop and retain the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. We must also develop our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. 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 must continue to hire additional personnel to execute our strategic plans. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. We cannot assure that qualified employees will continue to be employed or that we will be able to attract and retain qualified personnel in the future. Failure to retain or attract key personnel could have a material adverse effect on our business, financial condition and results of operations.

 

An occurrence of a natural disaster, widespread health epidemic or other outbreaks could seriously harm our business, financial condition and results of operations.

 

Our business could be materially and adversely affected by natural disasters, such as fires or floods, or other events, such as wars, acts of terrorism, environmental accidents, widespread health epidemics, power shortages or communication interruptions. The occurrence of a disaster or similar event could materially disrupt our business and operations. These events could also cause us to close our operating facilities temporarily, which would severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations. In addition, our net sales could be materially reduced to the extent that a natural disaster or other major event harms the economy of the countries where we operate. Our operations could also be severely disrupted if our clients or other participants were affected by natural disasters or other major events.

 

Risks Relating to the Spin-Off

 

We may not realize the anticipated benefits from the Spin-Off, and the Spin-Off could harm our business.

 

We may not be able to achieve the full strategic and financial benefits expected to result from the Spin-Off, or such benefits may take longer than expected to materialize or not materialize, whether in part or at all. The Spin-Off is expected to enhance strategic and management focus, provide a distinct investment identity and allow us to efficiently allocate resources and deploy capital. We may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

 

·the Spin-Off will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business; and

 

·the other actions required to separate the respective businesses could disrupt our operations.

 

If we fail to achieve some or all of the benefits expected to result from the Spin-Off, or if such benefits are delayed, our business could be harmed.

 

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We have no history of operating as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.

 

Our historical financial information included in this information statement has been derived from Santander Brasil’s consolidated financial statements and accounting records. While we are in the process of putting in place certain arrangements with Santander Brasil to continue to cooperate closely with Santander Brasil, our historical financial information is not necessarily indicative of our future results of operations, financial condition or cash flows, nor do they reflect what our results of operations, financial condition or cash flows would have been as an independent public company during the periods presented. In particular, the historical financial information included in this information statement is not necessarily indicative of our future results of operations, financial condition or cash flows primarily because of the following factors:

 

·the historical financial information may not fully reflect the costs associated with the Spin-Off, including the costs related to being a public company;

 

·our historical financial information does not reflect our obligations under the various transitional and other agreements we will enter into with Santander Brasil in connection with the Spin-Off, although costs under such agreements are expected to be broadly similar to what was charged to the business in the past.

 

Our management team has limited experience managing a public company.

 

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business, results of operations, and financial condition.

 

The combined post-distribution value of Santander Brasil and Getnet shares may not equal or exceed the pre-distribution value of Santander Brasil shares.

 

After the Spin-Off, we expect that Santander Brasil units and Santander Brasil ADSs will continue to be traded on the NYSE. We expect our Units and Getnet ADSs will be approved for listing on the B3 and the Nasdaq. We cannot assure you that the combined trading prices of Santander Brasil’s units and Santander Brasil ADSs and our Units and Getnet ADSs after the Spin-Off, as adjusted for any changes in the combined capitalization of both companies, will be equal to or greater than the trading price of Santander Brasil units and Santander Brasil ADS prior to the Spin-Off. Until the market has fully evaluated the business of Santander Brasil without our business and potentially thereafter, the price at which Santander Brasil units and Santander Brasil ADS trade may fluctuate significantly. Similarly, until the market has fully evaluated our business and potentially thereafter, the price at which our Units and Getnet ADSs trade may fluctuate significantly.

 

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the Spin-Off.

 

Prior to the Spin-Off, our financial results have been included within the consolidated results of Santander Brasil, and we were not be directly subject to reporting and other regulatory requirements of the Exchange Act. These and other obligations will place significant demands on our management, administrative and operational resources, including accounting and information technology resources. To comply with these requirements, we anticipate that we will need to increase information technology infrastructure, implement additional financial and management controls, reporting systems and procedures

 

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and hire additional accounting, finance, tax, treasury and information technology staff. If we are unable to do this in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired and our business could be harmed.

 

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”

 

Upon completion of the Spin-Off, we will be a standalone public company. As a public company, we will be subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The process of becoming a standalone public company may also distract our management from focusing on our business and strategic priorities. Further, we may not be able to issue debt or equity on terms acceptable to us and we may not be able to attract and retain employees as desired. We may also not fully realize the anticipated benefits of the Spin-Off and of being a standalone public company, or the realization of such benefits may be delayed, if any of the risks identified in this “Risk Factors” section, or other events, were to occur.

 

Furthermore, as an “emerging growth company” as defined in the JOBS Act, we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort towards ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

 

See “Risks Relating to Our Controlling Shareholder, Our Units and the Getnet ADSs—As an “emerging growth company” (as defined in the JOBS Act), we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.”

 

Santander Brasil believes it is reasonable to treat the Spin-Off as a transaction that is tax-free to holders of Santander Brasil ADSs or units for U.S. federal income tax purposes, but no assurance can be given that this treatment will be sustained.

 

Santander Brasil believes that it is reasonable to treat the Spin-Off as a transaction that is tax-free to holders of Santander Brasil ADSs or units under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”). However, the determination of whether a transaction qualifies as tax-free under Section 355 of the Code is complex and factually intensive, the structure for the Spin-Off has been formulated without taking into account the technical requirements for qualifying the Spin-Off as a tax-free transaction under Section 355 of the Code, and Santander Brasil has not requested, and does not intend to request, an opinion of counsel or a ruling from the Internal Revenue Service (“IRS”) as to the U.S. federal income tax consequences of the Spin-Off. Moreover, neither we nor Santander Brasil have agreed to take, or refrain from taking, any action to assure the qualification of the Spin-Off for tax-free treatment under Section 355 of the Code. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position that the Spin-Off does not qualify for tax-free treatment under Section 355 of the Code, including as a result of our continuing relationships with Santander Brasil or of certain transactions expected to be undertaken after the Spin-Off in connection with our integration into Santander Group’s PagoNxt initiative as described under “Item 4. Information on the Company—B. Business Overview—Our strategy—Becoming a Main Pillar Within PagoNxt.” In addition, it is possible that a U.S. financial intermediary or other applicable withholding agent will treat the Spin-Off as a taxable dividend for purposes of determining its U.S. information reporting and backup withholding obligations. If the Spin-Off does not qualify for tax-free treatment under Section 355 of the Code, the Spin-Off generally will be treated as a taxable dividend to U.S. Holders (as defined in “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Consequences of the Spin-Off” below) of Santander Brasil ADSs or units. For a further discussion of the U.S. federal income tax consequences of the Spin-Off, see “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Consequences of the Spin-Off.” below. U.S. Holders of Santander Brasil ADSs or units are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the Spin-Off to them.

 

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Risks Relating to Brazil

 

The COVID-19 pandemic has had, and is expected to continue to have, a negative impact on global, regional and Brazilian economies, and we would be materially adversely affected by a protracted economic downturn.

 

The COVID-19 pandemic added a new source of uncertainty to global economic activity and it has had, and is expected to continue to have, a negative impact on global, regional and national economies and to disrupt supply chains and reduce international trade and business activity. Restrictions will likely remain in place, suppressing activity, if the contagion does not subside. The materialization of these risks has affected global growth and may decrease investors’ interest in assets from Brazil, which has adversely affected the market price of our securities, possibly making it more difficult for us to access capital markets and, as a result, to finance our operations in the future.

 

The current COVID-19 pandemic and its potential impact on the global economy may affect our ability to meet our financial targets. A continued downturn in local, regional or global economic conditions may adversely affect our business, results of operations and financial condition.

 

The Brazilian government has exercised significant influence over the Brazilian economy. The Brazilian government’s macroeconomic management strategies, as well as Brazilian political and economic conditions, could adversely affect us and the trading price of our securities.

 

The Brazilian government has frequently intervened in the Brazilian economy and has on occasion made significant changes in policy and regulations. In the past, the Brazilian government has adopted measures, including, among others, changes in regulations, price controls, capital controls, changes in the exchange rate regime, and limitations on imports, which have affected Brazilian asset prices. Recently, the Brazilian government has adopted measures, including changes in tax policies, and constraints that have affected Brazilian asset prices and the trading price of our securities once they become listed.

 

We and the trading price of our securities may be adversely affected by changes in policy, laws or regulations at the federal, state and municipal levels involving or affecting factors such as:

 

·interest rates;

 

·currency volatility;

 

·inflation;

 

·reserve requirements;

 

·capital requirements;

 

·liquidity of capital and lending markets;

 

·non-performing loans;

 

·tax policies;

 

·the regulatory framework governing our industry;

 

·exchange rate controls and restrictions on remittances abroad; and

 

·other political, social and economic developments in or affecting Brazil.

 

Uncertainty over whether the Brazilian government will implement changes in policy or regulation creates instability in the Brazilian economy, increasing the volatility of the Brazilian securities markets, which may have an adverse effect on us and our securities. Recent economic and political instability has

 

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led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us and our securities. The overall trend of the Brazilian political and economic arenas may also affect the business of the Brazilian financial industry.

 

We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments and economic regulatory policy changes on our business, nor are we able to predict how current or future measures implemented by regulatory policymakers may impact our business. In addition, due to the current political instability, there exists substantial uncertainty regarding future economic policies and we cannot predict what policies will be adopted by the Brazilian government and whether these policies will negatively affect the economy or our business or financial performance. Any changes in regulatory capital requirements for lending, reserve requirements, or product and service regulations, among others, or continued political uncertainty may materially adversely affect our business.

 

Political instability in Brazil may adversely affect Brazil’s economy and investment levels, and have a material adverse effect on us.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy by impacting the confidence of investors and the general public, which has historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.

 

There are uncertainties regarding the ability of the current government to implement policies and reforms, as well as external perception regarding the Brazilian economy and political environment, all of which could have a negative impact on our business and the price of our securities. In addition, the revocation of the income tax exemption on the payment of dividends, which, if enacted, would increase the tax expenses associated with any dividend or distribution by Brazilian companies, could impact our capacity to receive future cash dividends or distributions net of taxes from our subsidiaries. Any such new policies or changes to current policies may have a material adverse effect on us.

 

Furthermore, Brazil’s federal budget has been in deficit since 2014. Similarly, the governments of Brazil’s constituent states are also facing fiscal concerns due to their high debt burdens, declining revenues and inflexible expenditures.

 

Uncertainty about the Brazilian government’s implementation of changes in policies or regulations that affect such implementation may contribute to economic instability in Brazil and increase the volatility of securities issued abroad by Brazilian companies, including our securities.

 

Ongoing investigations relating to corruption and diversion of public funds that are being conducted by the Brazilian federal police as well as other Brazilian and non-Brazilian regulators and law enforcement officials may adversely affect the growth of the Brazilian economy and could have a material adverse effect on us.

 

Certain Brazilian companies active in the oil and gas, energy, construction and infrastructure sectors faced investigations by the CVM, the U.S. Securities and Exchange Commission, or the “SEC,” the U.S. Department of Justice, the Brazilian Federal Police and the Brazilian Federal Prosecutor’s Office, the Comptroller General of Brazil and other relevant governmental authorities, in connection with corruption allegations (the Lava Jato investigations). The Brazilian Federal Police are also investigating allegations of improper payments made by Brazilian companies to officials of the Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais), or “CARF,” a tax appeals tribunal (the so-called Operação Zelotes). It is alleged that the purpose of such improper payments was to induce those officials to reduce or waive certain tax-related penalties imposed by the Brazilian Federal Revenue Authority, which were under appeal in the CARF. Such investigations involve and/or involved several companies and individuals, including representatives of various companies, politicians and third parties. Certain of these individuals are being investigated by the Brazilian Federal Police and others were formally charged and are facing criminal proceedings and/or have already been convicted by the Brazilian Federal Courts.

 

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Depending on the duration and outcome of such investigations, the companies involved may face a reduction in their revenues, downgrades from rating agencies or funding restrictions, among other negative effects. Given the significance of the companies cited in these investigations in the Brazilian economy, the investigations and their fallout have had an adverse effect on Brazil’s economic growth prospects in the short to medium term. Furthermore, the negative effects on such companies and others may also impact the level of investments in infrastructure in Brazil, which may lead to lower economic growth or contraction in the short to medium term. According to data from the IBGE, the Brazilian economy’s gross domestic product, or “GDP,” contracted by 3.3% in 2016, increased by 1.3% in 2017 and 2018 and 1.1% in 2019, and contracted by 4.1% in 2020. In the first quarter of 2021, Brazilian GDP increased by 1.2%.

 

As a result of the allegations under the Lava Jato investigations and the economic downturn, Brazil was downgraded to non-investment grade status by S&P in September 2015, by Fitch in December 2015, by Moody’s Investor Service, or Moody’s, in February 2016, and downgraded again by Fitch in May 2016. In addition, Brazil was further downgraded by S&P to BB- with a stable outlook in January 2018 as a result of the failure of the prior Brazilian government to approve certain reforms. Brazil’s sovereign debt is currently rated by the three major risk-rating agencies as follows: BB- by S&P and Fitch and Ba2 by Moody’s. Further downgrading of Brazil’s credit rating could reduce the trading price of our units and ADRs, once they are listed. Various major Brazilian companies were also downgraded. Such downgrades have further worsened the conditions of the Brazilian economy and the condition of Brazilian companies, especially those relying on foreign investments. In addition, the Lava Jato investigations have also reached members of the executive and legislative branches of the Brazilian government, which has caused considerable political instability, and, as a result, persistently poor economic conditions in Brazil could have a material adverse effect on us. It is difficult to predict the effects of such political instability, which may include further deteriorations in Brazil’s economic conditions.

 

Inflation, government efforts to control inflation and changes in interest rates may hinder the growth of the Brazilian economy and could have an adverse effect on us.

 

The Brazilian government’s measures to fight inflation, principally through the Brazilian Central Bank, have had significant effects on the Brazilian economy and our business, and can continue to do so. Tight monetary policies with high compulsory reserve requirements may restrict Brazil’s growth and the availability of credit, reduce our loan volumes and increase our loan loss provisions. Conversely, less strict government and Brazilian Central Bank policies and interest rate decreases may trigger increases in inflation and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our spreads.

 

From mid-2016 until late 2020, the Brazilian base interest rate, or “SELIC,” was on a downward trend. The SELIC rate reached a high as 14.25% as of October, 2016 before decreasing to 13.75% p.a. by the end of 2016. The SELIC rate fell further to 7.00% p.a. by the end of 2017, and to 6.50% p.a. in March 2018. The SELIC rate remained at this level until June 2019, when it resumed its downward trend, ending 2019 at 4.50% p.a. As a result of the negative economic impact of the COVID-19 pandemic, the SELIC rate continued to fall during 2020, and reached a historical low at 2.00% p.a. by the end of the year. Following an increase in inflation in 2021 the Brazilian Central Bank started increasing the SELIC rate. As of the date of this registration statement, the SELIC rate is 5.25%. Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, such as the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,” and the general index of market prices (Índice Geral de Preços-Mercado), or “IGPM.” For example, considering the amounts in 2020, each additional percentage point change in inflation would impact our personnel and other administrative expenses by approximately R$2.5 million and R$3.8 million, respectively.

 

Inflation has increased slightly during 2020, reaching 4.52% for the 12-month period ended December 31, 2020 (compared to 4.31% in 2019), mainly as a result of temporary supply shocks affecting the prices of foodstuffs, and current inflation is at 8.35% (IPCA, June 2021, last 12 months).

 

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Inflation, government measures to curb inflation, and speculation related to possible measures regarding inflation may significantly contribute to uncertainty regarding the Brazilian economy and weaken investors’ confidence in Brazil. Future Brazilian governmental actions, intervention in the foreign exchange market, and actions to adjust or fix the value of the real, may trigger increases in inflation and adversely affect the performance of the Brazilian economy as a whole. Furthermore, Brazil’s high rate of inflation, compounded by high and increasing interest rates, declining consumer spending and increasing unemployment, may have a material adverse impact on the Brazilian economy as a whole, as well as on us.

 

Exchange rate volatility may have a material adverse effect on the Brazilian economy and on us.

 

The Brazilian currency has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. The Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.

 

Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate among the real, the U.S. dollar and other currencies. As a result of fluctuations in commodity prices, international developments and periods of progress and setbacks on the domestic front—such as during the presidential impeachment process in 2016, or the approval of the national pension system reform in 2019—the real has weakened over the last few years. After having ended 2013 with an exchange rate of R$2.34 per U.S.$1.00, the real/U.S. dollar exchange rate was R$2.65 per U.S.$1.00 on December 31, 2014, depreciating further to R$3.91 per U.S.$1.00 on December 31, 2015. Despite the instability caused by a change in the country’s presidency, the real appreciated 17.0% year-over-year against the U.S. dollar as of December 31, 2016 to R$3.26 per U.S.$1.00. In 2017, the real remained relatively stable against the U.S. dollar, with an exchange rate of R$3.31 per U.S.$1.00 as of December 31, 2017, but continued to depreciate in the following years, reaching R$3.88 per U.S.$1.00 as of December 31, 2018, and R$4.03 per U.S.$1.00 as of December 31, 2019. In May 2020, in response to the turbulence and doubts raised by the COVID-19 pandemic, the real depreciated significantly against the U.S. dollar, but finished the year at R$5.20 per U.S.$1.00. As of June 30, 2021, the exchange rate was R$5.002 per U.S.$1.00. There can be no assurance that the real will not substantially depreciate or appreciate further against the U.S. dollar.

 

Past episodes of depreciation of the real relative to the U.S. dollar created additional inflationary pressures in Brazil, which led to increases in interest rates and limited Brazilian companies’ access to foreign financial markets and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of the real may also, in the context of an economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of the real could make our foreign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian balance of payments, as well as hinder export-driven growth. Depending on the circumstances, either a depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

 

Infrastructure, workforce deficiency and other factors in Brazil may impact economic growth and have a material adverse effect on us.

 

Our performance depends on the overall health and growth of the Brazilian economy. Brazilian gross domestic product, or GDP, growth has fluctuated over the past few years, with a contraction of 3.3% in 2016 followed by three years of growth in 2017 (1.3%), 2018 (1.8%) and 2019 (1.1%). In 2020, Brazilian GDP contracted by 4.1% as a result of the effects of the COVID-19 pandemic. In the first quarter of 2021, Brazilian GDP increased by 1.2%. Growth has been limited by the lack of private and public investments, resulting in potential energy shortages and deficient transportation, declining logistics and telecommunication sectors and a lack of a qualified labor force. In addition, the growth and performance of the Brazilian economy may be impacted by other factors such as nationwide strikes, natural disasters or

 

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other disruptive events. Additionally, travel restrictions or potential impacts on personnel due to the COVID-19 pandemic may disrupt our business and the expansion of our client base. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us.

 

Developments and the perception of risk in other countries may adversely affect the Brazilian economy and market price of Brazilian issuers’ securities.

 

The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, European countries (including Spain, where Santander Spain, our ultimate controlling shareholder, is based), and in other Latin American and emerging market countries. Although economic conditions in Europe and in the United States may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these countries may have an adverse effect on the market value of securities of Brazilian issuers. In particular, investor perceptions of the risks associated with our securities may be affected by perception of risk conditions in Spain. Additionally, crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including our securities, once listed. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all.

 

In 2021 through the date of this registration statement, 2020, 2019 and 2018, there was an increase in volatility in all Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets and the increasing risk aversion to emerging market countries. In 2020, the fallout of the COVID-19 pandemic has also affected the performance of Brazilian markets. These uncertainties adversely affected us and the market value of our securities.

 

In addition, we continue to be exposed to disruptions and volatility in the global financial markets because of their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability, which could reduce overall consumer spending and the volume of payments processed by us, thereby adversely affecting our business, financial condition and results of operations.

 

A global economic downturn could have a material adverse effect on us.

 

The global macroeconomic environment is facing challenges, including the economic setbacks derived from the COVID-19 pandemic. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States.

 

Pandemics, epidemics or outbreaks of infectious diseases can have an adverse effect on the global market and economy, as well as on our operations. Historically, some epidemics and regional or global outbreaks, such as Zika virus, Ebola virus, H5N5 virus (popularly known as avian influenza), foot-and-mouth disease, H1N1 virus (influenza A, popularly known as swine flu), middle east respiratory syndrome (MERS) and severe acute respiratory syndrome (SARS) have affected certain sectors of the economy in the countries where these diseases have spread.

 

On March 11, 2020, WHO declared the COVID-19 pandemic, a disease caused by a new coronavirus (SARS-COV-2), which triggered severe measures by government officials around the world with the aim of controlling its spread, including restrictions on the flow of people, with limitations on travel, use of public transport, quarantines and lockdowns, prolonged closure of commercial establishments, interruptions in the supply chain and reduction of consumption in general.

 

These measures, combined with the uncertainties caused by the COVID-19 pandemic, had an adverse impact on the economy and the global capital market, including Brazil, including causing eight circuit

 

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breakers in B3 negotiations throughout March 2020. The price of most of the assets traded on B3 was adversely affected due to the COVID-19. Impacts similar to these may reoccur, causing the assets traded at B3 to fluctuate.

 

In addition, any material change in the economy and the global capital market, including Brazil, may decrease the interest of investors in Brazilian assets, including the Getnet ADSs, which may adversely affect the market price of our securities, in addition to making it difficult for us to access the capital markets and finance our operations, including on acceptable terms.

 

There have also been concerns over conflicts, unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets. The United States and China have recently been involved in controversy over trade barriers in China that threatened a trade war between the countries and have implemented or proposed to implement tariffs on certain imported products. Sustained tension between the United States and China over trade policies could significantly undermine the stability of the global economy. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.

 

Any slowdown or instability in the global economy could impact income, purchasing power and consumption levels in Brazil, among other things, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us while also creating a more volatile economy, limiting potential access to capital and liquidity. In addition, any global economic slowdown or uncertainty may result in volatile conditions in the global financial markets, which could have a material adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. Any such adverse effect on capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.

 

Risks Relating to Our Controlling Shareholder, Our Units and the Getnet ADSs

 

Our ultimate controlling shareholder has a great deal of influence over our business and its interests could conflict with ours.

 

Until the Spin-Off is completed (i.e., until our securities are delivered to the shareholders of Santander Brasil), Santander Brasil will directly own approximately 100% of our total capital. Santander Brasil is in turn indirectly controlled by Santander Spain, which will be our controlling shareholder after the Spin-Off. Due to its share ownership, the Santander Group has the power to control us and our subsidiaries, including the power to:

 

·elect a majority of our directors that appoint our executive officers, set our management policies and exercise overall control over our company and subsidiaries;

 

·influence the appointment of our principal officers;

 

·declare the payment of any dividends;

 

·agree to sell or otherwise transfer its controlling stake in our company; and

 

·determine the outcome of substantially all actions requiring shareholder approval, including amendments of our bylaws, transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets and dividends.

 

We operate as a stand-alone subsidiary within the Santander Group. The Santander Group has no liability for our operations, except for the amount of its holdings of our capital stock and for other specific limited circumstances under applicable law. The interests of the Santander Group may differ from the interests of our other shareholders, and the concentration of control in the Santander Group will limit other shareholders’ ability to influence corporate matters. As a result, we may take actions that our other shareholders do not view as beneficial.

 

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Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the Nasdaq limiting the protections afforded to investors.

 

We are a “controlled company” and a “foreign private issuer” within the meaning of the Nasdaq corporate governance standards. Under the Nasdaq rules, to which we shall be subject after we become an independent listed company, a controlled company is exempt from certain Nasdaq corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain Nasdaq corporate governance requirements, including the requirements that (i) a majority of the board of directors consist of independent directors, (ii) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iii) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, and (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. Although we have similar practices, they do not entirely conform to the Nasdaq requirements; therefore, we currently use these exemptions and intend to continue using them. Accordingly, you will not have the same protections provided to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

 

For example, as a foreign private issuer, we will rely on an exemption under Rule 10A-3(c)(3) of the Exchange Act with respect to our audit committee. For a further discussion of our statutory audit committee and the audit committee exemption, see “Item 6. Directors, Senior Management and Employees—C. Board Practices— Committees of Our Board of Directors—Audit Committee.”

 

As an “emerging growth company” (as defined in the JOBS Act), we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.

 

The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we will not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, we will not have to comply with future audit rules promulgated by the U.S. Public Company Accounting Oversight Board, or “PCAOB,” (unless the SEC determines otherwise) and our auditors will not need to attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual revenues of at least US$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common shares that is held by non-affiliates exceeds US$700.0 million as of the prior June 30, and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company. We could be an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Units held by non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). We cannot predict if investors will find our Units or Getnet ADSs less attractive because we may rely on these exemptions. If some investors find our Units or Getnet ADSs less attractive as a result, there may be a less active trading market for our Units or Getnet ADSs and the price of our Units or Getnet ADSs may be more volatile.

 

The liquidity and market prices of the Units and the Getnet ADSs may be adversely affected by the cancellation of units or substantial sale of Units and the Getnet ADSs in the market, or by the relative volatility and limited liquidity of the Brazilian securities markets.

 

Holders of units may present these units or some of these units for cancellation in Brazil in exchange for the common shares and preferred shares underlying these Units. If unit holders present a significant number of Units for cancellation in exchange for the underlying common shares and preferred shares, the liquidity and price of the Units and the Getnet ADSs may be materially and adversely affected.

 

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Also, sales of a substantial number of our Units, common shares or preferred shares in the future, or the anticipation of such sales, could negatively affect the market prices of our Units and the Getnet ADSs. If, in the future, substantial sales of Units, common shares or preferred shares are made by existing or future holders, the market prices of Getnet ADSs may decrease significantly. As a result, holders of Getnet ADSs may not be able to sell their Getnet ADSs at or above the price they paid for them.

 

The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of the units and Getnet ADSs.

 

The B3 is significantly less liquid than the Nasdaq or other major exchanges in the world. As of December 31, 2020, the aggregate market capitalization of the B3 was equivalent to approximately R$3.3 trillion (U.S.$642.7 billion), and the top 10 stocks in terms of trading volume accounted for approximately 40% of all shares traded on the B3 in the year ended December 31, 2020. In contrast, as of December 31, 2020, the aggregate market capitalization of the Nasdaq was approximately U.S.$19.1 trillion. Although any of the outstanding shares of a listed company may trade on the B3, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, government entities or a principal shareholder.

 

The uncertainties caused by the outbreak of COVID-19 had an adverse impact on the global economy and global capital markets, including in Brazil, during the course of 2020. As a result of this volatility, the B3’s circuit breaker mechanism was triggered eight times during March 2020. The prices of most of the securities traded on the Nasdaq and the B3, including the price of the Getnet ADSs and our Units, were adversely affected by the COVID-19 pandemic. Impacts similar to those described above may reoccur, which may result in volatility in the prices of our securities traded on the Nasdaq and on the B3.

 

The relative volatility and limited liquidity of the Brazilian securities markets may substantially limit your ability to sell the units or ADRs at the time and price you desire and, as a result, could negatively impact the market price of these securities.

 

If securities analysts do not publish research or reports about our business or if they downgrade our Units and the Getnet ADSs or securities issued by other companies in our sector, the price and trading volume of our Units and the Getnet ADSs could decline.

 

A trading market for our Units and the Getnet ADSs may not develop. Furthermore, any future trading market for our Units and ADRs may be affected in part by the research and reports that industry and financial analysts come to publish about us or our business after we become an independent listed company. We do not control these analysts. Furthermore, if one or more of the analysts downgrade our Units, the Getnet ADSs or our industry, and change their views regarding the shares of any of our competitors or other companies in our sector, or publish inaccurate or unfavorable research about our business, the market price of our Units and/or the Getnet ADSs could decline.

 

The economic value of your investment may be diluted.

 

We may, from time to time, need additional funds to implement our growth strategy, acquire target companies or otherwise conduct our activities and we may issue additional Units, including Units represented by Getnet ADSs. Any additional funds obtained by such a capital increase may dilute your interest in our company or decrease the market price of our Units and the Getnet ADSs.

 

Holders of our units and the Getnet ADSs may not receive any dividends or interest on shareholders’ equity.

 

According to our By-Laws, we must generally pay our shareholders at least 25.0% of our annual net income as dividends or interest on shareholders’ equity, as calculated under Brazilian Corporate Law, or “adjusted net income,” which may differ significantly from our net income as determined under IFRS. This adjusted net income may be used to increase capital or to absorb losses, or otherwise retained as allowed under Brazilian Corporate Law and may not be available to be paid as dividends or interest on shareholders’ equity. Additionally, Brazilian Corporate Law allows a publicly traded company, like ours, to

 

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suspend the mandatory distribution of dividends and interest on shareholders’ equity in any particular year if our board of directors informs our shareholders that such distributions would be inadvisable in view of our financial condition or cash availability. We paid R$829.2 million, R$139.0 million and R$114.7 million (R$11.92, R$2.00 and R$1.65 per common share, respectively, and R$0.44, R$0.07 and R$0.06 per common share after the stock split, respectively) as dividends (considering gross value) in 2020, 2019 and 2018, respectively, in accordance with our dividend policy, but there can be no assurance that dividends and interest on shareholders’ equity will be paid in the future. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—History of Payment of Dividends.”

 

Holders of the Getnet ADSs may find it difficult to exercise voting rights at our shareholders’ meetings.

 

Holders of Getnet ADSs will not be our direct shareholders and will be unable to enforce directly the rights of shareholders under our By-Laws and Brazilian Corporate Law. Holders of Getnet ADSs may exercise voting rights with respect to the units represented by Getnet ADSs only in accordance with the deposit agreement governing the Getnet ADSs. Holders of Getnet ADSs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with Getnet ADSs holders. For example, we are required to publish a notice of our shareholders’ meetings in specified newspapers in Brazil. Holders of our units will be able to exercise their voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, holders of Getnet ADSs will receive notice of a shareholders’ meeting by mail from the Getnet ADS depositary following our notice to the depositary requesting the depositary to do so. To exercise their voting rights, holders of Getnet ADSs must instruct the Getnet ADS depositary on a timely basis on how they wish to vote. This voting process necessarily will take longer for holders of Getnet ADSs than for holders of our units or shares. If the Getnet ADS depositary does not receive timely voting instructions for all or part of the Getnet ADSs, the depositary will not vote the corresponding number of our deposited Units.

 

Holders of Getnet ADSs also may not receive the voting materials in time to instruct the depositary to vote the units underlying their Getnet ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of Getnet ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of Getnet ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the units underlying their Getnet ADSs are not voted as requested.

 

Holders of Getnet ADSs could be subject to Brazilian income tax on capital gains from sales of Getnet ADSs.

 

Law 10,833 of December 29, 2003 provides that the disposal of assets located in Brazil by a nonresident to either a Brazilian resident or a nonresident is subject to taxation in Brazil, regardless of whether the disposal occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposal of our units by a nonresident of Brazil to another nonresident of Brazil. It is unclear whether Getnet ADSs representing our units, which are delivered by the Getnet ADS depositary outside Brazil, will be deemed to be “property located in Brazil” for purposes of this law. We believe that Getnet ADS s do not qualify as property located in Brazil and, thus, should not be subject to Brazilian income tax. Nevertheless, there is no judicial guidance as to the application of Law 10,833 of December 29, 2003 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of the Getnet ADSs between nonresidents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of the Getnet ADSs, this tax law would accordingly impose withholding taxes on the disposition of the Getnet ADSs by a nonresident of Brazil to another nonresident of Brazil.

 

Any gain or loss recognized by a U.S. taxpayer will generally be treated as U.S. source gain or loss. A U.S. taxpayer would not be able to credit any Brazilian tax imposed on the disposition of our units or the Getnet ADSs against such person’s U.S. federal income tax liability, unless such credit can be applied (subject to applicable limitations) against tax due on other income of such person from foreign sources.

 

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Our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the United States.

 

Issuers of securities in Brazil are required to make public disclosures that are different from, and that may be reported under presentations that are not consistent with, disclosures required in other countries, including the United States. In particular, for regulatory purposes, we currently prepare and will continue to prepare and make available to our shareholders statutory financial statements in accordance with IFRS as issued by the IASB and Brazilian GAAP, both of which differ from U.S. GAAP in a number of respects. In addition, as a foreign private issuer, we are not subject to the same disclosure requirements in the United States as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow local legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants. Accordingly, the information about us available to you will not be the same as the information available to shareholders of a U.S. company and may be reported in a manner with which you are not familiar.

 

Investors may find it difficult to enforce civil liabilities against us or our directors and officers.

 

The majority of our directors and officers reside outside the United States. In addition, all or a substantial portion of our assets and the assets of our directors and officers are located outside the United States. Although we have appointed an agent for service of process in any action against us in the United States with respect to the Getnet ADSs, none of our directors or officers has consented to service of process in the United States or to the jurisdiction of any U.S. court. As a result, it may not be possible for holders of the Getnet ADSs to effect service of process against these other persons within the United States or other jurisdictions outside Brazil or to enforce against these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Holders of Getnet ADSs may face greater difficulties in protecting their interests due to actions by us or our directors or executive officers than would shareholders of a U.S. corporation, because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if the judgment meets the following conditions: (i) it must comply with the formalities necessary for enforcement under the laws of the jurisdiction in which it was rendered; (ii) it must have been issued by a competent jurisdiction/court after proper service of process on the parties, which service must comply with Brazilian law if made in Brazil, or after sufficient evidence of the parties’ absence (revelia) has been given, as required by applicable law; (iii) it must be final, binding and therefore not subject to appeal (res judicata) in the jurisdiction in which it was issued; (iv) it must be apostilled by a competent authority of the country from which the document emanates according to the Hague Convention of 5 October 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents or, if such country is not signatory of the Hague Convention, it must be duly authenticated by a competent Brazilian consulate in the country where the foreign judgment is issued; (v) it must be accompanied by a translation thereof into Portuguese made by a certified translator in Brazil, unless an exemption is provided by an international treaty to which Brazil is a signatory; (vi) it must not be contrary to Brazilian national sovereignty, good morals or public policy or violate the dignity of the human person (as set forth in Brazilian law); (vii) it must not relate to a matter which is also subject to a similar proceeding in Brazil involving the same parties, based on the same grounds and with the same object, which has already been judged by a Brazilian court (res judicata); and (viii) it must not violate the exclusive jurisdiction of Brazilian courts pursuant to the provision of Article 23 of the Brazilian Code of Civil procedure (Law No. 13,105/2015). Judgments which meet these criteria are not subject to an analysis of the merits or a retrial by Brazilian courts.

 

Judgments of Brazilian courts with respect to our Units or the Getnet ADSs will be payable only in reais.

 

Our By-Laws provide that we, our shareholders, our directors and officers and the members of our fiscal council shall submit to arbitration any and all disputes or controversies that may arise among ourselves relating to, or originating from, the application, validity, effectiveness, interpretation, violations and effects of violations of the provisions of Brazilian Corporate Law, our By-Laws, the rules and regulations of the CMN, the Brazilian Central Bank and the CVM, as well as other rules and regulations

 

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applicable to the Brazilian capital markets and the rules and regulations of the Arbitration Regulation of the Market Arbitration Chamber. However, in specific situations, including whenever precautionary motions are needed for protection of rights, the dispute or controversy may have to be brought to a Brazilian court. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the units or Getnet ADSs, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations and according to Brazilian laws, an obligation in Brazil to pay amounts denominated in a currency other than reais may be satisfied in Brazilian currency only at the exchange rate, as determined by the Brazilian Central Bank or competent court, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the units or Getnet ADSs.

 

Holders of Getnet ADSs may be unable to exercise preemptive rights with respect to our units underlying Getnet ADSs.

 

Holders of Getnet ADSs will be unable to exercise the preemptive rights relating to our units underlying Getnet ADSs unless a registration statement under the Securities Act is effective with respect to the shares for which those rights are exercisable or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of units or Getnet ADSs. We may decide, at our discretion, not to file any such registration statement. If we do not file a registration statement or if we and the Getnet ADS depositary decide not to make preemptive rights available to holders of Units or Getnet ADSs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if they are not sold, their preemptive rights will be allowed to lapse.

 

As a holder of Getnet ADSs, you will have different shareholders’ rights than do shareholders of companies incorporated in the United States and certain other jurisdictions.

 

Our corporate affairs are governed by our By-Laws and by Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil.

 

Under Brazilian Corporate Law, holders of Getnet ADSs are not our direct shareholders and will have to exercise their voting rights through the depositary. Therefore, holders of Getnet ADSs may have fewer and less well-defined rights to protect their interests relative to actions taken by our board of directors or the holders of our common shares than under the laws of other jurisdictions outside Brazil.

 

Although Brazilian Corporate Law imposes restrictions on insider trading and price manipulation, the form of these regulations and the manner of their enforcement may differ from that in the U.S. securities markets or markets in certain other jurisdictions. In addition, in Brazil, self-dealing and the preservation of shareholder interests may be regulated differently, which could potentially disadvantage you as a holder of the preferred shares underlying Getnet ADSs.

 

Getnet ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could be less favorable or less desirable to the plaintiff(s) in any such action.

 

The deposit agreement provides that, to the extent permitted by law, Getnet ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the Getnet ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. The deposit agreement, including the waiver of the right to jury trial, governs the rights of the initial holders of Getnet ADSs following the spinoff as well as the rights of subsequent holders that acquire Getnet ADSs in the secondary market.

 

If you or any other holders or beneficial owners of the Getnet ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the Getnet ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits

 

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against us and/or the depositary. Any plaintiff(s) in such an action may believe that a non-jury trial would be less favorable to the plaintiff(s) or otherwise less desirable.

 

It is possible that we will be a passive foreign investment company in 2021 or in one or more future taxable years, which could result in adverse U.S. federal income tax consequences for our U.S. shareholders.

 

U.S. shareholders of a passive foreign investment company, or “PFIC,” are subject to potentially adverse U.S. federal income tax consequences with respect to their investment in the PFIC. In general, a non-U.S. corporation is a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income; or (ii) 50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income. For this purpose, subject to certain exceptions, passive income includes interest and income equivalent to interest, dividends, certain non-active rents and royalties, and capital gains on property that produces or is held for the production of the foregoing types of income. For purposes of the above calculations, a non-U.S. corporation that owns, directly or indirectly, at least 25% by value of the shares of another corporation is generally treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation.

 

Whether we will be a PFIC in 2021 or any future year is uncertain because, among other things, PFIC status is determined on an annual basis, the manner in which we operate our business and the composition of our income and assets may vary significantly over time, and the rules for determining the character of our income and assets for PFIC purposes are unsettled (as described below). Accordingly, there can be no assurance that we will not be a PFIC for any taxable year.

 

The determination of whether we are, or will be, a PFIC for a taxable year depends on the application of complex U.S. federal income tax rules, which are subject to varying interpretations and may change in the future. Based on the nature of our operations, the composition of our income and assets, and then applicable law, we do not believe that we were a PFIC for our 2020 taxable year. However, the U.S. Internal Revenue Service (the “IRS”) and the U.S. Treasury department recently released proposed Treasury regulations (the “Proposed Regulations”) which, if finalized in their current form, would significantly modify the PFIC rules applicable to certain banking group affiliates that provide financial services. Under currently applicable guidance, including an IRS Notice regarding the treatment of non-U.S. banks and their affiliates for PFIC purposes (the “Notice”), certain categories of “active financing income” earned by a qualified affiliate of a non-U.S. banking group, and assets held by such a qualified affiliate for the production of such income, are treated as active for purposes of determining the qualified affiliate’s PFIC status. Under the Proposed Regulations, such income (and assets) generally would be treated as passive for those purposes. Pending the issuance of final Treasury regulations, the preamble to the Proposed Regulations generally permits taxpayers to rely on the Notice. Although we consider ourselves to be engaged in an active business, the treatment of income from certain of our activities, including payment processing services and prepayment and advanced settlement services, is uncertain under the Notice and the Proposed Regulations. If the fees we earn from those services were considered to be interest, interest equivalents or gains on assets held for the production of interest (and, thus, generally passive for PFIC purposes), although the matter is not entirely clear, we expect that it will be reasonable to treat us as a qualified affiliate of Santander Group, with the result that such income would be treated under the Notice as active income for PFIC classification purposes. However, there can be no assurances in that regard, and under the Proposed Regulations (if finalized in their current form), it is possible that those fees would be treated as passive income. If we are a PFIC for any taxable year, U.S. holders of our ADSs or Units would be subject to certain adverse U.S. federal income tax consequences as discussed under “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Considerations for U.S. Holders.” Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules.

 

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Item 4. Information on the Company

 

4A. History and Development of the Company

 

General

 

Getnet is a publicly held corporation (sociedade anônima) of indefinite term, incorporated under Brazilian law on October 24, 2008 as Getnet Tecnologia em Captura e Processamento de Transações H.U.A.H. Ltda, or “Getnet Tecnologia.” Following our acquisition by Santander Brasil in 2014 we changed our corporate name to Getnet Adquirência e Serviços Para Meios de Pagamento S.A. Documentation of our incorporation is duly registered with the Commercial Registry of the State of São Paulo (Junta Comercial do Estado de São Paulo), under NIRE (Registry Number) 35.300.567.064. Our corporate name is Getnet Adquirência e Serviços para Meios de Pagamento S.A. and our commercial name is Getnet. Our headquarters are located in Brazil at Avenida Presidente Juscelino Kubitschek, 2041, suite 121, Block A, Condomínio WTORRE JK, Vila Nova Conceição, 04543-011, in the city of São Paulo, state of São Paulo, Federative Republic of Brazil. Our telephone number is +55 (11) 5184-9002, and our website is https://site.getnet.com.br/. The information contained on our website, any website mentioned in this registration statement or any website directly or indirectly linked to these websites is not part of, and is not incorporated by reference in, this registration statement.

 

Our agent for service is Banco Santander, S.A., New York Branch, 45 E. 53rd Street New York, New York 10022.

 

History

 

We were founded in 2003 as a technology company focused on payment solutions and top-ups for prepaid cell phone accounts by means of point-of-sale, or “POS,” devices. We have partnered with Santander Brasil since 2011, when we began providing services to Santander Brasil’s cards business division. This cooperation resulted in the creation of Santander Getnet Serviços para Meios de Pagamento S.A., or “SGS,” a joint venture between us and Santander Brasil responsible for distributing POS devices.

 

At an extraordinary shareholders’ meeting held on August 31, 2014, the shareholders of Getnet and SGS approved the merger of Getnet into SGS. On the same date, SGS had its corporate name changed to Getnet Adquirência e Serviços para Meios de Pagamento S.A. The transaction was concluded on July 31, 2014, once all regulatory approvals had been obtained. As a result of the transaction, Santander Brasil became the owner of shares representing 88.5% of the total corporate capital of Getnet, with the previous shareholders of Getnet owning 11.5% of the total share capital.

 

Following our acquisition by Santander Brasil, we shifted our focus to the merchant acquiring business. An important part of this change was offering an integrated account with Santander Brasil and cross-selling products and services to Santander Brasil’s customer base, focusing particularly on SMEs and retail customers. Under our integrated account offering, customers pay a single monthly fee for a package that includes a current account with Santander Brasil and the rental of our POS devices.

 

Throughout 2015 and 2016, we worked together with Santander Brasil to increase synergy between the banking services offered and the acquiring business. An example of this is the fact that we use Santander Brasil as a sales force to market our products and services throughout Brazil, unlike our competitors who are required to rely on their own, smaller internal sales forces. During the same period, we also focused on efficiency, innovation and quality, which we believe are our core competitive advantages. In 2017 and 2018, we sought to diversify our product offering with the creation of “SuperGet,” a wireless mobile POS, or “m-POS,” device, established our own data center in Campinas in the state of São Paulo and developed a new digital platform through which we offer a wide range of services such as fraud protection services, saving card details on websites for future use (which we refer to as a card vault), split payment solutions and an online store through which we are able to set up websites for micro-entrepreneurs and SMEs. This new digital platform became our core priority in 2019 and 2020, as it enabled us to enter the fast-growing e-commerce industry. As part of this digital transformation, we began offering new products and services such as GetPay, a payment link that can be included in WhatsApp and social media posts, quick response

 

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codes, or “QR codes,” and a digital POS, among others. These services go beyond those we were able to provide customers in a purely physical format. As a result, we have become a multiservice platform offering a wide range of services to our customers, irrespective of whether such customers are also customers of Santander Brasil.

 

On December 19, 2018, the minority shareholders of Getnet exercised their right to sell all of their shares to Santander Brasil, or the “Put Option,” pursuant to the Shares Purchase and Sale Agreement and Other Covenants executed between the parties on April 4, 2014, or “SPA.” On the exercise date of the Put Option, Santander Brasil entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to an 11.5% equity interest, in the amount of R$1.431 billion. The acquisition transaction was approved by the Brazilian Central Bank on February 18, 2019, and the transaction closed on February 25, 2019. As a result, Santander Brasil currently owns 100% of our issued and outstanding share capital. Our acquisition by Santander Brasil gave us more flexibility and allowed Santander Brasil to create more complete and customized solutions for our customers, integrating our services with Santander Brasil.

 

On November 16, 2020 and February 2, 2021, Santander Brasil announced the commencement and the finalization of the study of the Spin-Off. The executive board of Santander Brasil, at a meeting held on February 25, 2021, approved the Spin-Off and the fiscal council of Santander Brasil also issued a favorable opinion. The Spin-Off was also approved by the shareholders of Santander Brasil on March 31, 2021.

 

On May 12, 2021, we entered into an investment agreement with the shareholders of Eyemobile Tecnologia Ltda., or “Eyemobile.” Eyemobile is a technology company based in Florianópolis in the state of Santa Catarina that offers and develops software solutions designed to enhance the productivity of daily business activities, such as the operation of points of sale, managerial reports, billing, while also providing tailored solutions for certain businesses such as stores, restaurants and events. On August 3, 2021, the conditions precedent to the acquisition were fulfilled and as a result we now hold a 60.0% interest in Eyemobile’s share capital. The consideration we paid for this transaction consists of R$21.5 million paid in cash, including: (i) R$11.5 million to acquire an equity interest of 44.0% from the then-shareholders of Eyemobile, and (ii) R$10.0 million to subscribe for newly-issued shares of Eyemobile amounting to 16.0% of Eyemobile’s issued share capital. In addition, we may be required to disburse an additional maximum amount of R$3.5 million as earnout payments to the former shareholders of Eyemobile if certain financial and operating metrics are met over the course of the 18 months following the acquisition. See also note 18 to our unaudited interim consolidated financial statements included elsewhere in this registration statement.

 

In February 2021, the Brazilian Central Bank authorized us to form a new subsidiary, Getnet Sociedade de Crédito Direto S.A., as “Getnet SCD,” to act as a financial institution. We estimate that Getnet SCD will be fully operational by the end of 2021. Getnet SCD will extend loans and financing through a digital platform.

 

Our mission is to be one step ahead in solutions and technologies, contributing to the growth of our customers. We work in a close, agile and simple way offering solutions for those who want to be in control of their business. Solutions for those who sell and those who buy. With operations across Brazil, we have more than 800 thousand active merchants that use our services daily.

 

Recent Developments

 

Impact of COVID-19

 

On March 10, 2020, the Brazilian Federal Accounting Council (Conselho Federal de Contabilidade) issued guidance highlighting the importance for companies of carefully considering the impact of COVID-19 on their business and reporting the principal risks and uncertainties arising from this analysis in their financial statements, subject to the applicable accounting standards.

 

We believe that the COVID-19 pandemic has resulted in disruption to regional or global economic activity, which may affect our operations and financial results. Any slowdown in Brazilian economic activity, whether as a result of the COVID-19 pandemic itself or of governmental measures imposed to

 

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restrict the spread of COVID-19, would adversely affect the operations of commercial establishments which would in turn negatively affect our results. Any resulting increases in credit risk may result in an increase in the cost of credit which would also lead to a decrease in credit card use.

 

We experienced a 15.2% decrease in revenue in the year ended December 31, 2020 which we believe was due in part to the impact of the COVID-19 pandemic. While our revenue increased by 14.7%, from R$1,098.5 million for the six months ended June 30, 2020 to R$1,259.9 million for the six months ended June 30, 2021, as a result of an improvement in macroeconomic conditions in the first six months of 2021, we still face considerable uncertainty related to the progression of the COVID-19 pandemic (including new variants of the virus which may appear) and of Brazil’s vaccination campaign. The extent to which the COVID-19 pandemic will affect our results of operations for any future periods will depend on developments that are highly uncertain and unforeseeable, including new information that may emerge on the gravity of COVID-19, new variants of the virus, the speed and efficacy of vaccination roll-outs and other actions to contain or address the impact of the COVID-19 pandemic, among other matters.

 

In order to mitigate the impact of COVID-19 on our business, we adopted commercial and strategic measures to maintain our client base, including discounts on equipment rental, rate reductions, and extensions on invoicing terms linked to client goals. We also joined the Brazilian government’s Coronavoucher program, which enable us to capture transaction volumes linked to the provision of economic support by the Brazilian government.

 

We intend to continue monitoring the evolution of the COVID-19 pandemic in Brazil and globally in order to take preventive measures to minimize the disruption to our activities. However, given the considerable uncertainty surrounding the spread of COVID-19, the pace of vaccination roll-outs and the speed at which the Brazilian and global economies will recover, we cannot assure you that we will be able to mitigate any additional adverse effects of COVID-19 on our business effectively or at all.

 

See also “Item 3. Key Information—3D. Risk Factors—Risks Relating to our Business and Industry—Actual or potential epidemics, pandemics, outbreaks or other public health crises, such as the COVID-19 pandemic, may have an adverse impact on our clients’ financial condition, particularly SME merchants, consequently impacting our business,” “Item 3. Key Information—3D. Risk Factors—Risks Relating to Brazil—The COVID-19 pandemic has had, and is expected to continue to have, a negative impact on global, regional and Brazilian economies, and we would be materially adversely affected by a protracted economic downturn” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”

 

Stock Split and Conversion of Shares

 

On February 24, 2021, our sole shareholder, Santander Brasil, approved (i) a stock split at a ratio of one to 26.83421551 as a result of which our capital stock (which was at the time represented by 69,565,000 common shares, no par value) was represented by 1,866,722,202 common shares, no par value, and (ii) a conversion of 916,003,725 common shares into an equal number of preferred shares. As a result of the stock split and the conversion, as of June 30, 2021 and as of the date of this registration statement, our capital stock is represented by 950,718,477 common shares, no par value, and 916,003,725 preferred shares, no par value.

 

The stock split has been reflected retrospectively in the financial statements included in this registration statement and the conversion will be reflected prospectively in the corresponding period.

 

Approval of the Spin-Off by the Brazilian Central Bank and Registration with the CVM

 

On July 14, 2021, the Brazilian Central Bank approved our Spin-Off from our parent company, Santander Brasil.

 

On August 10, 2021, we became registered as a publicly-held corporation with the CVM under Category “A” of CVM Instruction No. 480/09. In addition, on August 5, 2021, the B3 approved our application to list our shares and units.

 

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The Spin-Off

 

Santander Brasil and Getnet, for the reasons described below, wish to carry out the spin-off of Getnet from Santander Brasil, pursuant to the applicable law currently in force, and with a reduction of Santander Brasil’s share capital.

 

The Spin-Off is being proposed in order to segregate Santander Brasil’s equity interest in Getnet. Thus, the intention is to enable Getnet to explore the full potential of its businesses as part of the strategy of the Santander Group to concentrate the technology and various payments solutions of the group within PagoNxt, a new technology-focused global payment platform. The Spin-Off will allow Getnet to have direct access to the capital markets and other sources of funding, thus allowing it to prioritize its investments according to its profile and scope of activities. Completion of the Spin-Off is subject to the satisfaction of a number of conditions.

 

In addition, on April 15, 2021, we entered into the Partnership Agreement, which provides a framework for our relationship with Santander Brasil following the Spin-Off. For more information about the Partnership Agreement, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Principal Related Party Transactions—Partnership Agreement with Santander Brasil.”

 

Prior to the conclusion of the Spin-Off, Santander Brasil owned 100% of our total capital stock. As part of the Spin-Off, all of our Units and issued common and preferred shares will be transferred to the current shareholders of Santander Brasil, including the holder of Units represented by Santander Brasil ADSs. As a result, Santander Spain, the controlling shareholder of Santander Brasil, will become our controlling shareholder directly and indirectly through its subsidiaries, Grupo Empresarial Santander, S.L. and Sterrebeeck B.V. For additional information on our share capital following the Spin-Off, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” and “Item 10. Additional Information—A. Share Capital.”

 

The charts below set forth a summary of our corporate structure as of the date of this registration statement and after the Spin-Off:

 

Corporate Structure Prior to the Spin-Off

 

 

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Corporate Structure After the Spin-Off

 

 

 
*No common shares, preferred shares or Units of Getnet will be allocated to the treasury shares of Santander Brasil as part of the Spin-Off. As a result, the interests of the Santander Group and of each of Santander Brasil’s current shareholders in our total capital stock after the Spin-Off will be greater than their respective interests in Santander Brasil prior to the Spin-Off. Prior to the Spin-Off, the Santander Group owns approximately 89.5% of the total capital stock of Santander Brasil. However, the Santander Group will own approximately 89.9% of our total capital stock after the Spin-Off. See “Item 4. Information on the Company—A. History and Development of the Company—The Spin-Off” and “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”

 

Reasons for the Spin-Off

 

We believe that the Spin-Off will provide a number of benefits to our shareholders, including:

 

·enable Getnet to explore the full potential of its businesses as part of the strategy of the Santander Group to concentrate the technology and various payments solutions of the group within PagoNxt, a new technology-focused global payment platform.

 

·Getnet will strategically operate within a global structure, bringing more efficiency, diversification of revenue sources, speed of execution and integration with the other payment businesses of the Santander Group. Furthermore, the intention is to generate economic value for Santander Brasil's shareholders, since companies in Getnet’s operating segment present a higher relative market value than the banking segment.

 

·provide Getnet with direct access to capital markets and other sources of funding, hence allowing it to prioritize investments according to its profile and scope of activities, thus creating more value for its shareholders

 

Neither Santander Brasil nor Getnet can assure you that, following the Spin-Off any of the benefits described above or otherwise in this registration statement will be realized to the extent or at the time anticipated or at all. See also “Item 3. Key Information—D. Risk Factors.”

 

Number of Getnet Units, Common and Preferred Shares and Getnet ADSs You Will Receive

 

Santander Brasil’s shareholders, as of the applicable Record Dates, will be entitled to receive common shares and/or preferred shares issued by Getnet and/or Getnet Units, in connection with the Spin-Off, at the rate of 0.25 common share, preferred share or Getnet’s Unit, as the case may be, for each one common share, preferred share or unit issued by Santander Brasil. Holders of Santander Brasil ADSs will receive Getnet ADSs at a rate of 0.25 Getnet ADSs for each Santander Brasil ADSs held.

 

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When and How You Will Receive Getnet Units, Common and Preferred Shares and Getnet ADSs

 

The distribution of Getnet Units, common and preferred shares is expected to occur on the Brazilian Distribution Date. The distribution of Getnet ADSs is expected to occur on the ADS Distribution Date, which is expected to be on or about     , 2021.

 

This registration statement does not constitute a proxy statement. Neither Santander Brasil nor Getnet is asking you for a proxy, and you are requested not to send Santander Brasil or Getnet a proxy.

 

If you hold Santander Brasil’s units, common or preferred shares or Santander Brasil ADSs as of the applicable Record Date, you will not be required to take any action, pay any cash, deliver any other consideration, or surrender any existing Santander Brasil’s units, common or preferred shares or Santander Brasil ADRs in order to receive Getnet Units, common or preferred shares or Getnet ADSs in the Spin-Off, except that if you hold Santander Brasil ADSs, you will be required to pay The Bank of New York Mellon a fee of U.S.$0.05 per Getnet ADSs in order to receive Getnet ADSs.

 

If You Hold Santander Brasil’s Units, Common or Preferred Shares

 

To receive Getnet Units, common or preferred shares in connection with the Spin-Off, you must hold Santander Brasil’s units, common or preferred shares on the Brazilian Record Date.

 

This section applies to you if you are a non-resident of Brazil who holds Santander Brasil’s units, common or preferred shares directly or indirectly through the facilities of the B3 Central Depositary (Central Depositária da B3) on the Brazilian Record Date.

 

Immediately following the Brazilian Record Date, Santander Brasil’s units, common or preferred shares will trade “ex-distribution” on the B3. This means that if you purchase Santander Brasil’s units, common and preferred shares following the Brazilian Record Date, you will not receive Getnet Units, common or preferred shares in connection with the Spin-Off. Similarly, if you hold Santander Brasil’s units, common or preferred shares as of the Brazilian Record Date and you subsequently sell or otherwise dispose of your Santander Brasil units, common or preferred shares, up to and including the Brazilian Distribution Date, you will still receive Getnet Units, common and preferred shares that you would be entitled to receive in respect of your ownership, as of the Brazilian Record Date, of Santander Brasil’s units, common or preferred shares that you sold.

 

On the Brazilian Distribution Date your B3 custody account will be credited with the whole number of Getnet Units, common and/or preferred shares you are entitled to receive in the Spin-Off. At that time, you should be able to commence trading Getnet Units, common and/or preferred shares you are allotted on the B3. The allocation of Getnet’s book-entry shares to your B3 custody account is expected to settle two business days following the Brazilian Distribution Date.

 

If you own your Santander Brasil units, common or preferred shares in book-entry form beneficially through a broker or other securities intermediary, please contact your broker or other securities intermediary for further information about your account and when you will be able to begin trading your Getnet Units, common and/or preferred shares.

 

If You Hold Santander Brasil ADSs

 

If you hold Santander Brasil Santander Brasil ADSs on the ADS Record Date, you will be entitled to receive newly issued Getnet ADSs in the Spin-Off. Beginning on the day prior to the ADS Record Date and continuing up to and including the ADS Distribution Date, we expect that there will be two markets in Santander Brasil ADSs: a “regular-way” market and an “ex-distribution” market. Santander Brasil ADSs that trade on the “regular-way” market will trade with the entitlement to receive Getnet ADSs in connection

 

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with the Spin-Off. Santander Brasil ADSs that trade on the “ex-distribution” market will trade without the entitlement to receive Getnet ADSs in connection with the Spin-Off. Therefore, if you sell Santander Brasil ADSs on the “regular-way” market, you will also be selling your right to receive Getnet ADSs in connection with the Spin-Off. If you own Santander Brasil ADSs as of the ADS Record Date and sell or otherwise dispose of these shares on the “ex-distribution” market, up to and including through the ADS Distribution Date, you will still receive the Getnet ADSs that you would be entitled to receive in respect of your ownership, as of the ADS Record Date, of the Santander Brasil ADSs that you sold. You are encouraged to consult with your financial advisor regarding the specific implications of selling your Santander Brasil ADSs prior to or on the ADS Distribution Date.

 

Holders of Santander Brasil ADSs through DTC

 

Following its receipt of Getnet Units, the Getnet ADS depositary will deliver Getnet ADSs to DTC for allocation by it to the accounts of DTC participants that held Santander Brasil ADSs as of the ADS Record Date, and DTC will charge those participant accounts a fee of U.S.$0.05 per Getnet ADS issued (that will be paid to The Bank of New York Mellon). Once the Getnet ADSs are allocated to participant accounts, participants should be able to commence trading the Getnet ADSs on the Nasdaq. The allocation of Getnet ADSs to participant accounts may take up to             business days.

 

If you hold Santander Getnet ADSs in a securities account with a broker or other securities intermediary that is a direct or indirect participant in DTC (a “DTC Participant”), the DTC Participant through which you hold your Santander Brasil ADSs will allocate Getnet ADSs to your securities account the number of whole Getnet ADSs to which you are entitled, and your broker or other securities intermediary will charge your account a fee of U.S.$0.05 per Getnet ADS issued (that will be paid to The Bank of New York Mellon). Please contact your broker or other securities intermediary for further information about your account and when you will be able to begin trading your Getnet ADS.

 

Registered Holders of Santander Brasil ADSs

 

If you are a registered holder of Santander Brasil ADSs on the books of the Santander Brasil ADSs depositary, whether certificated or uncertificated, the Getnet ADS depositary will register the number of whole Getnet ADSs to which you are entitled in your name on an uncertificated basis and will send you a confirmation of that registration and a bill for the fee of U.S.$0.05 per Getnet ADS issued. You will be unable to transfer your Getnet ADSs until you receive this confirmation.

 

Suspension of Issuance and Cancellation of Santander Brasil ADSs

 

The Santander Brasil ADS depositary will suspend the issuance and cancellation of Santander Brasil ADSs from                 , 2021 until                 , 2021. This means that during this time, you will not be able to surrender your Santander Brasil ADSs and receive underlying Santander Brasil units, or deposit your Santander Brasil units and receive Santander Brasil ADSs. However, the closing of the issuance and cancellation books does not impact trading, and you may continue to trade your Santander Brasil ADSs during this period.

 

Treatment of Fractional Shares and Getnet ADSs

 

The fractions of common shares or preferred shares issued by Getnet or of Getnet Units will be segregated and sold in as many auctions as necessary, to be held at B3, with the sales proceeds being made available to the respective owners of the fractions, as per the notice to shareholders to be released in the future. Similarly, the Santander Brasil ADS depositary, DTC and direct and indirect participants in DTC’s system will sell fractional entitlements to Getnet ADSs and distribute the net proceeds to the holders of Santander Brasil ADSs entitled to them.

 

Results of the Spin-Off

 

After the conclusion of the Spin-Off, Getnet will be a stand-alone publicly traded company. Based on                 issued shares of Santander Brasil as of                 , 2021 and the application of the distribution

 

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ratio, Getnet will have                 Units,                 common shares and                 preferred shares issued and outstanding immediately following the Spin-Off. For additional information on the share capital of Getnet following the Spin-Off, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” and “Item 10. Additional Information—A. Share Capital.”

 

The Spin-Off will not affect the number of outstanding Santander Brasil common shares, preferred shares, units or Santander Brasil ADSs or any rights of Santander Brasil’s shareholders or holders of Santander Brasil ADSs.

 

Listing and Trading of Getnet Units, Common and Preferred Shares and the Getnet ADSs

 

As of the date of this registration statement, we are a wholly owned subsidiary of Santander Brasil. Accordingly, no public market for the Getnet Units, common and preferred shares or the Getnet ADSs currently exists. We have applied to list the Getnet Units, common and preferred shares on the basic listing segment of the B3 under the ticker symbol “    .” We intend to apply to list the Getnet ADSs on the Nasdaq under the ticker symbol “    .”

 

We expect that Getnet Units, common and preferred shares will commence trading on a stand-alone basis on the B3 at market open on the Brazilian Distribution Date.

 

We expect that Getnet ADSs will commence “regular-way” trading on a stand-alone basis on the Nasdaq at market open on                 , 2021. In addition, we expect that Getnet ADSs will begin trading on a “when-issued” basis on the Nasdaq from market open on                 , 2021 and continue up to and including the ADR Distribution Date, which we expect to be on or about                 , 2021. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for Getnet ADSs that will be distributed to holders of Santander Brasil ADSs on the ADS Distribution Date. If you own Santander Brasil ADSs as of the close of business on the ADS Record Date, you would be entitled to receive Getnet ADSs in connection with the Spin-Off. You may trade this entitlement to receive Getnet ADSs, without trading the Santander Brasil ADSs you own, in the “when-issued” market. On the first trading day following the ADS Distribution Date, we expect “when-issued” trading with respect to Getnet ADSs will end and “regular-way” trading in Getnet ADSs will begin.

 

In addition, the trading price of the Santander Brasil’s units, common and preferred shares and the Santander Brasil ADSs immediately following the Spin-Off could be lower than immediately prior to the Spin-Off because the trading price will no longer reflect the value of Getnet and its subsidiaries. We cannot provide you with any assurance regarding the price at which the Santander Brasil’s units, common and preferred shares and Santander Brasil ADSs will trade following the Spin-Off.

 

The Getnet ADSs distributed to Santander Brasil ADSs holders will be freely transferable, except for Getnet ADSs received by individuals who are our affiliates. Individuals who may be considered our affiliates after the Spin-Off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for U.S. federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals who are our affiliates will be permitted to sell their Getnet ADSs only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as those afforded by Section 4(a)(1) of the Securities Act or Rule 144 thereunder.

 

Conditions to the Spin-Off

 

We expect that the Spin-Off will be completed in the second half of 2021, provided that the following conditions shall have been satisfied:

 

·the SEC declaring effective, under the Exchange Act, this registration statement, with no stop order in effect or pending before or threatened by the SEC with respect to this registration statement;

 

·the B3 approving the listing of Getnet and the admission of our common shares, preferred shares and Units on the B3;

 

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·the Nasdaq approving the listing of the Getnet ADSs;

 

·conclusion of the Publicly held Company Registration before the CVM and the registration of the Getnet Units, common and preferred shares under the U.S. Securities Exchange Act;

 

·ratification of the Spin-Off by the Brazilian Central Bank; and

 

·no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal or administrative restraint or prohibition preventing consummation of the Spin-Off being in effect, and no other event outside the control of Santander Brasil having occurred or failed to occur that prevents the consummation of the Spin-Off.

 

Santander Brasil and Getnet cannot assure you that any or all of the conditions to the Spin-Off will be met. However, if all such conditions have been satisfied in a timely manner, Santander Brasil will not have the right to subsequently terminate the planned distribution without the approval of its shareholders.

 

Certain Legal and Regulatory Matters

 

Except as otherwise disclosed in this registration statement, we are not aware of any material Brazilian federal or state, or foreign, regulatory requirements with which we must comply in connection with the Spin-Off. Should any such approval or other action be required, we currently contemplate that such approval or other action will be sought. We are unable to predict whether such approval or other action, or steps required to seek such approval or take such other action, may require us to delay the Spin-Off pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that if such approvals were not obtained or such other actions were not taken adverse consequences might not result to Santander Brasil’s or our business or the Spin-Off.

 

Tax Consequences of the Spin-Off

 

See “Item 10. Additional Information—E. Taxation” for more information regarding the material tax consequences of the Spin-Off.

 

Capital Expenditures

 

Our operations require constant investment in equipment and software given the large base of accredited establishments and the need to replace POS devices on an ongoing basis. We also invest on an ongoing basis in (i) maintenance and improvements to security, and (ii) in our fixed assets, including computer equipment, machines, equipment, installations, furniture, fixtures and vehicles utilized at our headquarters and at the headquarters and branches of our subsidiaries.

 

The following table presents our investments in assets to support our operations, improve our systems and other projects for the periods indicated.

 

   For the Six Months Ended June   30,  For the Year Ended December 31,
   2021  2020  2020  2019  2018
   (in millions of R$)
Software, licenses and systems in development (1)    29.1    66.9    92.8    142.1    73.2 
Fixed assets(2)    175.1    103.5    310.2    491.8    221.8 
Total    204.2    170.4    403.0    633.9    295.0 
 
(1)These expenses relate primarily to internal work-hours for the development of our software and related systems. We capitalize expenses that are directly related to the development of software for our own operations, provided that the criteria for recognition are met.

 

(2)Fixed assets includes our consolidated investments in point-of-sale terminals, computers and peripherals, furniture and fixtures, telecommunications equipment and vehicles.

 

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Our capital expenditures in recent years have focused on the following areas: (i) digital platform; (ii) pricing platform; (iii) Superget app; (iv) payment account and prepaid card; (v) advances on receivables platform; and (vi) anti-fraud systems.

 

We have financed our capital expenditures from our results of operations and the use of third-party financing. We have ongoing relationships with leading financial institutions, and we believe we would be able to obtain financing should the need arise. Accordingly, we believe that our sources of financing are adequate given our indebtedness profile and capital expenditure needs.

 

We intend to continue to make capital expenditures in a manner consistent with the above, including investing in new products, computing equipment, machines, equipment, installations and furniture.

 

4B. Business Overview

 

Our Business

 

Overview

 

We are a technology company offering payment solutions to a range of merchants, from large businesses to the small entrepreneurs. Our portfolio of products includes physical solutions, such as SuperGet, POS devices, digital solutions and services. We have our own technology teams, robust infrastructure (including a network operations center, an innovation laboratory and the only data center in Latin America with Tier IV certification). We also hold the key certifications for our industry, including: Visa Pin 2.0, PCI and ISO 9,001, 27,001 and 10,002. We currently process more than three billion payments a year. We are present in over 1.4 million accredited commercial establishments or points of sale, and have administrative offices in São Paulo (state of São Paulo), Porto Alegre (state of Rio Grande do Sul) and Campo Bom (state of Rio Grande do Sul).

 

As of June 30, 2021, we had 2.0 million POS devices and 876,051 clients, according to ABECS, compared to 1.9 million and 891,361, respectively, as of December 31, 2020 according to ABECS, due to the macroeconomic effects of the COVID-19 pandemic which resulted in the closure of commercial establishments which used our services. Our TPV (i.e., the value of payments, net of payment reversals, successfully completed on our payments network — TPV is an operating measure, not a measure of revenue from services and is not included in our statement of income), has grown 64%, from R$111.7 billion in the six months ended June 30, 2020 to R$183.2 billion in the six months ended June 30, 2021, and we achieved a market share of 15.7% of TPV within the acquiring sector in the six months ended June 30, 2021, according to ABECS. Similarly, our TPV increased from R$208 billion in 2019 to R$273.7 billion in 2020, resulting in a market share of 14.9% of TPV within the acquiring sector in the fourth quarter of 2020.

 

We believe that the key to this success has been our ability to offer our customers services by means of an efficient multiservice platform and maximize customer satisfaction by being a “one-stop shop” in which customers can purchase various financial, payment and business process management services in a single place. Our business model will continue to benefit from our relationship with Santander Brasil, which has been one of our main competitive advantages in the merchant acquiring business and a key differentiator from our competitors. Furthermore, we have maintained a competitive advantage by providing a full range of solutions, for both physical and digital channels, to all customers, while our competitors generally focus on niche customer groups (i.e., either large corporate clients, SMEs or micro-entrepreneurs). We believe that this will enable us to continue growing and gaining market share.

 

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The following table provides an overview of certain of our key financial information as of and for the periods indicated.

 

   As of and for the Six Months
Ended June 30
  As of and for the Year Ended December 31
   2021  2020  2019  2018
   (in R$ millions, except as otherwise indicated)
Equity    3,284.9    2,742.9    3,211.8    2,556.7 
Total assets    49,289.7    43,021.7    27,141.1    27,569.7 
Revenue from services    1,259.9    2,320.5    2,662.9    2,231.6 
Gross profit(2)    510.8    894.3    1,576.4    1,333.1 
Net income    188.0    361.0    794.0    692.3 
Number of common shares (excl. treasury shares)    950,718,477    1,866,722,202    1,866,722,202    1,866,722,202 
Number of preferred shares    916,003,725             
                     
Equity value per common share (reais per common share)(1)    3.46    1.47    1.72    1.37 
Basic earnings per share (reais per common share)    0.10    0.19    0.43    0.37 
Diluted earnings per share (reais per common share)    0.11    0.19    0.43    0.37 
 
(1)We calculate equity value per common share as total equity as of the applicable date divided by the total number of common shares as of such date.

 

(2)Our audited consolidated financial statements have been restated to correct a classification error between “Selling, General and Administrative Expenses” and “Costs of services.” The financial information as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 presented in this registration statement is derived from our restated audited consolidated financial statements and reflects the restatement of improperly classified expenses from “Selling, General and Administrative expenses” to “Costs of Services.” See “Presentation of Financial and Other Information—Restatement of Our Audited Consolidated Financial Statements” and note 1 to our audited consolidated financial statements included elsewhere in this registration statement.

 

 

Our Products and Services

 

We are a one-stop-shop offering our merchant clients (including micro-entrepreneurs, large corporate clients and SMEs) a full range of in-store and digital solutions for their business, from payment solutions to business process management, as well as banking and other financial services through our relationship with Santander Brasil. We provide our wide range of services through (i) a Santander Brasil channel to Santander Brasil’s customer base, which will continue to be one of our core distribution channels after the Spin-Off pursuant to arrangements which we are negotiating with Santander Brasil, and (ii) independent channels to customers in the open market, who account for approximately 50% of our current active customer base.

 

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The following image summarizes the products and services we offer:

 

 

Over the past five years, we have developed our products and service to go beyond our acquiring capabilities and become a provider of a wider range of solutions to merchants. Our offering of products and services is designed to support merchants by enabling them to rely on Getnet as a one-stop-shop solution for payments in the physical (brick-and-mortar) and digital environments, as well as financial services. Our offering of payments solutions in the physical and digital environments also includes related, value-added business process management products and services.

 

Physical

 

We believe we offer one of the most complete range of solutions for processing transactions at points of sales. We give merchants access to the most up-to-date solutions, be it with respect to compliance with industry requirements to reliance on the most recent technological developments (e.g., most of our terminals support near field communications, or NFC, the use of QR codes and Brazil’s new PIX instant payments system). Our physical solutions include:

 

·Low-cost terminals for individual entrepreneurs: We offer low-cost terminals for micro-entrepreneurs that make accepting payments by cards a cost-efficient alternative for our customers. To make this solution competitive, we sell these devices at cost.

 

·Mid-range terminals: We also offer stand-alone terminals that can be used by SMEs with a higher transactions volume or even by medium- to large-sized merchants who often use multiple terminals. These terminals can be either sold or rented to merchants.

 

·Digital POS: We provide terminals that use Android-based operating systems, allowing merchants to use other applications alongside our payment application. These applications include our split payment application, which allows merchants to split the settlement of one single card transaction into multiple payments to related third parties (e.g., sellers and service providers). We rent these terminals to merchants. In addition to the MDR for each transaction, we also generate additional revenue by charging merchants for the other services they use through applications.

 

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·Integrated solutions: We provide different types of solutions for larger merchants who need their payment solutions to be integrated with their cash management and other business process systems, including:

 

·Auttar: We offer Auttar’s solutions, which include libraries, plug-ins and software development kits, or SDKs, that can be integrated into merchants’ cash register systems to process card transactions in compliance with industry rules. This allows merchants to accept payments at their points of sale easily while retaining control of the transaction as a result of the integration with the merchant’s management systems. Auttar’s services are charged separately from our acquiring services.

 

·Pin-pad terminals: These terminals can either be used in combination with Auttar’s solutions or with any other solution used by merchants to connect with us. We rent these terminals to merchants and also provide technical support.

 

Digital

 

We have developed our own digital platform including all the functionalities offered by the main global payment service providers. We believe that this allows merchants to rely on Getnet as their single provider when it comes to digital payments. The range of functionalities we offer enables merchants to accept digital payments while managing all the significant aspects of these transactions, including fraud management and payment reconciliation, for example. The main components of this digital platform are the following:

 

·Integration methods: We offer advanced integration methods allowing merchants of all sizes and from all types of businesses to easily integrate payment acceptance methods into their sales process management systems, including application programming interfaces, or APIs, SDKs and iFrame checkouts. We make all the relevant information regarding these integration methods available on our developers portal. In addition, we have a specialized implementation team focused on supporting merchants that are going through the implementation and certification process to make sure that they benefit as much as possible from our solutions.

 

·Fraud-management tool: We offer merchants a complete fraud prevention service, which includes a range of different tools managed by our team of experts. We are continuously seeking to improve the performance of the fraud-management tool based on models developed and updated using machine learning capabilities.

 

·Card vault: We offer solutions enabling merchants to safely store customer card credentials in a digital “card vault,” thereby improving customer experience. This type of solution is fundamental for online sales but can be difficult and costly for merchants to put in place given the need to protect customers’ sensitive information. By using our services, merchants of all sizes can improve customer experience without having to face by themselves the operational and technical challenges of storing sensitive data in compliance with all industry requirements and applicable laws.

 

·Recurring engine: The adoption of subscription business models (e.g., online services, buyers’ clubs and insurance) has been an important trend for online businesses. We have developed a recurring engine (i.e. an application which manages a recurring process, such as a subscription) that allows merchants to transfer to us the burden of managing subscription plans for each one of their customers, allowing them to focus on their businesses.

 

·Split payments: Many different businesses, such as marketplaces, restaurants, medical clinics and beauty parlors, among others, face the challenge of passing on funds received in transactions to business partners, suppliers, service providers or other types of third parties in a fully compliant and automated manner. We have developed a split payment solution that allows merchants to determine at the time they charge the final customer how the amount charged is to be divided among each one of the third parties involved in providing the product or service.

 

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·Online store: Our online store is a solution that allows merchants that are starting their online operations to easily set up an online store capable of accepting payments through our systems. While most market solutions will require the merchant to first select an online store platform and only afterward set up a digital payment acceptance system through a different provider, we offer merchants an integrated solution.

 

·GetPay: GetPay allows merchants to send a link to customers through various channels, such as email, WhatsApp or Instagram. The link redirects customers to a secure checkout where they can finish the transaction by providing their payment details, which are then processed through Getnet’s payments system.

 

·Getdata: We also provide a market intelligence solution used for business management and decision-making purposes. This solution enables businesses to access market information relating to comparable companies in specified geographies, leveraging Getnet’s extensive merchant sales data as well as data from third parties such as Mastercard.

 

·Support to alternative payment methods: Through our digital platform, merchants can process not only card transactions but also some of the main alternative payment methods in Brazil such as boletos (payment slips), transactions using Brazil’s new PIX instant payments system and electronic wallets, or e-wallets.

 

Financial Services

 

We also provide a range of financial services through our platform, including:

 

·Prepayment and advanced settlement: In Brazil, credit card transactions are typically settled 30 days from the date on which the transaction occurred. In Brazil it is relatively common for transactions to be settled in installments and, in certain industries, over 60% of transactions are settled in installments, according to ABECS. As a result, merchants often have to wait for several weeks, and in certain cases up to a year, for a transaction to be settled in full. Given these characteristics of the Brazilian market, providing merchants with the means of receiving the payments due on their card receivables early is fundamental. We offer these solutions to merchants in the following formats:

 

·Spot operations: Merchants can request, on a case-by-case basis, to have all or part of their receivables paid upfront at a negotiated discount rate.

 

·Automatic operations: We give merchants the option of putting in place automatic early payment. For example, merchants can opt to have all their credit card transactions from the previous day automatically settled in advance at a predetermined and contractually agreed discount rate. This discount rate is reviewed from time to time based on prevailing market interest rates.

 

·Reduced settlement delay (RecebaJá): We also offer merchants the option of settling all of their transactions in a time frame of their choosing.

 

·Prepaid card and account: We offer merchants the option of receiving funds in a Superget account linked to a prepaid card. This allows merchants to rely solely on Getnet for all their financial needs, including both inward and outward payments. Through the Superget app, merchants can easily manage their account and conduct a variety of transactions such as paying bills, making wire payments and managing their expenses on the prepaid card. This is a solution designed for small merchants, and we believe it has in important role in helping the unbanked population access financial services.

 

·Merchant financing: We are in the process of building our own ability to extend credit in order to be able to provide financing to SMEs and individuals. We believe our position in the market allows us to understand the financial condition of potential borrowers and accurately assess their creditworthiness, thereby mitigating the risks involved in these transactions.

 

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Our Distribution Channels

 

We distribute our products and services through the following channels:

 

·Santander Brasil Channel: Our products and services are distributed through Santander Brasil’s infrastructure to Santander Brasil’s customer base. For example, we have approximately 110 sales desks in Santander Brasil branches throughout Brazil. After the conclusion of the Spin-Off, we will enter into agreements with Santander Brasil pursuant to which we will continue to have access to Santander Brasil’s distribution channels in exchange for a fee charged by Santander Brasil. The Santander Brasil channel accounted for 92% of our total revenues for the six months ended June 30, 2021, and 92% of our total revenues for the year ended December 31, 2020.

 

·Independent Channels: Our independent channels accounted for 6% of our total revenues for the six months ended June 30, 2021, and 7% of our total revenues for the year ended December 31, 2020. These include:

 

·E-commerce: This independent channel accounted for 78% of our independent channel revenues for the six months ended June 30, 2021, and 77% of our independent channel revenues for the year ended December 31, 2020 and includes a broad range of solutions we offer in a digital format, such as the services we offer to SMEs and micro-entrepreneurs as described under “—Our Products and Services—Digital.”

 

·Sales force: We have a sales force comprising our own employees, which accounted for 16% of our total revenues for the six months ended June 30, 2021, and 15% of our total revenues for the year ended December 31, 2020.

 

·Partnerships: We enter into partnerships with companies (such as Hinode) and banks (such as Original and Pine), through which we are able to offer our multiservice platform to our partners’ business associates and customers. This channel accounted for 6% of our total revenues for the six months ended June 30, 2021, and 8% of our total revenues for the year ended December 31, 2020.

 

In the six months ended June 30, 2021, we invested R$93 million in independent channels, compared to R$97 million in the six months ended December 31, 2020 and R$82 million in the six months ended June 30, 2020. We believe that investment in independent channels to access Brazil’s estimated 30 million micro-entrepreneurs will be a driver of future growth. We note that as of June 30, 2021 we had approximately 225,000 active clients from our independent channels, and that micro-entrepreneur clients within our independent channels have a “take rate” (which is the aggregate of the MDR plus any related POS rental income and prepayment financing fees as a percentage of the merchant’s total sales processed by us) of 2.38%.

 

Our Clients

 

We tailor our products and services to the needs of our clients, which include:

 

·Large Corporate Clients: These are companies with annual revenues in excess of R$200 million, who are looking for both physical and digital payment solutions, as well as business process management software. These clients accounted for 17% of our revenues for the six months ended June 30, 2021, and 17% of our revenues in the year ended December 31, 2020.

 

·SMEs: These are small- and medium-sized enterprises with annual revenues between R$0.3 million and R$200 million, who seek both physical and digital solutions. In addition, SMEs often wish to have access to credit lines. These clients accounted for 78% of our revenues for the six

 

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months ended June 30, 2021, and 70% of our revenues in the year ended December 31, 2020. The following chart sets out the number of active SME clients for the periods indicated:

 

SMEs Active Clients
(in thousands)

 

 

·Micro-entrepreneurs: These are businesses whose annual revenues are less than R$0.3 million. Micro-entrepreneurs are our smallest, “long-tail” customers. They typically conduct smaller transactions within the merchant acquiring industry. These clients accounted for 5% of our revenues for the six months ended June 30, 2021, and 13% of our revenues in the year ended December 31, 2020. The following chart sets out the number of active micro-entrepreneur clients for the periods indicated:

 

Micro-Entrepreneur (Long-Tail) Active Clients
(in thousands)

 

 

We believe that our integrated distribution strategy with Santander Brasil, including cross-selling of our products and services by Santander Brasil, has enabled us to expand our client base by attracting new customers throughout recent years, leading to significant growth in terms of total payment volume, as illustrated in the following chart:

 

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Total Payments Volume(1) (in billions of reais

Client Base (in thousands of active clients(2)) 

 
(1)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and is not included in our statement of income.

 

(2)An active client is a client that makes at least one transaction within any given 90-day period.

 

Our Business Model

 

We generate revenue based on fees charged for each of the services we provide. These fees mainly include (i) payment processing fees related to transaction activities and other services, typically charged as a percentage of the transaction amount or as a fixed amount per transaction; (ii) financial income related to prepayment financing fees; and (iii) subscription and equipment rental fees. As part of our goal to diversify our sources of revenues, we also provide non-payment services. These services mainly include our value-added services mentioned under “—Our Products and Services.” Our “take rate” (which is the aggregate of the MDR plus any related POS rental income and prepayment financing fees as a percentage of the merchant’s total sales processed by us) during the six months ended June 30, 2021 was 0.7% compared to 1.0% during the six months ended June 30, 2020, and during year ended December 31, 2020 was 0.9% compared to 1.3% in the year ended December 31, 2019.

 

The merchant acquiring market has recently experienced a significant reduction in margins due to a significant increase in competition, in addition to the incentives and subsidies offered due to the COVID-19 pandemic that strongly affected the sector, and forced the market to reduce revenues in order to preserve the financial health of its customers and therefore its active base. We expect that this pressure on margins will diminish in the retail sector in the short term but that the already tight margins in the wholesale sector will not tighten further.

 

We have focused on putting a business model in place that offers a complete range of solutions for our corporate, SME and long-tail merchant customers (micro-entrepreneurs). We have structured our business model around two key competitive differentiators: (i) providing services that combine efficiency, innovation and quality, excellence and speed of service, and (ii) an increasingly digital model. We endeavor to provide all customers with the most accessible and useful solutions, regardless of our customers’ size and individual objectives, while seeking to achieve a degree of balance between retail customers and wholesale customers.

 

Our business model is disruptive and has enabled us to grow significantly. Our market share based on TPV, as reported by ABECS, increased from 7.1% of the acquiring market in 2014 to 14.9% in 2020. In 2020, we registered almost 800,000 new clients (an average of 70,000 per month) to achieve a total active client base of approximately 891,361 as of December 2020 (compared to 771,079, 506,156, 499,706, 418,469 and 355,826 as of December 2019, 2018, 2017, 2016 and 2015, respectively). Our increases in market share and strong operational performance have supported our financial results. In the six months ended June 30, 2021 and the fiscal year ended December 31, 2020, our TPV was R$183.2 billion and R$273.7 billion, respectively (TPV is the value of payments, net of payment reversals, successfully completed on our payments network — TPV is an operating measure, not a measure of revenue from services and is not included in our statement of income). In the six months ended June 30, 2021 we recorded net income of R$188.0 million, EBITDA of R$450.6 million, and net income and EBITDA margins of 14.9% and 35.8%, respectively. In the fiscal year ended December 31, 2020, we recorded a net

 

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income of R$361 million, EBITDA of R$812.2 million, as well as and net income and EBITDA margins of 15.6% and 35.0%, respectively. Our business model will continue to benefit from our relationship with Santander Brasil, which has been one of our main competitive advantages in the merchant acquiring business and a key differentiator from our competitors. We believe that, together with Santander Brasil, we have been able to integrate the banking and merchant acquiring businesses to an extent not matched by any of our competitors.

 

Our relationship with Santander Brasil is mutually beneficial and will not change significantly after the Spin-Off. While we continue to capitalize on the synergies between both businesses, we will continue to operate on an independent basis from Santander Brasil going forward. On the one hand, we benefit from the ability to offer Santander Brasil’s banking solutions to our clients, which has enabled us to optimize our gains of scale and access to more efficient services. On the other hand, customers acquired for us and Santander Brasil have been approximately five times more profitable for Santander Brasil than Santander Brasil’s average customers alone over the last five years, due to customer retention resulting from our multi-platform approach. Following the Spin-Off, we will pay Santander Brasil a commission for clients they generate for us and Santander Brasil will start paying us a commission for clients we originate for them.

 

Our Strengths

 

A True One-Stop-Shop in the Brazilian Payments Sector

 

Since our acquisition by Santander Brasil in 2014, we have expanded our portfolio of products and services along with our digital platform in order to become a one-stop-shop and multiservice platform. We offer a wide range of solutions to our brick-and-mortar and digital customers in all segments. Conversely, certain our competitors have niche positioning among clients, which we believe limits their capabilities in terms of capturing market growth. Our offering is designed to provide a full suite of payments and business process services to a broad range of client types, from large corporate clients and SMEs (traditional acquiring) to micro-entrepreneurs, for which we endeavor to find tailored solutions.

 

Healthy Client Mix and Strong Revenue Diversification

 

Our business model has been structured around innovation and quality as key competitive differentiators, while seeking to achieve a solid client mix, as illustrated in the graph below, and a strong revenue diversification. Our total revenue consists of: (i) payment processing fees, which accounted for approximately 49% and 47% of our revenue in the six months ended June 30, 2021 and the year ended December 31, 2020, respectively; (ii) prepayment of receivables, which accounted for 26% and 26% of our revenue in the six months ended June 30, 2021 and the year ended December 31, 2020, respectively; (iii) rental fees, which accounted for 21% and 23% of our revenue in the six months ended June 30, 2021 and the year ended December 31, 2020, respectively; and (iv) value-added services, which accounted for 4% and 4% of our revenue in the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

 

TPV(1) Mix

 

 

 
(1)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and is not included in our statement of income.

 

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The table below illustrates the share of our TPV accounted for by each of the segments presented for the two months indicated, i.e. February 2020, which is immediately prior to the COVID-19 pandemic and April 2021 which is immediately after the most acute phase of the COVID-19 pandemic in Brazil:

 

   February 2020  April
2021
Retail Segments (Percentage of Getnet’s TPV(1))          
Restaurants, bars, hotels and airlines    13%   4%
Gas stations   18%   14%
Education    5%   1%
 
(1)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and is not included in our statement of income.

 

Digital Culture of Getnet

 

Our culture is driven by digitalization. Digital innovation has become a priority for us due to the significant growth of e-commerce in Brazil in recent years, which we expect will continue in the coming years. As an example, in the six months ended June 30, 2021, our total TPV from e-commerce amounted to R$45 billion and accounted for approximately 24.6% of our total TPV (compared to R$23 billion or 20.6% of our total TPV in the six months ended June 30, 2020). Similarly, in the year ended December 31, 2020 our total TPV from e-commerce amounted to R$60 billion and accounted for approximately 21.2% of our total TPV (compared to R$21 billion or 10.1% of our total TPV in the year ended December 31, 2019, and R$16 billion or 8.5% of our total TPV in the year ended December 31, 2018). TPV is an operating measure. TPV is not a measure of revenue from services and is not included in our statement of income. In addition, in the six months ended June 30, 2021 there were 53,000 digital stores which we helped our customers create, an increase compared to 9,000 digital stores in the six months ended June 30, 2020. Similarly, we estimate our market share in the Brazilian digital payments market has been growing, from 13% in 2019 to 27% in 2020 and 33% in the first five months of 2021 (according to data from the Brazilian federal revenue service).

 

Before 2017, we relied on third-party providers to serve merchants in the e-commerce market, but given changes in customer behavior and the growth of e-commerce, performing digital operations has become a fundamental tool to maximize growth and gain scale. We therefore began developing a new digital platform both organically and through acquisitions. In 2018, we expanded our portfolio with new products, such as fraud management services. In 2019, our priority was to invest in our e-commerce products for long-tail clients, offering solutions such as a digital marketplace, a digital store and a digital POS. Finally, in 2020, we acquired Minestore, which we believe will enable us to develop a subscription-based revenue model, rather than charging our customers on a per-service basis. We also began integrating PIX (a Brazilian governmental instant payments system) and GetPay Link, among others, to complete our digital portfolio. Going forward, our focus will be on expanding our portfolio of digital products and services and capitalizing on the investments we have made in this area.

 

The increasing prevalence of e-commerce in Brazil has allowed us to broaden our digital solutions portfolio and develop as a multiservice platform, while also making the customer experience simpler and more efficient. The range of services that we provide on a digital basis is wider than the range of services we provide to customers who solely own a physical POS device. We believe that this gap will continue to expand as the e-commerce segment keeps growing, and that our strategy of digitalization will put in a favorable position to make the most of this industry trend.

 

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Well Positioned to Benefit from a Large and Attractive Market

 

We believe that we are well positioned in Brazil to benefit from our ability to offer a wide range of services to clients beyond our core merchant acquiring activities:

 

·Banking: We endeavor to provide a range of basic banking services to our customers, including the opportunity to open a bank account with Santander Brasil, the Superget account (which is a digital account for SMEs consisting of a simplified account allowing merchants to have a prepaid card and receive payments), prepaid cards and other products and services.

 

·Acquiring: We are already one of the market leaders, having increased our market share from 11.5% in 2019 to 14.9% in December 2020 and 15.7% in the six months ended June 30, 2021.

 

·Credit: By means of a strategic partnership with Santander Brasil, we provide our customers prepayment of receivables, working capital lines of credit and secured personal lines of credit for smaller customers. In the future we may provide these services directly, pursuant to our recently granted license to operate as a direct credit corporation (sociedade de crédito direto).

 

·Software: we endeavor to provide software services that are complementary to our core payment-related services.

 

Updated Solutions Platform

 

We believe that our sector-based solutions platform is the most updated and complete in Brazil. In the last years, we focused our investments in our e-commerce offering, such as the recently announced investments in PIX, Auttar, credit and Minestore, in order to keep up to date with new developments and market trends. These investments in our digital platform, along with our solutions portfolio, have driven our transition into a true one-stop-shop for our customers.

 

Efficient Cost Structure

 

We believe we had the one of the lowest costs per transaction in the Brazilian market in 2020, based on the data available to us (which consists of financial information disclosed to the market by our main competitors). In the six months ended June 30, 2021, and in 2020, we had a cost per transaction, which we calculate as our total transaction expenses divided by the total number of transactions processed, of R$0.28 and R$0.37, respectively, which we believe puts us in a favorable position to thrive in the Brazilian market despite the intense competition and pressure on margins, which it has experienced in recent years. Our low cost per transaction is due to:

 

·Our emphasis on efficiency. We have redesigned all of our internal processes, while keeping our infrastructure up to date, in order to be able to gain scale while maintaining an efficient cost structure.

 

·Our ability to negotiate favorable prices with our suppliers, due to the scale we have gained as a result of our investments in digital tools and our broad portfolio of products and services.

 

The following chart sets out our total number of transactions and cost per transaction for the periods indicated:

 

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Total Transactions (in millions) and Cost per Transaction (in R$)

 

 

Our Strategy

 

Our culture is focused on our customers. Our primary mission has always been, and will continue to be, assisting our customers in growing their businesses and managing their day-to-day operations more effectively. For this purpose, our focus in the last years has been to create a one-stop-shop for our customers, allowing them to have access to all the solutions they require, from banking to payments to business process services. We believe this makes us integral to our customers’ endeavors to achieve their business goals. After years of continuous investments and improvements, customers have access to the most modern technology and innovative solutions in the market. We plan to grow our business by means of the strategies listed below.

 

Expanding Digital Products Offering and Monetizing Investments

 

We intend to build on our completely new digital platform in order to grow within the e-commerce segment, which has become the fastest-growing payments channel due to the adoption of new technologies and the impact of these technologies on customer behavior. We intend to continue to be innovative and adapt to future changes in customer behavior, both organically and through acquisitions or partnerships where appropriate, in order to best capture all possible market growth. In the short term, our strategy will consider, among others, the following solutions:

 

·Auttar: A multi-channel solution that simplifies the integration of business automation and payment services. We believe that this solution combines a good user experience with features giving merchants control over the sale process. Combined with business automation, Auttar enables us to deliver segment-specific solutions, including to restaurants, beauty shops and gas stations. In the six months ended June 30, 2021, Auttar added 4,000 new customers, had revenue of R$15 million, and had 28,000 POS devices in operation, in comparison to 15,000 in the six months ended June 30, 2020, as illustrated in the chart below. In 2020, Auttar added 8,000 new customers, had revenue of R$26 million, and had 24,000 POS devices in operation, in comparison to 12,000 and 10,000, respectively, in 2019 and 2018, as illustrated in the chart below. Our strategy is to differentiate Auttar by means of software customization services. We believe that Auttar’s success in the near future will be supported by its cloud-based solutions, ability to produce software, our expectation to expand the customer base of Auttar beyond large institutions and excellence in customer service.

 

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POS Devices in Operation (*)
(in thousands)

 

 

 

 

·Credit: We intend to start providing credit solutions for external customers that do not wish to become customers of Santander Brasil, which will also create opportunities to build our own customer base, independent from Santander Brasil’s. We intend to extend credit to our micro-entrepreneur and SME clients, including credit secured by receivables owed to other payment services providers. We are also planning to automate this process, while gaining experience and evaluating our competitors’ practices in this segment, in order to maintain a competitive advantage. For this purpose, we have been granted a license from the Brazilian Central Bank to operate as a direct credit corporation (sociedade de crédito direto), which will enable us to provide credit to our customers through our platform.

 

·PIX: In 2020, the Brazilian Central Bank launched an instant payments solution named PIX. Our strategy is to implement PIX across all our channels. With respect to the use of PIX, we are planning to differentiate ourselves from our competitors by means of the following solutions:

 

·PIX Facilitator: a simplified way for merchants to use PIX.

 

·PIX Acceptance Hub: a payment service for merchants and other players.

 

·PIX Reconciliation Tool: a tool that provides merchants with control over their flow of receivables and settlement and the ability to reconcile these with their other accounting records. This gives merchants a complete view of terms, values, bank domicile (“domicilio bancario”), payers, as well as the identification and registration of PIX data for their transactions.

 

Maintaining a Competitive Advantage in Terms of Efficiency

 

We believe we have had a competitive advantage with respect to our competitors due to our low cost per transaction. In the six months ended June 30, 2021, and in 2020, we had a cost per transaction of R$0.28 and R$0.37, respectively, which we believe, based on the data available to us (which consists of financial information disclosed to the market by our main competitors), is lower than that of our main competitors. We believe that this competitive advantage is significant given the increase in competition in recent years, with new players capturing growth and gaining market share from more traditional players. We believe that maintaining a low cost per transaction within the sector will allow us to be more competitive in terms of pricing, allowing us to capture as much of the growth in the market as possible.

 

Maintaining a Relationship with Santander Brasil While Growing External Acquiring Channels

 

We believe our success is also due to our flexible relationship with Santander Brasil. This is a two-way relationship from which both parties benefit. Our strategy in this regard will remain the same in the coming years after the Spin-Off.

 

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Furthermore, we will also focus on building new independent channels in order to reduce our dependence on Santander Brasil and to position ourselves to grow in the coming years.

 

Becoming a Main Pillar Within PagoNxt

 

Following the Spin-Off, we will operate as the Brazilian leg and regional acquirer of the Santander Group’s PagoNxt merchant solutions. PagoNxt is a strategic initiative that seeks to promote sustainable and profitable growth by integrating various payment solutions for businesses and consumers using the latest technology. While it is part of the Santander Group, which has more than 160 years of banking experience and 149 million customers worldwide, PagoNxt is also an autonomous fintech focused on the digital payments market. Headquartered in Madrid, Spain, with a presence in 14 countries and a team of 1,700 payment experts and developers worldwide, with an extra 1,200 external developers, PagoNxt delivers its value proposition to more than 1.1 million merchants and 300,000 international SMEs and corporate customers worldwide, and over 600,000 consumers. The PagoNxt brand is the umbrella under which Santander Group will unify its various payments solutions, in order to help it to compete better, both with fintechs and large digital platforms, such as other banks, in these kinds of essential services for customers.

 

PagoNxt is an autonomous company within the Santander Group. Through its three lines of business, namely merchant solutions for businesses, trade solutions for international trade and consumer solutions for consumers, it provides solutions not only to banking clients of the Santander Group but also to third-party customers, financial institutions and fintechs. PagoNxt provides:

 

·Merchant Solutions: PagoNxt’s goal is to build a global, open merchant payment platform and consolidate the Santander Group’s leadership position in this regard. This line of business includes PagoNxt merchant solutions, which drives the global expansion of Getnet, which has more than 1.1 million merchants and is at the core of PagoNxt’s merchant strategy. It will also give merchants a unique experience, including additional value-added services.

 

·Trade Solutions: PagoNxt’s vision is to deliver fast and efficient trade finance, supply chain and international payments, and foreign exchange payments solutions for international SMEs and corporates that were once only accessible to large corporations. At the heart of PagoNxt’s trade strategy are Ebury, and Payments Hub.

 

·Consumer Solutions: PagoNxt’s aim is to deliver simple, highly engaging payment solutions for individuals, which are intended to become embedded in our customers’ daily lives. These include among others Superdigital, the inclusive-finance proposition already available in Brazil, Chile and Mexico.

 

As a business within PagoNxt, we expect to benefit from additional reliability and scalability to our business, and from two-sided networks with PagoNxt’s trade and consumer solutions business. This would allow us to leverage key capabilities, products, value added services, processing critical mass and state of the art platform architecture towards a global single platform.

 

Following the completion of the Spin-Off, Santander Spain will hold 89.93% of the total capital stock of Getnet. This interest will be held indirectly through two of Santander Spain’s subsidiaries: Grupo Empresarial Santander, S.L., or “GES,” which will have a 42.43% interest in Getnet and Sterrebeeck B.V., or “Sterrebeeck,” which will have a 47.46% interest in Getnet. The remaining 10.07% of Getnet’s capital stock will be in free float on the B3 and Nasdaq. It is proposed that following the completion of the Spin-Off, the Santander Group will conduct the following intragroup transactions as a result of which PagoNxt Merchant Solutions, S.L., or “PMS,” an indirect subsidiary of Santander Spain held through PagoNxt, S.L., or “PNSL,” will become the principal shareholder of Getnet:

 

·Sterrebeeck will split off its 47.46% interest in Getnet to PMS, and (in exchange for this interest) PMS will increase its share capital and issue new shares to Sterrebeeck’s sole shareholder,

 

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Santander Spain. Upon completion of the Sterrebeeck split-off, Santander Spain will contribute its shares in PMS to PNSL.

 

·GES will split off its 42.43% interest in Getnet to PMS, and (in exchange for this interest) PMS will increase its share capital and issue new shares to the shareholders of GES, i.e., Santander Spain, Santander Investment S.A., or “SISA,” and Santander Investment 1 S.A.U., or “SI1,” pro rata to their respective interests in GES. Upon completion of the GES split-off, Santander Spain will contribute its shares in PMS to PNSL, and SISA and SI1 will transfer their shares in PMS to PNSL.

 

Our Markets

 

Market Overview

 

According to the World Payments Report 2019, Brazil is the fifth largest market in the world for non-cash transaction volumes, with a growing payments market despite macroeconomic instability. According to the World Bank, during Brazil’s most recent economic recession, from 2016 to 2020, nominal GDP grew at a compound annual growth rate, or “CAGR,” of 4.1%. During the same period, electronic payments volume grew at a CAGR of 15.1%, according to ABECS.

 

Despite Brazil’s large territory and population, the payments market in the country remains underexplored when compared to other more mature economies, such as the United States and the United Kingdom, as summarized below:

 

·According to the World Bank and ABECS, card payments accounted for 28.4% of total household consumption in Brazil in 2016. This percentage is lower than comparable measures of 46.0% and 68.6%, respectively, in the United States and the United Kingdom, during the same period, according to data from the World Bank and the Bank for International Settlements, or “BIS.”

 

·According to the World Bank, just 27.0% of the Brazilian population aged 15 and above had a credit card in 2017, compared to 65.6% and 65.4% in the United States and United Kingdom, respectively.

 

·We believe Brazil presents a significant growth opportunity for digital payments when compared to more mature economies. According to the World Bank, in 2017, 17.6% of the Brazilian population aged 15 and above had either used the internet to pay bills or to make online purchases during the previous year, compared to 77.2% in the United States and 80.7% in the United Kingdom.

 

Cards Payments as % of Household Consumption – %

 

 

 

Source: World Bank, ABECS and Bank for International Settlements

 

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Card Ownership in 2017 – %
(population above 15 years old)

 

 

 

Source: World Bank

 

Online Payments Usage in 2017 – %
(used the internet to pay bills or made online purchases, population above 15 years old)

 

 

 

Source: World Bank

 

The volume of transactions carried out using payment cards in the Brazilian market increased from R$1.8 trillion in 2019 to a total of R$2.0 trillion in 2020, according to data provided by ABECS.

 

TPV(1) – R$ trillion

 

 

 

Source: ABECS

 

(1)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and is not included in our statement of income.

 

During the course of the last decade, cards have become the most significant payment method in Brazil, and the volume of payments transacted by payment cards has tripled during this period. Cash payments doubled during the same period while payments made by checks decreased.

 

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10-Year Evolution of Payment Methods – R$ billion

 

2009 

2019 

 

Source: ABECS

 

The e-commerce sector is also going through a period of significant growth period due to the growing number of internet users generally, the increase in the number of e-consumers, the changes in consumer behavior which favor the use of online purchases, and the continued diversification of the range of products available online. The total sales amount within the e-commerce sector in Brazil increased from R$75 billion in the first half of 2019 to R$132 billion in the second half of 2020, as illustrated in the chart below:

 

E-Commerce Total Sales – R$ billion

 

 

 

Source: Brazilian Federal Revenue Service.

 

Despite the growth of e-commerce in Brazil in recent years, online retail sales are still low when compared to other countries. The chart below illustrates the portion of total retail revenue accounted for by e-commerce in selected countries:

 

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Source: Business.com, 2020

 

According to data from the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatistica), or “IBGE,” published in March 2020, Brazilian GDP increased by 1.1% in 2019 and contracted by 3.8% in 2020. Household consumption increased by 1.8% in 2019 and decreased by 5.5% in 2020 according to the IBGE. We believe that the growth in Brazilian GDP and household consumption directly contributed to the growth in electronic and card payments in Brazil, as a consequence of which TPV has grown at a faster pace than Brazilian real GDP, as illustrated by the charts below:

 

Brazil’s GDP – R$ trillion

 

 

 

Source: IBGE

 

TPV(1) as a Percentage of GDP – %

 

 

 

Source: ABECS and IBGE

 

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(1)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and our TPV is not included in our statement of income.

 

TPV(1) and GDP Growth – market price – %

 

 

 

Source: ABECS and IBGE

 

(1)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and our TPV is not included in our statement of income.

 

Brazil’s Household Consumption Evolution – R$ billion

 

 

 

Source: IBGE

 

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TPV(1) as a Percentage of Brazil’s Household Consumption Evolution – %

 

 

 

Source: ABECS and IBGE

 

(1)TPV is the value of payments, net of payment reversals, successfully completed on our payments network. TPV is an operating measure. TPV is not a measure of revenue from services and our TPV is not included in our statement of income.

 

New Markets

 

As we expand our capabilities to offer additional solutions to merchants, we plan to enter into new markets in Brazil, such as banking, credit, software and other services, as detailed below:

 

Credit

 

The high rates of economic growth which Brazil experienced in the early 2000s benefited the Brazilian population, especially the lower income sections of the population. As per capita income increased, demand from the low-income segment of the Brazilian population for banking services, such as savings accounts, checking accounts, payment services, investment accounts, collection services and credit products, increased markedly.

 

The credit market in Brazil has shown consistent growth in terms of supply and demand as well as in the volume of credit. Among others measures that have favored this process and facilitated the increase in credit supply in Brazil are efforts from the Brazilian government to make the rules for granting subsidized credit more transparent in order to reduce bank spreads.

 

In December 2019, according to the Brazilian Central Bank, total credit transactions amounted to R$3,478 billion, of which R$2,018 billion were accounted for by individual loans and R$1,461 billion by corporate loans. Between 2012 and 2019, loans to individuals and corporate grew 9.4% and 1.8% annually, respectively (on average). The charts below illustrate the total credit balance in Brazil and its penetration in the country’s GDP for the periods indicated:

 

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Credit Balance – R$ billion

 

 

 

Source: Brazilian Central Bank

 

Credit penetration over GDP – %

 

 

 

Source: Brazilian Central Bank

 

Software

 

By the end of 2020 the Brazilian information technology, or “IT,” market amounted to approximately U.S.$49.5 billion, considering the markets of software, services, hardware and including exports, as shown in the following figure:

 

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IT Investments in Brazil in 2020 – U.S.$ billion

 

 

 

Source: ABES Software

 

Our Ecosystem

 

Our ecosystem includes a wide range of parties whom we serve, partner with and compete against. These parties include:

 

Consumers: According to the IBGE, there were 211.7 million people in Brazil in 2020, of which 167.6 million were aged 15 years or older. In 2019, Brazil received 6.4 million foreign visitors, according to the Brazilian Ministry of Tourism.

 

Merchants: In 2020, there were 19.2 million total businesses in Brazil that are relevant for the electronic payments market, according to the Brazilian Supporting Service for Micro and Small Companies (Serviço de Apoio às Micro e Pequenas Empresas), or “SEBRAE.” SEBRAE categorizes businesses according to their annual gross revenues:

 

·Individual Micro-Business and Micro-Business: Individual micro-businesses are those with annual gross revenues under R$60,000.00, while micro-businesses are those with annual gross revenues up to R$360,000.00. There were approximately 16.4 million micro-businesses (including individual micro-businesses) in Brazil in 2020 according to SEBRAE. Most of these micro-merchants either have small operations or do not have storefronts. These merchants are increasingly adopting low-cost electronic commerce applications provided through mobile devices, or “mPOS,” which are being offered by a growing number of acquirers because of their easy development and deployment.

 

·Small Businesses, or SB: Small businesses are businesses with annual gross revenues between R$360,000.00 and R$3.6 million. There were approximately 897 thousand SBs in Brazil in 2020 according to SEBRAE. Most of these SB merchants conduct their businesses primarily in brick-and-mortar storefronts and are increasingly adopting e-commerce and mobile channels to sell products.

 

·Others: Other merchants include medium and large businesses with annual gross revenues over R$3.6 million. There were approximately 1.9 million large and medium businesses in Brazil in 2020 according to SEBRAE. The majority of these are large merchants that use in-store, online and mobile channels to conduct their businesses.

 

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POS Vendors: These are hardware and software vendors, such as VeriFone, Ingenico, PAX and Gertec, which develop and sell point-of-sale terminals to financial institutions, payment processors and large merchants.

 

Software Vendors: These are software developers who create a range of software solutions that merchants use in point-of-sale and in back-office functions.

 

·Point-of-Sale Software. This is software which helps merchants manage their commercial transactions with consumers;

 

·Business Automation Software. This is software which helps merchants manage their daily front-office operations, including transaction ordering, reservations, fulfillment, customer relationship management and inventory management; and

 

·Enterprise Resource Planning Software. This is software which helps merchants manage their back-office functions, such as financial reporting, data reconciliation, payroll, accounting and supply chain management.

 

Payment Processors: These are financial technology vendors that provide services to facilitate the acceptance, routing, processing, encryption, decryption, clearing and settlement of electronic commercial transactions, and provide the necessary customer support to maintain service and technology. These include:

 

·Merchant Acquirers. Licensed firms contracted by merchants to provide them with payment acceptance solutions and technology, facilitating the processing, clearing and settlement of each electronic transaction. There are different types of merchant acquirers in Brazil, including bank-owned acquirers, such as Rede, bank-controlled acquirers, such as Cielo, and independent merchant acquirers, such as Stone.

 

·Payment Service Providers, or PSPs. Firms contracted by merchants to provide payment acceptance solutions. These companies typically focus on selling through online or mobile channels and provide a front-end customer interface solution. PSPs also partner with licensed merchant acquirers to assist processing, clearing and settlement of each transaction.

 

·Networks. Companies that create rules and standards and provide transaction routing or switching services to facilitate transactions between financial institutions across different ecosystems and geographies. These include global brands such as Visa, Mastercard and American Express, as well as local brands such as Elo and Hipercard.

 

Financial Institutions: Banking institutions that provide funding and distribution services to us.

 

Key Market Trends

 

There are various important trends that impact the growth and market opportunity for the payments industry in Brazil. These include:

 

User Experience, or UX. As competition increases and services offered in the sector become broader, UX becomes one of the most important pillars of success. The capacity of offering a seamless, instant and personalized experience to clients is a differentiating factor and a positioning strategy in the payment sector in Brazil.

 

Open Platform. Players in the payment and banking sectors are increasingly offering open digital platforms to partners. Such an offer allows those players to customize products and services with respect to clients’ needs, and to enable technology and solutions integration by means of application programming interfaces, or APIs.

 

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E-Commerce. During recent years, growing per capita income and internet penetration in Brazil have contributed to grow the e-commerce segment, which has great relevance within the payments industry. We believe that growing online sales combined with the relatively low penetration of e-commerce in Brazil as compared to developed economies will result in growth in the e-commerce sector over the coming years.

 

Value-Added Services. Following the increase in competition and in order to meet clients’ needs, players in the payments sector are expanding their product offerings beyond the traditional payments and banking sectors, helping businesses to retain customers and derive new sources of revenue.

 

Long-tail. We expect that the growth of electronic payments in Brazil will be driven to a significant extent by an increase in micro and small companies’ businesses. As mentioned above, there were 16.4 million individual micro-businesses and micro-businesses, and 900,000 small businesses in Brazil in 2019, representing a significant portion (approximately 90%) of the total number of businesses in Brazil. We expect that this growth will be supported by the continued shift towards electronic payment methods, generating above-market growth rates for electronic payment volumes.

 

Technology. Technology is becoming more integrated with payments services across multiple fronts, such as artificial intelligence, data and analytics, behavioral analysis and cloud infrastructure, among others, driving competitiveness and scalability in the sector.

 

Mergers and Acquisitions. Inorganic growth is consistently seen as an engine of business diversification, cross-selling potential and value proposition strengthening by payment players. Additionally, mergers and acquisitions are a possible path to integrate the financial segment with other sectors in Brazil (such as technology).

 

Participation in Each Market

 

We are a one-stop-shop offering our merchant clients (including micro-entrepreneurs, large corporate clients and SMEs) a full range of in-store and digital solutions for their business, from payment solutions to business process management, as well as banking and other financial services through our relationship with Santander Brasil. We provide our wide range of services through (i) a Santander Brasil channel to Santander Brasil’s customer base, which will continue to be one of our core distribution channels after the Spin-Off pursuant to arrangements which we are negotiating with Santander Brasil, and (ii) independent channels to customers in the open market, who account for approximately 50% of our current active customer base.

 

We estimate that Brazilian merchant acquirers recorded more than R$20 billion in total sales revenue in 2020, based on total revenue reported by the five largest merchant acquirers in 2020. We estimate that our market share in the first quarter of 2021 was 16% as indicated in the figure below.

 

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Market Share – %

 

 

 

Source: Companies’ Public Information

 

Competitive Environment

 

The Brazilian payments market was dominated by a duopoly until 2007, as acquiring companies were exclusively associated with specific credit card networks. From 2010 onwards, especially with the enactment of a new Payment Ecosystem law in 2013, the Brazilian Central Bank began fostering innovation and competition, by enacting new regulations that allowed the entrance of new players into the market and supported increasing competition. As a result, the merchant acquiring market now includes five principal competitors, with market shares ranging from 9% to 30% in 2020. Key measures implemented by the Brazilian Central Bank include the termination of exclusivity between acquirers and brands, the BC# agenda (designed to facilitate access to the market, with less bureaucracy and simpler procedures), the open banking initiative, the instant payments system (PIX), as well as other initiatives.

 

Our Suppliers

 

Relationship with Suppliers

 

We, through Aquanima (a company of the Santander Group), approve and contract suppliers that comply with our policies and values, and our guidelines determine that such relationships should be guided by ethics, transparency, social and environmental responsibility, applicable legislation, as well as by the aim of establishing long-term partnerships.

 

We hire services or acquire goods only from approved suppliers that meet the minimum requirements of legal, fiscal, and tax suitability, in addition to the required technical skills for the performance of services, which are assessed by our technical departments.

 

The mentioned guidelines are prepared in accordance with Santander Group’s Corporate Approval Policy, which was adapted to Brazil, and present the following main topics:

 

·Compliance: code of ethics and procedures for conduct related to anti-corruption;

 

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·AML: anti-money laundering;

 

·Suppliers: Supplier relationship policy;

 

·Sustainability: Engagement with stakeholders; and

 

·Credit risk: Financial analysis based on market score.

 

Price Volatility

 

Any price variation that may occur in the market will impact the prices of new contracts and any contract renewals. Price volatility with respect to our business is influenced by factors such as availability of funds in the market for credit transactions, tax rates, default rates, compulsory payment rate, and macroeconomic factors (interest, inflation and exchange rates), among others.

 

Dependence on Patents, Licenses, Contracts and Processes

 

The major trademarks we use, including, among others, the “Getnet” brand, are owned by us or our subsidiary Auttar Hut Processamento de Dados Ltda. All such trademarks are registered with the National Institute of Intellectual Property (Instituto Nacional de Propriedade Industrial), or “INPI,” the agency responsible for registering trademarks, patents and designs in Brazil, or have been submitted to INPI by us or by Auttar Hut Processamento de Dados Ltda. After registration, the owner has exclusive rights of use of the trademark throughout Brazil for a 10-year period that can be successively renewed for equal periods.

 

As of the date of this registration statement, we have the right to use and/or own 55 brands registered or in the process of registration in Brazil before the INPI, and we also own several domain names associated with such brands.

 

Risk Management

 

Overview

 

We have adopted risk management policies to manage our exposure to risks inherent to our operations and which may have an impact on the achievement of our strategic objectives. These policies include: (i) operational risk and internal control policy, approved by the executive committee on September 18, 2020, (ii) credit risk policy approved by the executive committee on August 7, 2020, and (iii) liquidity and market risk management policy approved by the executive committee on October 2, 2020.

 

In addition, we comply with the General Risk Framework of our parent company, Santander Spain, as approved on January 29, 2021. We have also incorporated the Santander Group’s global risk management functions at various levels of the organization, including, among others, financial, credit, operational and compliance risks, in order to ensure a consistent approach worldwide in all areas.

 

Committees headed by senior management are responsible for supervising credit and risk approval processes in compliance with our established exposure limits and parameters. Furthermore, pursuant to our operational risk and internal controls policies, we also involve business areas and support functions at all levels of our organization in the risk management process. We produce risk management reports on an ongoing basis to support risk management analysis within our organization.

 

Principal Risks

 

The principal risks to which we are exposed include the following:

 

Credit Risks

 

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or other contract, leading to a financial loss. Credit risk arises from our exposure to third parties, including cash and cash equivalents and short-term investments, as well as from our operating activities, primarily

 

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related to trade receivables. We manage risks on an autonomous basis among our business areas. We also involve senior management in credit risk management through the executive and governance committee of the Santander Group. We have structured credit approval processes, in particular for the approval of new products, new loans and risk monitoring, for both wholesale and retail clients.

 

Liquidity Risks

 

We monitor liquidity risk on an ongoing basis to ensure it does not affect our ability to implement our business strategy and achieve our objectives. Our approach to liquidity risk management is to ensure that we always have sufficient resources to meet our obligations upon maturity, under normal and stress conditions, in order to avoid unacceptable losses or damage to our reputation. We take the following steps to manage our liquidity risk: (i) measuring liquidity risk, controlling cash flow projections, so as to ensure that we have sufficient cash to meet our operating needs; (ii) monitoring cash needs on a daily basis, segregated into liquidity buffer and free movement cash, making sure that they are consistent with the policies and minimum amounts defined by management; (iii) establishing liquidity risk limits and alerts, monitored monthly by our management and the controller; (iv) testing the contingency plan every six months, with previously approved credit agreements entered into for any emergency coverage.

 

Operational Risks

 

We define operational risk in line with the Basel committee and the Brazilian Central Bank’s own definitions as the risk of losses resulting from the inadequacy or failure of processes, people and systems, or by external events. We classify operational risks as follows, depending on the type of loss incurred, including: (i) internal fraud, (ii) external fraud, (iii) employment and occupational safety; (iv) practices relating to customers, products and services, (v) damage to physical assets, (vi) business interruption and system failures, and (v) execution, delivery and management of processes.

 

We have adopted an operational risk management model based on three lines of defense:

 

·First line of defense: all of our business and support areas are responsible for the identification, management, mitigation and reporting of operational risk to their activities;

 

·Second line of defense: our risk department is responsible for monitoring and ensuring the management of the organization’s operational risks and internal controls. In addition, it is responsible for implementing and disseminating our operational risk culture, defining methodologies, policies, tools, training, in addition to applicable procedures and requirements, for the effective management of operational risk. In turn, the compliance area is responsible for monitoring and ensuring risk management related to regulatory compliance and conduct, in accordance with the risk appetite approved by senior management, as well as promoting a sound risk culture throughout the organization; and

 

·Third line of defense: Santander Brasil’s internal audit is responsible for independent risk management and control environment analyses carried out by the first and second lines of defense.

 

The following bodies are involved in our operational risk management process: (i) internal control committee, (ii) privacy committee, (iii) information and security committee, and (iv) ethics and compliance committee.

 

Social and Environmental Risk

 

We take into account social and environmental risk as part of our risk management practices, in line with our social and environmental risk policy.

 

Cyber Security Risk

 

We have implemented extensive security measures to reduce the risk of cyber security threats. We considered the recommended practices defined in the ISO-27002 security standard when formulating such

 

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security measures. Security measures that are currently in place include access and privilege management, separation of test and production environments, network security analysis, incident management, basic configuration of hardware and software, correlation of activity registration, prevention and remediation of malware, and security analysis of third-party operations.

 

We employ a variety of security processes and solutions to enable such security measures, including regular checks of compliance, and maintaining continuous monitoring of network activity carried out by its security operations center. We also conduct periodic analyses of cyber security threats and related controls, including periodic penetration tests carried out by independent third parties. Moreover, we are constantly investing in technology and security solutions, user training, and awareness efforts. Likewise, we cooperate and exchange information and experiences related to cyber security with local and international security communities, such as local telecommunication companies, other financial institutions, and the financial services community.

 

We have a dedicated cyber security department, responsible for all matters related to our cyber security, in addition to a separate information security department.

 

Internal Controls

 

Our risk management and control structure is based on three lines of defense, as detailed above under “—Principal Risks—Operational Risks.” Our internal controls processes and policies are based on the rules of the Brazilian Central Bank, as well as on the assessment and continuous monitoring of our risk exposure in line with our risk management policy.

 

Our management is responsible for establishing and maintaining proper internal controls over financial reporting. Our internal controls over financial reporting are reported under the supervision of our management and will be implemented by our board of directors once it has been approved by the Brazilian Central Bank, our executive officers and other employees. The purpose of our internal control over financial reporting is to assure the reliability of financial reporting and of the preparation of our consolidated financial statements for external purposes, in accordance with the IFRS standards issued by the IASB, on a reasonable basis.

 

Our internal control over financial reporting include the following policies and procedures: (i) maintenance of records that, with reasonable details and accuracy, reflect the transactions and disposals of our assets; (ii) reasonable assurance that transactions carried out by us are recorded as necessary to prepare the consolidated financial statements in compliance with generally accepted accounting principles, and that our revenues and expenses are being incurred only in accordance with the authorizations of our management; and (iii) reasonable assurances for the prevention or timely detection of unauthorized acquisition, use or disposal of our assets, which could have a significant effect on the consolidated financial statements.

 

In compliance with CMN Resolution No. 2,554/98 and Circular Letters No. 3,467/09, 3,681/13 and 3,978/20 of the Brazilian Central Bank, as amended, we are required to monitor our internal controls system on an ongoing basis. However, this monitoring process is not carried out in accordance, or for the purpose of compliance, with the requirements of the Rule 13a-15(c) under the Exchange Act, as we are not currently required to carry out an assessment under that rule. Similarly, our auditors are not currently required to audit our assessment of our internal controls under SEC rules. Any such assessment by us and audit by our auditors could conclude that our internal control over financial reporting is not effective.

 

Following the Spin-Off, we will be subject to the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. Under the SEC’s current rules, starting in 2022, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls. Our testing may reveal deficiencies in our internal controls that are deemed to be material weaknesses or significant deficiencies and render our internal controls over financial reporting ineffective. We expect to incur additional accounting and auditing expenses and to spend significant management time in complying with these requirements.

 

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In connection with the preparation of our consolidated financial statements for the year ended December 31, 2020, we concluded that there is a material weakness in the design and operating effectiveness of our internal control over financial reporting as defined in Regulation S-X. A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness in internal control over financial reporting is that the design and operating effectiveness of internal controls related to our financial reporting process were not sufficient to allow for accurate and timely reporting of our consolidated IFRS financial results. This was principally due to use of manual process related to controls in relation to the financial reporting closing process and due to a lack of personnel with adequate knowledge and experience in IFRS. As a result, we recorded certain late manual adjustments in order to prepare our consolidated IFRS financial statements. This material weakness resulted in a restatement of our consolidated financial statements included herein due to an incorrect classification between cost of services and selling, general and administrative expenses. See “Presentation of Financial and Other Information—Restatement of Our Audited Consolidated Financial Statements” and note 1 to our audited consolidated financial statements included elsewhere in this registration statement.

 

We have taken steps to remedy this material weakness. We are investing in training our existing staff and hiring experienced professionals to better prepare our financial statements in accordance with IFRS in order to ensure that our financial reporting meets the applicable requirements. In addition, we have engaged specialized consultants to assist us in the preparation of financial statements and in assessing complex accounting matters. During 2021, we intend to take steps to formalize our reporting processes and put in place controls on the preparation and review of our financial statements and the accounting of transactions, as required by SEC rules. However, we cannot assure you that our efforts will be effective in remedying our current material weakness, or in remedying or preventing any future material weaknesses or significant deficiencies in our internal control over financial reporting.

 

See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Material weaknesses in our internal control over financial reporting have been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.”

 

Compliance

 

Committees including our senior management are responsible for decision-making regarding our compliance programs. We conduct due diligence on our customers, suppliers, employees and others to mitigate the risk of illicit acts or fraud.

 

We have adopted a code of ethical conduct which sets out a set of ethical principles to guide our operations. We make our code of ethical conduct available internally and our website. Failure to comply with the code of ethical conduct may result in the application of disciplinary measures. Instances of non-compliance are referred to our ethics and compliance committee, which is responsible for applying any disciplinary measures.

 

In addition, we have an anonymous whistleblowing channel in place to receive complaints relating to alleged unlawful actions, violations of our code of ethical conduct or our internal policies by our employees, interns, customers, users of products and services, partners, or suppliers. Our whistleblowing channel is managed by an independent third-party supplier.

 

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Social and Environmental Responsibility Policy

 

We have a social and environmental responsibility policy in place that establishes principles and guidelines for our environmental and social actions, including guidelines for managing and mitigating socio and environmental risks. These practices include social and environmental opportunities, impacts and risk management related to our products and services, supplier management and social and environmental risk analysis. Our environmental and social policy also provides for a social and environmental governance structure to monitor compliance with our environmental and social policy, evaluate the policy’s effectiveness, and propose social and environmental initiatives. This corporate governance structure consists of (i) a vice-president, responsible for compliance with the policy and is appointed by the executive committee; and (ii) involvement of certain other decision-making bodies in certain decisions and monitoring of our social and environmental responsibility policy.

 

REGULATION AND SUPERVISION

 

Regulation of the Digital Payments Industry in Brazil

 

Our activities in Brazil are subject to Brazilian laws and regulations relating to digital payments. Law No. 12,865/2013, which was enacted on October 9, 2013, as amended, establishes the first set of rules regulating the digital payments industry within the Brazilian Payment System (the Sistema de Pagamentos Brasileiro), or “SPB.” This law created the concepts of payment schemes (arranjos de pagamento), payment scheme owners (instituidores de arranjos de pagamento) and payment institutions (instituições de pagamento).

 

Law No. 12,865/2013 gave the Brazilian Central Bank and the National Monetary Council (the Conselho Monetário Nacional, or CMN) powers to regulate entities involved in the digital payments industry. These powers cover matters such as the incorporation and operation of these entities, risk management, the opening of payment accounts, and the transfer of funds to and from payment accounts. After enactment of Law No. 12,865/2013, the CMN and the Brazilian Central Bank created a regulatory framework regulating the operation of payment schemes and payment institutions. The framework consists mainly of Resolution No. 4,282, Brazilian Central Bank Circulars Nos. 3,680, 3,681 and 3,682, which were published on November 4, 2013 and became effective on May 5, 2014, and Brazilian Central Bank Resolutions Nos. 80 and 81, published on March 25, 2021, as amended, among others.

 

Payment Schemes

 

A payment scheme, for Brazilian regulatory purposes, is a body of rules and technical standards for the execution of payment transactions through a payment system. The regulations applicable to payment schemes depend on certain features, such as the number of users and the annual cash value of transactions handled by the payment scheme:

 

·Payment schemes that exceed certain thresholds are considered members of the SPB and require authorization by the Brazilian Central Bank.

 

·Payment schemes that operate below these thresholds are not considered members of the SPB and are therefore not required to obtain authorization from the Brazilian Central Bank, although they are required to report certain operational information to the Brazilian Central Bank on an annual basis. In addition, the Brazilian Central Bank can issue an order requiring these payment schemes to apply for authorization to be part of the SPB in specific cases.

 

·Certain types of payment schemes have specific exemptions from the requirement to obtain authorization from the Brazilian Central Bank. This applies, for example, to limited-purpose payment schemes, payment schemes set up by governmental authorities and payment schemes related to employee benefits established by law, such as meal voucher cards.

 

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Payment Scheme Owners

 

Payment scheme owners, for Brazilian regulatory purposes, are the legal entities responsible for managing the rules, procedures and the use of the brand associated with a payment scheme. Brazilian Central Bank rules require that payment scheme owners must be incorporated in Brazil, must have a corporate purpose compatible with payments activities, and must have the technical, operational, organizational, administrative and financial capacity to meet their obligations. They must also have clear and effective corporate governance mechanisms that are appropriate for the needs of payment institutions and the users of payment schemes.

 

Payment Institutions

 

Payment institutions are classified into the following modalities under Brazilian Central Bank Resolution No. 80, from 2021:

 

·Issuers of electronic currency: these payment institutions manage prepaid payment accounts for end users and provide payment transactions that involve the act of paying or transferring, based on electronic currency previously contributed to such account, convert these resources into physical or book-entry currency, or vice versa, and may enable the acceptance of electronic currency with settlement in accounts managed by such institutions.

 

·Issuers of post-paid payment instruments (principally credit cards): these payment institutions manage payment accounts of payer end users, of the post-paid type, and provide payment transaction based on such post-paid accounts.

 

·Accreditors: these payment institutions do not manage payment accounts, but they enable recipients to accept a payment instrument issued by a payment institution or by a financial institution participating in the same payment arrangement. They participate in the settlement process for payment transactions as a creditor before the issuer, in accordance with the rules of the payment arrangement.

 

·Payment Initiator Service Provider: these payment institutions render initial payment services without managing the payment account and without holding the funds transferred in the provision of the service.

 

A payment institution must be incorporated in Brazil and must have a corporate purpose that is compatible with payments activities. The rules applicable to payment institutions depend on a number of criteria, such as the annual cash value of transactions handled by the payment institution and the funds held in prepaid payment accounts. Certain financial institutions have specific exemptions from the requirement to obtain authorization from the Brazilian Central Bank to act as a payment institution and provide payment services. Furthermore, certain payment institutions in Brazil are not subject to the payment industry’s legal and regulatory framework, such as those that only participate in limited-purpose payment schemes and those that provide services required by governmental authorities related to the grant of employment benefits.

 

The CMN and Brazilian Central Bank rules applicable to payment institutions cover a wide variety of issues, including administrative sanctions for committing infractions; the promotion of financial inclusion; the reduction of systemic, operational and credit risks; reporting obligations; and governance.

 

The rules applicable to payment institutions also cover “payment accounts” (contas de pagamento), which are the end-user bookkeeping accounts, which are opened with payment institutions that are issuers of prepaid or post-paid instruments and used for carrying out each payment transaction. Rule No. 3,860/2013 classifies payment accounts into two types:

 

·Prepaid payment accounts: intended for the execution of electronic currency payment transactions carried out based on funds denominated in reais previously contributed.

 

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·Post-paid payment accounts: intended for the execution of payment transactions that do not depend on the previous contribution of resources.

 

In order to provide protection from bankruptcy, Law No. 12,865/2013, as amended, requires payment institutions classified as issuers of prepaid electronic currency to segregate the funds deposited in prepaid payment accounts from their own assets. In addition, with respect to electronic currency, the payment institution must hold a portion of the funds deposited in the prepaid payment account paid by clients allocated: (i) in a specific account with the Brazilian Central Bank that does not pay interest; or (ii) in federal government bonds registered with the Special Settlement and Custody System (Sistema Especial de Liquidação e Custódia), or “SELIC.” The portion of the prepaid electronic currency that must be held in this form is currently 100%.

 

Our Regulatory Position

 

We are authorized to operate by the Brazilian Central Bank as:

 

·Payment institution, as an issuer of prepaid electronic currency. This authorization relates to the Getnet digital account and to our issuance of Getnet electronic currency and prepaid cards.

 

·Payment institution, as an acquirer.

 

In addition, Getnet applied to the Brazilian Central Bank for authorization to incorporate a subsidiary, Getnet Sociedade de Crédito Direto S.A., as a direct credit entity (sociedade de crédito direto), which is a financial institution authorized to offer loans. This authorization was granted on February 19, 2021.

 

Law No. 12,865/2013 prohibits payment institutions from performing activities that are restricted to financial institutions, which are regulated by Law No. 4,595/1964. There is some debate under Brazilian law as to whether providing prepayment of receivables to merchants could be characterized as “lending,” which is an activity that is restricted to financial institutions. Similarly, there is some debate as to whether the discount rates applicable to this early payment feature should be considered as “interest,” in which case the limits set by the Brazilian Usury Law would apply to these rates.

 

For transactions that form part of the Brazilian financial system, financial institutions may set interest rates freely, provided that they are not excessive for consumers. For transactions that do not form part of the Brazilian financial system, historically, the Brazilian Usury Law (Decree-Law No. 22,623/1933) capped interest rates at 12% per year. Subsequently, the Brazilian Civil Code, which replaced the Usury Law, capped interest rates at two times the interest rates applicable to the National Treasury (Fazenda Nacional), which is currently the SELIC rate (although there is some legal debate as to whether the Brazilian Civil Code has effectively replaced the original Brazilian Usury Law). As a result, if the discount rate charged from merchants for early payment of their receivables is considered to be “interest,” it would be capped at two times the SELIC rate, unless carried out by a Brazilian financial institution. We offer our merchants the possibility of obtaining a prepayment of receivables through partner financial institutions, including Santander Brasil, a financial institution authorized to grant loans with interest rates above the limits set by the Brazilian Usury Law.

 

If we fail to comply with the requirements of the Brazilian legal and regulatory frameworks, we could be prevented from carrying out our regulated activities and could be (i) required to pay substantial fines (including per transaction fines) and disgorgement of our profits, (ii) required to change our business practices or (iii) subjected to insolvency procedures such as an intervention by the Brazilian Central Bank and the out-of-court liquidation of Getnet. We could also be subject to private lawsuits.

 

The Brazilian Central Bank also regulates our international transfers of funds under foreign exchange regulations. Compliance with these rules is mandatory and any failure to comply may result in penalties.

 

The Brazilian Central Bank’s rules also allow payment schemes to set additional rules for entities that use their brands. Since we participate in these third-party payment schemes, we must comply with their rules in order to continue accepting payments from payment instruments bearing their brands.

 

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Anti-Money Laundering and Anti-Terrorism Financing Rules

 

We endeavor to comply with all anti-money laundering rules applicable to us and have implemented policies and procedures to report suspicious activities to the authorities, including any suspected terrorism financing and other potentially illegal activities.

 

Our activities in Brazil are subject to Brazilian laws and regulations relating to anti-money laundering terrorism financing and other potentially illegal activities. These rules require us to implement policies and internal procedures to monitor and identify suspicious transactions, which must be duly reported to the relevant authorities. We have implemented all the required policies and internal procedures to ensure full compliance with these rules and regulations, including structuring a monitoring risk and fraud and money laundering prevention division led by a risk vice president officer. Our employees receive mandatory trainings and the compliance is mandatory and duly supervised. In addition, our employees are informed about our policies and internal procedures.

 

The Brazilian anti-money laundering and anti-terrorism financing laws establish the basic framework to prevent and punish money laundering as a crime. It prohibits the concealment or dissimulation of origin, location, availability, handling or ownership of assets, rights or financial resources directly or indirectly originated from crimes, subjecting the agents of these illegal practices to imprisonment, temporary disqualification from managing enterprises up to 10 years and monetary fines.

 

The Brazilian anti-money laundering law also created the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras), or “COAF,” which is the Brazilian financial intelligence unit that operates under the jurisdiction of the Brazilian Central Bank. COAF performs a key role in the Brazilian anti-money laundering and counterterrorism financing system, and its legal responsibility is to coordinate the mechanisms for international cooperation and information exchange.

 

On January 23, 2020, the Brazilian Central Bank enacted Rule No. 3,978 (in effect from October 1, 2020), which amended and restated provisions related to anti-money laundering, requiring financial and payment institutions to (i) identify their customers; (ii) record transactions; (iii) monitor and report events to the COAF; (iv) not conduct business with politically exposed persons; (v) establish and maintain relationships with financial institutions and foreign correspondents; (vi) train employees; and (vii) appoint the officer responsible for the implementation and enforcement of these measures.

 

Rule No. 3,978/20 adopted a risk-based approach so that the institutions authorized by the Brazilian Central Bank are able to prevent the money laundering and terrorist financing. The regulated institutions have discretion to determine which procedures will be adopted for each client, based on an internal risk assessment concerning crimes committed relating to money laundering and terrorism financing latent in their business.

 

Regulation on Payment Arrangement Receivables

 

On June 27, 2019, the CMN and the Brazilian Central Bank enacted Resolution No. 4,734 (“Resolution 4,734/19”) and Rule No. 3,952 (“Rule No. 3,952/19”), which impose new regulations regarding (i) the prepayment and discount operations related to receivables from credit and debit payment instruments issued under the Brazilian Payment System (SPB); (ii) credit transactions guaranteed by such receivables; and (iii) the creation of liens and encumbrances on such receivables. With this regulatory framework, the Brazilian Central Bank intends to provide greater efficiency and security for the prepayment, discount and credit transactions guaranteed by receivables from payment arrangements, increasing competition to reduce the cost of credit.

 

Resolution 4,734/19 and Rule No. 3,952/19 bring a number of relevant changes to transactions involving receivables from credit and debit cards, including the prepayment and assignment of such receivables by acquirers, which are subject to new procedures. Credit transactions guaranteed by these receivables are also covered by newly established rules, regulations and procedures for the creation of liens and encumbrances as applicable.

 

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Rule No. 3,952/19 deals in particular with procedures for the registration of receivables from credit and debit cards. Rule No. 3,952/19 requires a convention among registering entities, which will guarantee the uniqueness of such receivables as financial assets that can be registered in an interoperable way (that is, through the exchange of information between registering entities and the participants).

 

Resolution 4,734/19 and Rule No. 3,952/19, which became effective on June 7, 2021, include an obligation to comply with the above-mentioned convention. As a result it is expected that there will be increased competition in the use and acquisition of receivables from payment arrangements in credit negotiations, which may impact the number of receivables subject to these operations with our merchants.

 

Open Banking

 

Open Banking consists of the integration of information systems, allowing the sharing of data, products and services by financial institutions and other institutions authorized to operate by the Brazilian Central Bank, at the customer’s discretion. Open Banking is considered by the Brazilian Central Bank to be an important tool for innovation in the financial market, making the banking sector more efficient and competitive.

 

On May 4, 2020, the CMN and the Brazilian Central Bank enacted Joint Resolution No. 1/2020 and the Brazilian Central Bank also issued Rule No. 4,015, which together regulate the scope of services and data protection of the Open Banking System.

 

The Open Banking System model implemented in Brazil will include financial, payment and other institutions authorized to operate by the Brazilian Central Bank, and will enable them to share (i) data on products and services, and (ii) upon client’s authorization, record and transaction data. The Open Banking System will eventually cover the provision of payment services along with criteria and specifications yet to be announced. Currently, only financial institutions classified within the segments 1 and 2 for the purpose of applying the prudential regulations of the Brazilian Central Bank and, in relation to the sharing of payment transaction initiation services, institutions that hold payment accounts and institutions that initiate payment transactions are required to participate in the Open Banking System. However, other institutions authorized to operate by the Brazilian Central Bank choosing to participate in Open Banking will be required to share the information mentioned above with other institutional participants.

 

Technological and security standards, in turn, must be established by self-regulation of participating entities, under supervision of the Brazilian Central Bank, which is responsible for ensuring that access to the Open Banking environment is nondiscriminatory and represents all segments of the industry.

 

The implementation of Open Banking will occur in stages, starting in February 2021 and ending in December 2021.

 

Instant Payment System

 

The Brazilian Central Bank has recently developed a new payment system that allows real-time payments and transfers, or the PIX. The main goals of the Brazilian Central Bank with PIX are to foster innovation and differentiated services that meet the needs of end users, as well as expand and simplify available payment methods, as less personal information is needed to materialize payment. In this context, the PIX is an open ecosystem allowing the participation of various types of payment service providers.

 

On August 12, 2020, the Brazilian Central Bank published Resolution BCB No. 1, which sets out implementation procedures and participation criteria for the Brazilian Instant Payments System (Sistema de Pagamentos Instantâneos), or the “SPI,” and the Brazilian Central Bank’s instant payments arrangement. Financial and payment institutions authorized to operate by the Brazilian Central Bank that have more than 500,000 active client accounts (including checking, savings and payment accounts) will mandatorily participate in the SPI and in the Brazilian Central Bank’s instant payments arrangement.

 

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E-Commerce, Data Protection, Consumer Protection and Taxes

 

In addition to regulations affecting digital payment schemes, we are also subject to laws relating to internet activities, e-commerce and data protection, as well as consumer protection laws, tax laws and other regulations applicable to Brazilian companies generally. Internet activities in Brazil are regulated by Law No. 12,965/2014, known as the Brazilian Civil Rights Framework for the Internet, which embodies a substantial set of rights and obligations relating to internet service providers. This law exempts intermediary platforms such as Getnet from liability for user-generated content in certain cases. Since there are no settled court decisions in this area, however, it is still possible that we may be subject to joint civil liability for activities carried out by our users.

 

Law No. 8,078/1990, known as the Consumer Protection Code, regulates consumer relations in Brazil, including matters such as: commercial practices; product and service liability; areas where suppliers of products or services are subject to strict liability; the reversal of the burden of proof so as to benefit consumers; the joint and several liability of all companies within a supply chain; unfair contract terms; advertising; and information on products and services that are offered to the public. Consumers have the right to receive clear and accurate information regarding retail products and services, with correct specification of characteristics, structure, quality, price, risks, and consumers’ rights to access and amend personal information collected about them and stored in private databases.

 

Customer accounts on our digital platform are subject to data protection under the Brazilian Civil Rights Framework for the Internet, the Brazilian Bank Secrecy Law (Supplementary Law 105/01 c/c/ Article 17 of the CMN’s Resolution No. 4,282/13) and Law No. 13,709/2018 (the General Data Protection Law, or the “LGPD”). We are also subject to trademark protection rules, and to tax laws and related obligations such as the rules governing the sharing of customer information with tax and financial authorities. It is unclear whether the tax and regulatory authorities would seek to obtain information regarding our customers. Any such request could come into conflict with the data protection rules, which could create risks for our business.

 

The LGPD came into effect in September 2020, except for the provisions related to administrative sanctions, which will enter into force on August 1, 2021, pursuant to Law No. 14,010/20, which delayed the applicability of certain provisions of the LGPD. The LGPD creates a comprehensive data protection legal framework that applies across multiple economic sectors and contractual relationships. The LGPD establishes detailed rules to be observed in the maintenance and processing of personal data and provides, among other measures, (i) rights to personal data owners; (ii) cases allowing the processing of personal data; (iii) obligations and requirements relating to security incidents involving personal data; and (iv) for the transfer and sharing of personal data.

 

The LGPD further establishes penalties for noncompliance. Such provisions range from a warning and exclusion of personal data processed in an irregular way, to fines or prohibition against processing personal data. The LGPD also authorizes the creation of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados, or the “ANPD”), an authority that oversees the compliance with the data protection regulation. See “Risk Factors—Risks Relating to Our Business and Industry—Our business is subject to cyberattacks and security and privacy breaches.”

 

Brazilian financial and payment institutions are further subject to bank secrecy rules, pursuant to Supplementary Law No. 105, of January 10, 2001, as amended. These institutions are required to maintain the secrecy of their transactions and services, with some exceptions, including: (i) disclosure of confidential information upon the express consent of the interested parties; (ii) exchange of information between financial institutions for recording purposes; (iii) remittance of record information to credit protection agencies related to drawers of bad checks and borrowers in default; (iv) communication of criminal or administrative offenses to competent authorities; and (v) identification of taxpayers and aggregate amounts involved in their transactions, in addition to the remittance of information to the Brazilian Internal Revenue Office if they are responsible for withholding and paying contributions.

 

The laws and regulations applicable to the Brazilian digital payments industry are subject to ongoing interpretation and change, and our digital payments business may become subject to regulation by other authorities. For further information on the risks relating to regulation of business, please see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry.”

 

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Cybersecurity

 

Under Brazilian Central Bank Rule No. 3,909, of August 16, 2018, as amended, payment institutions must comply with cybersecurity requirements, as well as policies for data processing, storage and cloud computing services. The cybersecurity policy, accident response and action plan must have been in place since December 2019. Entities must be fully compliant by December 31, 2021. Location and processing of data may occur within or outside Brazilian territory, subject to certain restrictions, but access to data stored abroad must be granted to the Brazilian Central Bank for the purposes of inspection and exchange of information at all times.

 

Central Bank Resolution Regimes

 

Brazilian financial and payment institutions authorized to operate by the Brazilian Central Bank are subject to resolution regimes that may be applied by the Brazilian Central Bank set forth in: (i) Law No. 6,024/74 for intervention and extrajudicial liquidation; (ii) Decree Law No. 2,321/87 for the temporary special administration regime (regime de administração especial temporária), or “RAET”; and (iii) Law No. 9,447/97 for the joint and several liability of controlling shareholders and the freezing of their assets, as well as the liability of independent auditors. The provisions applicable to bankruptcy set forth in Law No. 11,101/05 (“Brazilian Bankruptcy Law”) apply secondarily to the extrajudicial liquidation regime.

 

The Brazilian Central Bank is responsible for the establishment and monitoring of resolution regimes, also acting on the administrative level in appeals filed against decisions of the board, intervener or liquidator, or in the authorization of specific acts set forth by law. The Brazilian Central Bank is required to initiate an investigation to find such causes resulting in the application of the special resolution regime and the liability of management, controlling shareholders, members of the fiscal council and independent auditors.

 

Intervention

 

Pursuant to Law No. 6,024/74, the Brazilian Central Bank has the power to appoint an intervener to act in the operations of or to liquidate any financial or payment institution other than public financial institutions controlled by the Brazilian federal government. An intervention may be ordered at the discretion of the Brazilian Central Bank if any of the following is detected:

 

·the institution has suffered losses due to mismanagement, leaving creditors at risk;

 

·the institution has consistently violated Brazilian banking laws or regulations; and

 

·such intervention constitutes a viable alternative for the liquidation of the institution.

 

Intervention may also be ordered upon the request, with cause, of financial or payment institutional management, if respective by-laws authorize, without prejudice to eventual civil and criminal liability of the administrators for false or malicious indication.

 

As of the date on which it is ordered, the intervention will automatically: (i) suspend the enforceability of paying obligations; (ii) suspend maturity of any previously contracted obligations; and (iii) freeze deposits existing on the date on which the intervention is ordered. The intervention period should not exceed six months, which may be extended only once for up to six additional months by the Brazilian Central Bank.

 

The intervention ceases: (a) if interested parties undertake to continue the economic activities of the institution by presenting the necessary guarantees, as determined by the Brazilian Central Bank, (b) when the institution’s situation is normalized, as determined by the Brazilian Central Bank, or (c) when extra-judicial liquidation or bankruptcy of the entity is ordered.

 

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Extrajudicial Liquidation

 

The purpose of the extrajudicial liquidation is to remove the relevant institution from the Brazilian financial and payment system, primarily in case of irrecoverable insolvency. The extrajudicial liquidation may also apply in cases of severe violations, among other events described in the applicable law.

 

Under the extrajudicial liquidation regime, institutional activities are interrupted and all obligations are deemed due. Lenders are then submitted to a classification process based on the order of preference set forth by Law No. 11,101/05. This regime seeks the liquidation of the institution’s existing assets in order to pay its debts with lenders.

 

The liquidator appointed by the Brazilian Central Bank has ample administration and liquidation powers, especially regarding the assessment and rating of credit. The liquidator may appoint and dismiss employees; determine their compensation; grant and terminate powers-of-attorney; propose actions; and represent the institution in or out of court. Under specific circumstances set forth by law, certain acts performed by the liquidator require the authorization of the Brazilian Central Bank, including to conclude pending ongoing business, pledge or sell assets and file for bankruptcy.

 

The extrajudicial liquidation ceases: (i) if the interested parties, presenting the required guarantees, proceed with the economic activities of the institution; (ii) upon conversion into an ordinary liquidation, conducted by the institution itself, pursuant to private law, without the participation of the Brazilian Central Bank; (iii) upon the approval of the final accounts of the liquidator and relevant write-off in the competent public registry; or (iv) in case of adjudication of bankruptcy of the institution. Only the liquidator can file for bankruptcy, subject to the Brazilian Central Bank’s authorization. Bankruptcy may be granted if the assets of the institution are not sufficient to cover at least half of the unsecured debt, or in case of grounded evidence of bankruptcy crimes.

 

Repayment of Creditors in a Liquidation or Bankruptcy

 

Pursuant to the Brazilian Bankruptcy Law, in the event of extrajudicial liquidation or bankruptcy of a financial institution, creditors are paid in accordance with a system of priorities. Pre-petition claims are paid on a pro rata basis in the following order:

 

·labor claims, capped at an amount equal to 150 times the minimum wages per employee, and claims relating to labor accidents;

 

·secured claims up to the encumbered asset value;

 

·tax claims, regardless of their nature and commencement of time, except tax penalties;

 

·claims with special privileges;

 

·claims with general privileges;

 

·unsecured claims;

 

·contractual fines and pecuniary penalties for breach of administrative or criminal laws, including those of a tax nature; and

 

·subordinated claims.

 

Super-priority and post-petition claims (e.g., costs related to the liquidation or bankruptcy procedure), as defined under the Brazilian Bankruptcy Law, are paid with preference over pre-petition claims.

 

Temporary Special Administration Regime (RAET)

 

The RAET is a regime that does not interrupt or suspend the usual activities of institutions. The main possible measures to be implemented under the RAET include the removal of members of the administration from office and their replacement by a board or legal entity specialized in the area, with broad management powers.

 

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The Brazilian Central Bank casuistically determines the duration of the RAET, and it will cease (i) if the Brazilian government takes over the control of the institution due to social interest; (ii) in the event of conversion, merger, consolidation, spin-off or transfer of the institution’s control; (iii) once the institution resumes its usual activities; or (iv) upon the adjudication of extrajudicial liquidation of the institution.

 

United States Anti-Money Laundering Regulations, Terrorism Financing and Foreign Corrupt Practices Act

 

We, as a foreign private issuer whose shares are registered under the U.S. Exchange Act of 1934, are subject to the law on corrupt practices abroad, the U.S. Foreign Corrupt Practices Act, or “FCPA.” The FCPA generally prohibits such issuers, as well as their advisers, directors, employees and representatives from using any governmental means or agencies of U.S. interstate commerce in order to promote any offer or payment in kind to any foreign public official or political party for the purpose of influencing that person’s decision to obtain or retain business. The FCPA also requires the issuer to maintain books and records and a sufficient internal accounting control system to provide reasonable assurance that the accountability of the assets has been maintained and that accurate financial statements can be prepared. Penalties, fines and detention of our directors and/or officers may be imposed for violations of the FCPA.

 

In addition, we are subject to a number of laws and regulations against money laundering in the United States, against financing terrorism, such as the Bank Secrecy Act of 1970, as amended, and the USA PATRIOT Act of 2001, as amended, and the violation of said laws and regulations can result in significant penalties, fines and detention of our directors and/or officer.

 

United States Sanctions

 

The United States Department of the Treasury’s Office of Foreign Assets Control, or “OFAC,” is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities, in accordance with various executive orders, statutes and regulations. The sanctions administered by OFAC take many different forms. For example, sanctions may include: (1) restrictions on trade or investment by U.S. people in a sanctioned country, including prohibitions against imports from or exports to, directly or indirectly, a sanctioned country and prohibitions on financial operations, investment or provision of investment-related advice or advice to a sanctioned country by people in the United States; and (2) blocking the assets of target governments or “specially designated nationals” and prohibiting transfers of properties subject to United States jurisdiction, including properties owned or controlled by U.S. persons. Blocked assets cannot be paid, withdrawn, cleared or transferred in any way without a license from OFAC. In addition, people outside the United States can be held responsible for “causing” a violation of sanctions by a person in the United States, or they can violate United States sanctions by exporting United States’ services to a country subject to sanctions, for example, by conducting transactions with countries subject to sanctions. American sanctions denominated in U.S. dollars that are cleared by United States financial institutions (including United States agencies or subsidiaries).

 

Failure to comply with applicable United States sanctions can have serious legal and reputational consequences, including significant civil pecuniary penalties and, in the most serious cases, criminal penalties.

 

In addition, the United States government has implemented a number of sanctions that target people outside the United States, who engage in certain activities conducted outside the United States and without the involvement of United States persons (“secondary sanctions”) that involve Iran, North Korea, Russia or Hezbollah or others designated by the United States under the Specially Designated Global Terrorists, or “SDGT,” sanctions program.

 

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4C. Organizational Structure

 

The table below is a list of our subsidiaries as of the dates indicated:

 

Entity 

Principal Activities 

Country 

Investment Type 

Direct and Indirect Interest (%) as of June 30 

Direct and Indirect Interest (%) as of December 31 

2021 

2020 

2019 

2018 

Auttar H.U.T. Processamento de Dados Ltda. Information technology services Brazil Subsidiary 100.0 100.0 100.0 100.0
Getnet Sociedade de Crédito Direto S.A. Financial services Brazil Subsidiary 100.0
Toque Fale Serviços de Telemarketing Ltda. Call center and telemarketing services Brazil Subsidiary 100.0 100.0
Integry Tecnologia e Serviços A.H.U Ltda. Data center rental and card top up services Brazil Subsidiary 100.0

 

On December 20, 2019, we sold our equity interest in Integry Tecnologia e Serviços A.H.U. Ltda. to PagoNXT Merchant Solutions, S.L. (the current name of Santander Merchant Platform Solutions S.L.). The sale was carried out at book value, for R$3 million.

 

On March 24, 2020, we sold our equity interest in Toque Fale Serviços de Marketing Ltda. to Santander Brasil. The sale was carried out at book value, for R$1.1 million.

 

On August 3, 2021, we completed our acquisition of Eyemobile. See “Item 4. Information on the Company—A. History and Development of the Company—History.”

 

Additional Information

 

See “—A. History and Development of the Company—The Spin-Off” for our simplified corporate structure charts as of immediately prior to and immediately following the Spin-Off. For information about our shareholders, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”

 

4D. Property, Plants and Equipment

 

The following table lists our facilities as of June 30, 2021:

 

Facility 

Country 

State 

Type of Property (Rented/Owned) 

Getnet São Paulo Brazil São Paulo Owned
Getnet Campo Bom Brazil Rio Grande do Sul Rented
Getnet Porto Alegre Brazil Rio Grande do Sul Rented
Espaço TECNOPUC Brazil Rio Grande do Sul Rented
Co-working Belo Horizonte Brazil Minas Gerais Rented

 

For additional information on our property, plant and equipment see note 8 to our unaudited interim consolidated financial statements and note 8 to our audited consolidated financial statements, each included elsewhere in this registration statement.

 

Item 4A. Unresolved Staff Comments

 

Not applicable.

 

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Item 5. Operating and Financial Review and Prospects

 

The following discussion should be read in conjunction with our unaudited interim consolidated financial statements, our audited consolidated financial statements, and the notes thereto included elsewhere in this registration statement, as well as the data set forth in “Forward-Looking Statements,” “Presentation of Financial and Other Information” and “Item 3. Key Information—Selected Financial and Operating Data.” The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this registration statement, particularly in “Item 3. Key Information—D. Risk Factors.”

 

5A. Operating Results

 

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements as of and for the six months ended June 30, 2021 and 2020, and our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 and the related notes thereto, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this registration statement. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods presented and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements,” “Presentation of Financial and Other Information” and “Item 3. Key Information—D. Risk Factors,” and other factors discussed elsewhere in this registration statement. Our unaudited interim consolidated financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting, issued by the IASB, and our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 have been prepared in accordance with IFRS, as issued by the IASB and the report of our independent registered public accounting firm are included in “Item 18. Financial Statements.”

 

Financial Presentation and Accounting Policies

 

Presentation of Financial Statements

 

We have prepared our unaudited interim condensed consolidated financial statements in accordance IAS 34 – Interim Financial Reporting, issued by the IASB, and our audited consolidated financial statements in accordance with IFRS as issued by the IASB. Our audited consolidated financial statements have been audited in accordance with auditing standards of the Public Company Accounting Oversight Board. See “Presentation of Financial and Other Information” for additional information.

 

Our audited consolidated financial statements have been restated to correct a classification error between “Selling, General and Administrative Expenses” and “Costs of services.” The financial information as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 presented in this registration statement is derived from our restated audited consolidated financial statements and reflects the restatement of improperly classified expenses from “Selling, General and Administrative expenses” to “Costs of Services.” See “Presentation of Financial and Other Information—Restatement of Our Audited Consolidated Financial Statements” and note 1 to our audited consolidated financial statements included elsewhere in this registration statement.

  

Business Segments and Presentation of Segment Financial Data

 

We evaluate and manage business segment performance based on information prepared in accordance with IFRS. We report our results as a single segment.

 

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Critical Accounting Policies

 

Our unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting, issued by the IASB, and our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. The following discussion describes areas that require use of certain critical accounting estimates and the exercise of judgment regarding matters that are inherently uncertain and that impact our financial condition and operational results. In this regard, if management decides to change these estimates, or apply such estimates for different durations, a material impact on our financial condition and operational results could result.

 

Management bases its estimates and judgments on historical experience and on various other factors and circumstances, which are believed to be reasonable. Actual results may differ from these estimates if assumptions and conditions change. Any judgments or changes in assumptions are submitted to the audit committee and our regulatory authorities and are disclosed in the related notes to our consolidated financial statements, which are included in this registration statement.

 

Revenues

 

We apply the following revenue recognition steps:

 

·Step 1: identify the contracts with a customer.

 

·Step 2: identify all the individual performance obligations in the contract.

 

·Step 3: determine the transaction price.

 

·Step 4: allocate the price to the performance obligations.

 

·Step 5: recognize revenue when (or as) the entity satisfies a performance obligation.

 

Revenue from our contracts with customers is recognized when the control of the goods or services is transferred to the customer for an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services in the normal course of business.

 

Our revenue from contracts with customers consists substantially of: (i) revenue from acquiring services and transaction processing for commercial establishments, which are recognized at the time the financial institution issuing the card used to make a payment through our systems approves the purchase; (ii) revenues from renting POS devices to commercial establishments, which are recognized on a monthly basis, when payment is received pursuant to the applicable contract; (iii) revenues from retail prepayments, which are recognized when the respective credit is transferred to the customer; (iv) profit share revenues, which consist of revenues derived from our cooperation with Santander Brasil to provide early payment of receivables to our customers, and which are recognized at the time Santander Brasil transfers the respective prepayments; (v) contractual remuneration revenue derived from our Partnership Agreement with Santander Brasil entered into in the first half of 2021 which is further described under “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Principal Related Party Transactions—Partnership Agreement with Santander Brasil;” and (vi) other revenues from services rendered are recognized to the extent we satisfy the performance obligation, fulfilling the provision of services.

 

See note 13 to each of our unaudited interim consolidated financial statements and audited consolidated financial statements for additional information on our revenue recognition policy.

 

Subsidiaries

 

Subsidiaries are all the entities over which we hold control. Subsidiaries are consolidated as of the date on which control is transferred to us. Consolidation is discontinued when there is no longer control. Identifiable assets acquired, liabilities and contingent liabilities assumed upon acquiring a subsidiary, are

 

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initially measured at their fair values at the acquisition date. All intragroup transactions, balances and unrealized gains are eliminated on consolidation. Unrealized losses are also eliminated, unless the transaction evidences any impairment of the transferred asset. Subsidiaries’ accounting policies are amended in accordance with our accounting policies, as applicable.

 

Value of Financial Assets

 

Financial assets measured at amortized cost and fair value through other comprehensive income are tested for impairment at the end of each annual reporting period. The carrying amounts of these assets are adjusted by the loss allowance as a contra entry to our consolidated statements of income. The reversal of previously recognized losses is recognized in our consolidated statements of income in the year in which the impairment decreases and can be objectively related to a recovery event.

 

Value of Financial Liabilities

 

Financial liabilities are classified as (i) financial liabilities at fair value through profit or loss; or (ii) financial liabilities at amortized cost, as applicable.

 

Estimates of Fair Value

 

Financial assets and liabilities are measured at the end of each period using valuation techniques employing assumptions that take into consideration our judgment based on information and market conditions at the end of the reporting period.

 

We classify measurements of fair value using a hierarchy that reflects the model utilized in the measurement process, segregating financial instruments into Levels I, II or III, as follows:

 

·Level 1: prices quoted (unadjusted) in active markets for identical assets and liabilities.

 

·Level 2: information, beyond the quoted prices included in Level 1, which is observable in the market for the asset or liability, whether directly (i.e., like prices) or indirectly (i.e., derived from prices).

 

·Level 3: information for the assets or liabilities that is not based on observable market data (i.e., unobservable premises).

 

Specific valuation techniques utilized to assess the financial instruments classified as Level 1, 2 and 3 include:

 

·Level 1: For investments in the investment fund, the value of the fund quota is an appropriate indicator of fair value.

 

·Level 2:

 

·For financial investments, the fair value is calculated based on amounts indexed to the CDI disclosed to the market through official agencies (such as the CETIP and the Brazilian Central Bank) and based on the latest prices displayed on the website of the CVM, respectively.

 

·The fair value of accounts receivable was determined using the contractually stipulated payments for principal and interest. For loans and financings, the fair value was determined using the contractually stipulated payments for principal and interest.

 

·Level 3: The valuation technique for the fair value of the other financial instruments classified as Level 3 is the discounted cash flow method. We do not have assets or liabilities measured at fair value Level 3.

 

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Sensitivity Analysis

 

We perform the following sensitivity analyses:

 

·Sensitivity to exchange rate variations: includes outstanding monetary items and transactions in foreign currency (U.S. dollar), like loans and financings, and adjusts their conversion at the end of each year by the exchange rates, taking into consideration certain potential variations.

 

·Sensitivity to changes in interest rates: the yield on financial investments is affected principally by the variation in the CDI. Our deposits with courts are indexed to the SELIC prime rate.

 

Leasing

 

An implicit discount rate to be applied to our leasing contracts is not identifiable, and as such, our incremental borrowing rate is utilized to calculate the present value of our leasing liabilities at the time a contract is initially booked.

 

Our incremental borrowing rate is the rate of interest we would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset, in a similar economic environment. Calculating this rate involves an elevated degree of judgment, and our credit, the term of the lease, the nature and quality of the guarantees offered, and the economic environment in which the transaction occurs, must be considered. The process for determining the rate preferentially utilizes readily observable information on which we must make the adjustments needed to arrive at our incremental borrowing rate.

 

IFRS 16 determines that the incremental rate can be determined for a group of contracts, when the grouped contracts prove to have similar characteristics. We have made use of this practical expedient, of determining groupings for similar leases, on the understanding that the effects of its application do not materially diverge from application to the individual leases.

 

The criteria that we apply to determine the incremental interest rate are: (i) risk-free rate, which is the benchmark rate for the market in which the applicable institution operates; and (ii) credit spread, which is the spread for the most recent issuances in the same currency was utilized.

 

To determine the term of a lease, we consider all facts and circumstances that create an economic incentive either to exercise an option to extend, or not exercise an option to terminate. Extension options (or periods after options to terminate) are included in the term of the lease only when it is reasonably certain that the lease will be extended (or that it will not be terminated).

 

Intangible Assets

 

Intangible assets represent identifiable non-monetary assets (separable from other assets), without physical substance, arising from business combinations, software developed in-house, or licenses for use with finite or indefinite useful lives. Only assets whose cost can be reliably estimated, and which the consolidated entities deem likely to generate future economic benefits, are recognized.

 

Intangible assets are initially recognized at purchase or production cost, and are subsequently measured less any accrued amortization and impairment.

 

Other intangible assets are considered to have indefinite useful lives when, based on a review of all relevant factors, conclude that there is no foreseeable limit to the period during which an asset is expected to generate cash inflows for us. Intangible assets with indefinite useful lives are not amortized; rather, at the end of each annual period, we review the remaining useful lives of the assets in order to determine whether they continue to be indefinite, and if not, the change should be accounted for as a change in accounting estimate.

 

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Intangible assets with finite useful lives are amortized over the course of their useful lives using methods similar to those used to depreciate fixed assets. Amortization expenses are recognized on the line item ‘Depreciation and amortization’ in the statement of results.

 

At the end of each year, we assess whether there is any indication that our intangible assets may be impaired, i.e., whether the carrying value of an asset exceeds its probable realizable value. If impairment is identified then the recoverable value is written down to the asset’s realizable value.

 

Fixed Assets

 

Fixed assets are measured at the historical purchase or construction cost, less accrued depreciation. When applicable, impairment is recognized directly in profit or loss for the year.

 

Costs include expenditures that are directly attributable to the purchase of an asset. The costs of assets generated internally include materials and direct labor costs, and any other outlays needed to place the asset in the locale and in the condition to operate as we expect. The replacement cost of an item of property, plant or equipment is recognized at its carrying value when it is probable that the economic benefits associated with that item will flow to us, and its cost can be reliably measured. The costs of day-to-day maintenance of property, plant or equipment (such as removal of the equipment from the point of sale, repairs, reinstallation, freight and other costs) are recognized in the statement of results as incurred.

 

An item of property, plant or equipment is written down when sold or when no future economic benefit is expected from its use or sale. Any gain or loss on the write-down of an asset (determined as the difference between the proceeds of a sale and the carrying value of the asset) is recognized in the statement of results for the year in which the asset is written down.

 

Our principal goods and equipment are POS terminals, which we have assessed to have a useful life of three years. This useful life was determined taking into consideration the maintenance performed while the equipment is being utilized, the lack of replacement parts, technological changes (completed and in progress), and the economic environment in which they operate, considering the planning and other idiosyncrasies of our business and the increase in production (data capture and processing transactions by merchants).

 

The costs incurred both internally and with third parties directly attributable to installing POS devices are allocated to fixed assets.

 

Depreciation is calculated based on the cost of acquiring the asset, plus all costs incurred to get the asset into the operating condition we expect, less any residual value. To calculate depreciation, we estimate the useful life of each class of tangible assets. This estimate most appropriately reflects the pattern of consumption of the future economic benefits embodied in that class of assets. Depreciation expenses are recognized in the statement of results on a straight-line basis.

 

Goodwill

 

Goodwill is tested for impairment at least annually, or whenever there are indicia of impairment. The basis for testing for impairment is the value-in-use, involving an estimate of cash flows for a five-year period. Cash flows are prepared considering various factors, such as: (i) macroeconomic projections of interest rates, inflation, GDP and other variables; (ii) market dynamics and growth estimates; (iii) cost increases, returns, synergies and the plan for investments; (iv) client behaviors; and (v) the rate of growth and adjustments applied to the flows in perpetuity. The adoption of these estimates involves the likelihood of the occurrence of future events, and changes in any of these factors could entail a different result. The cash flow estimate is based on an assessment prepared by an independent specialized firm, annually or whenever there are indicia of impairment, and we review and approve this assessment.

 

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Provisions for Tax, Civil, and Labor Risks and Judicial Deposits

 

The risk of loss classification is an estimate that requires m