Evertec Hearings Place Focus on Electronic Processing Fees
Business Groups Call for More Oversight
A Puerto Rico legislative probe into Evertec, an electronic transaction-processing firm, has centered around allegations that the San Juan-based company represents a monopoly in the island’s transactions, and affects local small and midsize businesses (pymes by the Spanish acronym).
During a legislative hearing Jan. 19, private- and public-sector representatives discussed House Resolution 1108, which calls for an investigation into Evertec. A similar Senate resolution was also filed and recently approved, after a Jan. 9 outage of the company’s debit network, dubbed ATH (A Toda Hora, or At All Hours in English), paralyzed commercial activity on the island for two hours.
Most of the discussion focused on the processing fees that Evertec charges for electronic transactions. According to retail and wholesale industry groups, such fees are higher than on the U.S. mainland, constitute a burden for pymes, and result in more expensive items and services for local consumers.
Participants at the hearing—led by Popular Democratic Party Rep. Javier Aponte Dalmau, who submitted HR 1108 and chairs the House’s Small Business, Commerce, Industry & Telecommunications Committee—also talked about the degree of federal regulatory oversight to which companies such as Evertec are subjected.
The Chamber of Food Marketing, Industry & Distribution (MIDA by its Spanish acronym) stressed the large presence that Evertec and its ATH network have in local commerce, citing the company’s own 2014 annual report: “Management believes that over 70% of all ATM transactions and over 80% of all debit transactions in Puerto Rico are processed through the ATH network.”
According to a testimony by Rubén Piñero, president of the United Retailers Association (CUD by its Spanish acronym), Evertec processes more than two billion transactions annually through a network that consists of more than 4,100 automated-teller machines (ATMs) and 104,000 points of sale (POS).
The company has a presence in 19 countries including the Dominican Republic, Mexico, Guatemala, Costa Rica, Panama and Colombia. In Puerto Rico, there are about 3,000 ATM terminals, half of which are from independent suppliers and half are owned by commercial banks.
When it comes to the heavy presence of the ATH network among the island’s ATMs, Evertec execs have stressed that many ATMs are independent and are not operated by Evertec. However, the MIDA testimony countered such an assessment, stating that such terminals “end up having to access the Evertec network when it comes to local accounts.”
Regarding the Jan. 9 incident, a CUD survey revealed store owners lost between $200 and $7,000 each as a result of the outage, which lasted from about 5 p.m. to 7 p.m. Carlos Ramírez, Evertec’s executive vice president of business solutions, said about 200,000 transactions were affected. An unofficial estimate by economist José Alameda placed the total economic impact of the outage at $126.4 million.
“[Many people] realized that [debit networks] have become an essential service,” read the MIDA testimony.
MIDA also partly blamed the government for the alleged monopoly. “In past years, various legislative measures have been presented, forcing businessowners to accept electronic payments and not differentiate between payment methods,” said Ricky Castro, MIDA president. “However, such measures ignore the most important fact affecting businesses and consumers: the enormous cost of [electronic] transactions.”
Regarding the cost of such transactions, Evertec execs said the ATH network offers lower rates than other PIN-based debit networks in Puerto Rico, among them Interlink and NYCE (New York Currency Exchange) (PIN is the acronym for personal identification number).
Specifically, such costs are associated with interchange fees, with the bank issuing the debit card charging the business establishment for each processed transaction.
According to a 2014 graph from the U.S. Federal Reserve, the ATH network charges an average of about 0.49% on each commercial transaction. By comparison, the average charge for Visa and MasterCard, two companies Evertec considers as competitors, were of 0.84% and 1.04%, respectively.
Despite this difference, HR 1108 says that card-processing transaction costs in Puerto Rico have increased of late, at times going over the 25¢-per-transaction limit imposed by federal regulation. Meanwhile, the CUD testimony said issuing banks can charge as much as 1.15% per transaction.
Evertec representatives took issue with the House resolution, saying that federal laws pertaining to the processing of electronic transactions—including the Dodd-Frank Act and the subsequent Durbin Amendment with its 25¢ cap—have been successfully implemented in Puerto Rico. They also said the Federal Reserve requires the validation of interchange fees by issuing banks as part of the auditing process.
Gas stations were singled out as being among the most affected by the current model. “Profit margins for gas stations barely total 8¢ to 10¢ a gallon, while banking charges per transaction average 23¢,” said the CUD testimony. “Below a certain point, profits do not surpass the cost of electronic transactions; that is why gasoline retailers require a minimum payment for debit and credit cards.”