PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Overview and Summary of Significant Accounting Policies

Overview and Organization

PayPal Holdings, Inc. (“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is a leading technology platform and digital payments company that enables digital and mobile payments on behalf of ~~consumers~~merchants and ~~merchants~~consumers worldwide. PayPal is committed to democratizing financial services and empowering people and businesses to join and thrive in the global economy. Our goal is to enable our ~~consumers~~merchants and ~~merchants~~consumers to manage and move their money anywhere in the world, anytime, on any platform, and using any device. We also facilitate person-to-person payments through our PayPal, Venmo, and Xoom ~~products.~~products and services and simplify and personalize shopping experiences for our consumers through our Honey Platform. Our combined payment solutions, including our core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and ~~iZettle~~Hyperwallet products and services, comprise our proprietary Payments Platform.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry. That focus continues to become even more heightened as regulators on a global basis focus on important issues such as countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection. Some of the laws and regulations to which we are subject were enacted recently, and the laws and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuing to evolve through legislative and regulatory action and judicial interpretation. New or changing laws and regulations, including the way laws and regulations are interpreted and implemented, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition. Therefore, we monitor these areas closely to design compliant solutions for our customers who depend on us.

Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the financial statements of PayPal and our wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Noncontrolling interest reported as a component of equity on our condensed consolidated balance sheets represents the equity interests not owned by PayPal and is recorded for consolidated entities we control and of which we own less than 100%. Noncontrolling interest is not presented separately on our condensed consolidated statements of income as the amount is de minimis.

Investments in entities where we have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investee’s results of operations is included in other income (expense), net on our condensed consolidated statements of income and our investment balance is included in long-term investments on our condensed consolidated balance sheets. Investments in entities where we do not have the ability to exercise significant influence over the investee are accounted for at fair value or cost minus impairment, if any, adjusted for changes resulting from observable price changes, which are included in other income (expense), net on our condensed consolidated statements of income. Our investment balance is included in long-term investments on our condensed consolidated balance sheets.

We determine at the inception of each arrangement whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine it is, we then assess if we are the primary beneficiary, which would require consolidation. As of September 30, 2020, we held an investment in a VIE which did not qualify for consolidation as we are not the primary beneficiary. The investment balance is de minimis and included as a non-marketable equity security in long-term investments on our condensed consolidated balance sheets.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Form 10-K”) filed with the Securities and Exchange ~~Commission.~~Commission on February 6, 2020.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the condensed consolidated financial statements for interim periods. Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the three and nine months ended September 30, ~~2019.~~2020.

~~Reclassifications~~

Beginning with the first quarter of 2019, we reclassified certain operating expenses within the condensed consolidated statements of income. Prior period amounts have been reclassified to conform to this presentation. These changes have no impact on our previously reported consolidated net income for prior periods, including total operating expenses, financial position, or cash flows for any periods presented.

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The classification changes relate primarily to the combination of costs incurred to develop and operate our Payments Platform into a new caption entitled technology and development. This new caption includes: (a) costs incurred in operating, maintaining, and enhancing our Payments Platform, including network and infrastructure costs, which were previously classified in the customer support and operations caption, and (b) costs incurred in developing new and improving existing products, which were previously classified in the product development caption on our condensed consolidated statements of income. In addition, we have eliminated the presentation of depreciation and amortization expense as a separate financial statement caption by reclassifying these expenses into financial statement captions aligned with the internal organizations that are the primary beneficiaries of the depreciation and amortization of such assets.

~~The following tables present the effects of the changes on the presentation of these operating expenses to the previously reported condensed consolidated statements of income:~~

Three Months Ended September 30, 2018
(In millions)
As Previously Reported Adjustments Revised

Transaction expense $ 1,366
$ —
$ 1,366
Transaction and loan losses 295
—
295
Customer support and operations 367
(17 ) 350
Sales and marketing 326
(1 ) 325
Product development 269
(269 ) —
Technology and development —
452
452
General and administrative 354
23
377
Depreciation and amortization 188
(188 ) —
Restructuring and other charges 28
—
28
Total operating expenses $ 3,193
$ —
$ 3,193

Nine Months Ended September 30, 2018
(In millions)
As Previously Reported Adjustments Revised

Transaction expense $ 4,003
$ —
$ 4,003
Transaction and loan losses 934
—
934
Customer support and operations 1,075
(45 ) 1,030
Sales and marketing 924
(11 ) 913
Product development 782
(782 ) —
Technology and development —
1,341
1,341
General and administrative 1,061
50
1,111
Depreciation and amortization 553
(553 ) —
Restructuring and other charges 297
—
297
Total operating expenses $ 9,629
$ —
$ 9,629

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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and ~~loan~~credit losses, loss contingencies, income taxes, revenue recognition, and the valuation of goodwill and intangible assets. We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances. These estimates may change as new events occur, and as additional information surrounding the impact of the novel coronavirus (“COVID-19”) pandemic is obtained. Actual results could differ from these estimates and any such differences may be material to our financial statements.

Investments

Short-term investments include time deposits, money market funds, government and agency securities, and corporate debt securities with original maturities of greater than three months but less than one year when purchased or maturities of less than one year on the reporting date. Long-term investments include time deposits, government and agency securities and corporate debt securities with maturities exceeding one year, and our strategic investments. Government and agency securities and corporate debt securities are classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized gains and losses are reported as a component of other comprehensive income (loss), net of related estimated tax provisions or benefits. Accrued interest receivable on available-for-sale debt securities totaled $31 million and $54 million at September 30, 2020 and December 31, 2019, respectively, and is included in other current assets on our condensed consolidated balance sheets.

We elect to account for foreign currency denominated available-for-sale investments underlying funds receivable and customer accounts, short-term investments, and long-term investments under the fair value option as further discussed in “Note 9—Fair Value Measurement of Assets and Liabilities.” The changes in fair value related to initial measurement and subsequent changes in fair value are included in earnings as a component of other income (expense), net.

Our strategic investments consist of marketable equity securities, which are publicly traded, and non-marketable equity securities, which are investments in privately held companies. Marketable equity securities have readily determinable fair values with changes in fair value recorded in other income (expense), net. Non-marketable equity securities include investments that do not have a readily determinable fair value and equity method investments. The investments that do not have readily determinable fair value are measured at cost minus impairment, if any, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”). All gains and losses on these investments, realized and unrealized, are recorded in other income (expense), net on our condensed consolidated statements of income. Our investments where we have the ability to exercise significant influence, but not control, over the investee are accounted for as equity method investments and our share of the investee’s results of operations is included in other income (expense), net.

We assess whether an impairment loss on our non-marketable equity securities and an other-than-temporary impairment loss on our equity method investments has occurred due to declines in fair value or other market conditions. If any impairment is identified for non-marketable equity securities or impairment is considered other-than-temporary for our equity method investments, we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our condensed consolidated statements of income.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our available-for-sale debt securities in an unrealized loss position will be written down to fair value through a charge to other income (expense), net in our condensed consolidated statements of income if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis. For the remaining available-for-sale debt securities in an unrealized loss position, if we identify that the decline in fair value has resulted from credit losses, taking into consideration changes to the rating of the security by rating agencies, implied yields versus benchmark yields, and the extent to which fair value is less than amortized cost, among other factors, we will estimate the present value of cash flows expected to be collected. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Loans and Interest Receivable, Net

Loans and interest receivable, net represents merchant receivables originated under our PayPal Working Capital (“PPWC”) product and PayPal Business Loan (“PPBL”) product and international consumer loans originated under our PayPal Credit products. In the U.S., we partner with an independent chartered financial institution that extends credit to merchants using our PPWC product or PPBL product and purchase the related receivables extended by the independent chartered financial institution.

For our international consumer credit products, we extend credit through our Luxembourg banking subsidiary. For our merchant credit products outside the U.S., we extend working capital advances in the U.K. and loans in Germany through our Luxembourg banking subsidiary, and we extend working capital loans in Australia through an Australian subsidiary.

As part of our arrangement with the independent chartered financial institution in the U.S., we sell back a participation interest in the pool of merchant receivables. For this arrangement, gains or losses on the sale of the participation interests are not material as the carrying amount of the participation interest sold approximates the fair value at time of transfer. The independent chartered financial institution has no recourse against us related to their participation interests for failure of debtors to pay when due. The participation interests held by the chartered financial institution have the same priority to the interests held by us and are subject to the same credit, prepayment, and interest rate risk associated with this pool of merchant receivables. All risks of loss are shared pro rata based on participation interests held among all participating stakeholders. We apply a control-oriented, financial-components approach, and account for the asset transfer as a sale and derecognize the portion of the participation interests for which control has been surrendered.

Loans, advances, and interest and fees receivable are reported at their outstanding balances, net of any participation interests sold and pro rata allowances, including unamortized deferred origination costs and estimated collectible interest and fees. We maintain the servicing rights for the entire pool of consumer and merchant receivables outstanding and receive a fee approximating the fair value for servicing the assets underlying the participation interest sold.

We offer both revolving and installment credit products to our international consumers. The terms of our consumer relationships require us to submit monthly bills to the consumer detailing loan repayment requirements. The terms also allow us to charge the consumer interest and fees in certain circumstances. Due to the relatively small dollar amount of individual loans and interest receivable, we do not require collateral on these balances.

U.S. Consumer Credit Portfolio

In November 2017, we reached an agreement to sell our U.S. consumer credit receivables portfolio to Synchrony Bank (“Synchrony”). Following the closing of this transaction in July 2018, Synchrony became the exclusive issuer of the PayPal Credit online consumer financing program in the U.S. We no longer hold an ownership interest in the receivables generated through the program and thus, no longer record these receivables on our condensed consolidated financial statements. PayPal earns a revenue share on the portfolio of consumer receivables owned by Synchrony, which includes both the sold and newly generated receivables, and it is recorded in revenue from other value added services on our condensed consolidated statements of income.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Through the closing of the transaction with Synchrony, we continued to work with an independent chartered financial institution to extend credit to U.S. consumers using our PayPal Credit product. We purchased the related receivables extended by the independent chartered financial institution until July 2018. As part of the arrangements we had with the independent chartered financial institutions in the U.S., we sold back a participation interest in the pool of U.S. consumer receivables outstanding under PayPal Credit consumer accounts. For these arrangements, gains or losses on the sale of the participation interest were not material as the carrying amount of the participation interest sold approximated the fair value at time of transfer.

Allowance for Loans and Interest Receivable

The allowance for loans and interest receivable represents our estimate of lifetime expected credit losses inherent in our portfolio of loans and interest receivables. Increases to the allowance for loans receivable are reflected as a component of transaction and credit losses on our condensed consolidated statements of income. Increases to the allowance for interest and fees receivable are reflected as a reduction of net revenues on our condensed consolidated statements of income, or as a reduction of deferred revenue when interest and fees are billed at the inception of a loan or advance. The evaluation process to assess the adequacy of allowances is subject to numerous estimates and judgments.

The allowance for loans and interest receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio, which is segmented by geographic region, delinquency, and vintage, among other factors. Loss curves are generated using historical loss data for each loan portfolio and are applied to segments of each portfolio, categorized by geographic region, first borrowing versus reuse, delinquency, credit rating, and vintage, among other factors, which vary by portfolio. We then apply macroeconomic factors such as forecasted trends in unemployment and benchmark credit card charge-off rates, which are sourced externally, using a single scenario that is most appropriate to the economic conditions applicable to a particular period. Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our consumer and merchant receivables. We may also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our expected lifetime losses. Our consumer receivables are primarily revolving in nature and do not have a contractual term; however, the reasonable and supportable forecast period we have included in our projected loss rates based on externally sourced data is approximately seven years. Our merchant receivables vary in contractual term; however, the reasonable and supportable forecast period considered for projected loss rates is approximately 2.5 to 3.5 years, depending upon the product. The allowance for losses against the interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors.

In connection with our agreement to sell our U.S. consumer credit receivables to Synchrony and the designation of that portfolio as held for sale in November 2017, we reversed the corresponding allowances against those ~~estimates.~~loans and interest receivable balances. Such allowances on any newly originated U.S. consumer loans and interest receivables, held for sale were not established. Adjustments to the cost basis of this portfolio until the sale was completed, which were primarily driven by charge-offs, were recorded in restructuring and other charges on our condensed consolidated statements of income.

Leases

We determine whether an arrangement is a lease for accounting purposes at contract inception. Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other current liabilities and deferred tax liability and other long-term liabilities on our condensed consolidated balance sheets. For sale-leaseback transactions, we evaluate the sale and the lease arrangement based on our conclusion as to whether control of the underlying asset has been transferred and recognize the sale-leaseback as either a sale transaction or under the financing method. The financing method requires the asset to remain on the condensed consolidated balance sheets throughout the term of the lease and the proceeds to be recognized as a financing obligation. As of September 30, ~~2019,~~2020, we had no finance leases.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Our leases do not provide an implicit rate; we use an incremental borrowing rate for specific terms on a collateralized basis based on the information available on the commencement date in determining the present value of lease payments. The ROU asset calculation includes lease payments to be made and excludes lease incentives. The ROU asset and lease liability may include amounts attributed to options to extend or terminate the lease when it is reasonably certain we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable. When a decision has been made to exit a lease prior to the contractual term or to sublease that space, we evaluate the asset for impairment and recognize the associated impact to the ROU asset and related expense, if applicable. The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level. Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives. If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques.

We have lease agreements with lease and non-lease components. We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all ~~leases.~~leases, where applicable. In addition, we have elected the practical expedients related to lease classification, hindsight, and land easement. We apply a single portfolio approach to account for the ROU assets and lease liabilities.

Allowance for Transaction Losses

We are exposed to transaction losses due to credit card and other payment misuse as well as nonperformance from sellers who accept payments through PayPal. We establish an allowance for estimated losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery of goods or services, buyer protection program claims, and account takeovers. This allowance represents an accumulation of the estimated amounts of probable transaction losses as of the reporting date, including those which we have not yet identified. The allowance is monitored regularly and is updated based on actual data received, including actual claims data reported by our claims processors. The allowance is based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment patterns, the mix of transaction and loss types, as applicable. Additions to the allowance are reflected as a component of transaction and credit losses on our condensed consolidated statements of income. At September 30, 2020 and December 31, 2019, the allowance for transaction losses totaled $178 million and $136 million, respectively, and was included in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

Allowance for Negative Customer Balances

Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for Automated Clearing House returns, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of goods or services, which are generally within the scope of our protection programs. Negative customer balances can be cured by the customer by adding funds to their account, receiving payments, or through back-up funding sources. We also utilize third-party collection agents. For negative customer balances that are not expected to be cured or otherwise collected, we provide an allowance for lifetime expected losses. The allowance represents expected losses based on historical trends involving collection and write-off patterns, internal factors including our experience with similar cases, other known facts and circumstances, and reasonable and supportable macroeconomic forecasts, as applicable. Loss rates are derived using historical loss data for each delinquency bucket using a roll rate model that captures the losses and the likelihood that a negative customer balance will be written-off as the delinquency age of such balance increases. The loss rates are then applied to the outstanding negative customer balances. Once the quantitative calculation is performed, we review the adequacy of the allowance and determine if qualitative adjustments need to be considered. We write-off negative customer balances in the month in which the balance becomes outstanding for 120 days. Write-offs that are recovered are recorded as a reduction to our allowance for negative customer balances.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Negative customer balances are included in other current assets, net of the allowance on our condensed consolidated balance sheets. Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our condensed consolidated statements of income. The allowance for negative customer balances was $266 million and $263 million at September 30, 2020 and December 31, 2019, respectively.

Recent Accounting Guidance

In ~~2016,~~2020, the Financial Accounting Standards Board (“FASB”) issued amended guidance that provides transition relief for the accounting impact of reference rate reform. For a limited period, this guidance provides optional expedients and exceptions for applying GAAP to certain contract modifications, hedging relationships, and other transactions affected by a reference rate expected to be discontinued due to reference rate reform. The amended guidance is effective through December 31, 2022. Our exposure to LIBOR is primarily limited to an insignificant portion of our available-for-sale debt securities and, accordingly, we do not expect reference rate reform to have a material impact on our condensed consolidated financial statements.

Recently Adopted Accounting Guidance

In 2019, the FASB issued amended guidance for simplifying certain aspects for the accounting for income taxes. This amended guidance is intended to remove certain exceptions to the general principles in current GAAP, reduce the cost and complexity in accounting for income taxes, and improve financial statement preparers’ application of income tax-related guidance. This guidance does not create new accounting requirements. It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. We early adopted this guidance in the first quarter of 2020. Adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

In 2016, the FASB issued new guidance on the measurement of credit losses on financial instruments. ~~Credit~~Under the new guidance, credit losses on loans, trade and other receivables, held-to-maturity debt securities, and other instruments ~~will~~ reflect our current estimate of the ~~current~~ expected lifetime credit losses and generally ~~will~~ result in the earlier recognition of allowances for losses. Credit losses on available-for-sale debt securities with unrealized losses ~~will be~~are recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. Additional disclosures ~~will be~~are required, including information used to track credit quality by year of origination for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We will adopt the new guidance effective January 1, 2020. We are required to apply the provisions of this guidance as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted with impairment of available-for-sale debt securities applied prospectively after adoption.

We are in the process of refining models, designing business processes and controls, performing parallel runs, and model validation testing. Based on the models developed, which incorporate forecasts of macroeconomic conditions, the overall impact of adoption of the Current Expected Credit Loss framework is estimated to be an approximate 65% to 85% increase in our allowance for loans and interest receivable as compared to the incurred loss model applied today. The largest drivers of this increase are the change to a lifetime reserve model at the time the asset is initially recorded as well as inclusion of macro-economic factors within the model. Although the timing of the recognition of losses may result in an increase in loan losses in a given period, this increased allowance is not expected to result in a change in our economic losses. Expected credit loss reserves related to our other financing receivables, available-for-sale debt securities, and other financial instruments are not expected to have a material impact on our consolidated financial statements. The extent of the actual impact of the adoption of this guidance at the effective date will depend on the amount and asset quality of our financial instruments, current and forecasted economic conditions at the time of adoption, and any further refinements made to our models.

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~~Recently Adopted Accounting Guidance~~

In 2016, the FASB issued new accounting guidance related to accounting for leases, which requires lessees to recognize lease assets and lease liabilities on the balance sheet for the rights and obligations created by all leases with terms greater than 12 months. As we are not a lessor, other changes in the guidance applicable to lessors do not apply. Additionally, in 2018, the FASB issued codification and targeted improvements to this guidance effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. We adopted the new guidance oneffective January 1, 2019, using a modified retrospective basis and applied the optional practical expedients related to the transition. We recorded $511 million for the ROU assets and $521 million for the lease liabilities associated with our operating leases upon adoption. The adoption of this guidance did not have a significant impact to our consolidated statements of earnings, stockholders’ equity, and cash flows.2020. For additional information, see ~~Note 6—“Leases.~~“Note 11—Loans and Interest Receivable.”

There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as ~~applicable, and we~~applicable. We do not believe any of these accounting pronouncements have had, or will have, a material impact on our condensed consolidated financial statements or disclosures.

Note 2—Revenue

PayPal enables its customers to send and receive payments. We earn revenue primarily by completing payment transactions for our customers on our Payments Platform and from other value added services. Our revenues are classified into two ~~categories,~~categories: transaction revenues and revenues from other value added services.

Disaggregation of Revenue

We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer, who reviews our operating results on a consolidated basis. We operate inas 1 segment and have 1 reportable segment. Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and type of revenue categories (transaction revenues and revenues from other value added services). Revenues recorded within these categories are earned from similar services for which the nature of associated fees and the related revenue recognition models are substantially the same.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents our revenue disaggregated by primary geographical market and category:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
	(In millions)									(In millions)
Primary geographical markets									Primary geographical markets
United States (“U.S.”)	$	2,327	$	1,962	$	6,811	$	6,135	United States (“U.S.”)	$	2,820	$	2,327	$	7,940	$	6,811
United Kingdom (“U.K.”)	455		397		1,342		1,191		United Kingdom (“U.K.”)	606		455		1,670		1,342
Other countries⁽¹⁾	1,596		1,324		4,658		3,899		Other countries(1)	2,033		1,596		5,728		4,658
Total revenues⁽²⁾	$	4,378	$	3,683	$	12,811	$	11,225
Total net revenues(2)									Total net revenues(2)	$	5,459	$	4,378	$	15,338	$	12,811

Revenue category									Revenue category
Transaction revenues	$	3,955	$	3,343	$	11,564	$	9,858	Transaction revenues	$	5,076	$	3,955	$	14,236	$	11,564
Other value added services	423		340		1,247		1,367
Total revenues⁽²⁾	$	4,378	$	3,683	$	12,811	$	11,225
Revenues from other value added services									Revenues from other value added services	383		423		1,102		1,247
Total net revenues(2)									Total net revenues(2)	$	5,459	$	4,378	$	15,338	$	12,811

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Critical Accounting Policies and Estimates

The application of U.S. GAAP requires us to make estimates and assumptions about certain items and future events that directly affect our reported financial condition. We have established detailed policies and control procedures to provide reasonable assurance that the methods used to make estimates and assumptions are well controlled and are applied consistently from period to period. The accounting estimates and assumptions as described in our 2019 Form 10-K and as supplemented and, to the extent inconsistent, superseded within this section are those that we consider to be the most critical to our financial statements. An accounting estimate is considered critical if both (a) the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (b) the impact within a reasonable range of outcomes of the estimate and assumption is material to our financial condition. Senior management has discussed the development, selection, and disclosure of these estimates with the Audit, Risk and Compliance Committee of our Board of Directors. Our significant accounting policies, including recent accounting pronouncements, are described in our 2019 Form 10-K and as supplemented and, to the extent inconsistent, superseded within “Note 1—Overview and Summary of Significant Accounting Policies” to the condensed consolidated financial statements in this report.

A quantitative sensitivity analysis is provided where that information is reasonably available, can be reliably estimated, and provides material information to investors. The amounts used to assess sensitivity are included to allow users of this report to understand a general directional cause and effect of changes in the estimates and do not represent management’s predictions of variability. For all of these estimates, it should be noted that future events rarely develop exactly as forecasted, and estimates require regular review and adjustment.

Transaction and credit losses

Transaction and credit losses include the expense associated with our customer protection programs, fraud, chargebacks, and credit losses associated with our loans receivable balances. Our transaction and credit losses fluctuate depending on many factors, including: total TPV, current and projected macroeconomic conditions, including unemployment rates and merchant insolvency events, changes to and usage of our customer protection programs, the impact of regulatory changes, and the credit quality of loans receivable arising from transactions funded with our credit products, which include our PayPal Credit consumer products and merchant loans and advances arising from our PPWC and PPBL products.

We establish allowances for negative customer balances and estimated transaction losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery of goods or services, buyer protection program claims, and account takeovers. Additions to the allowance, in the form of provisions, are reflected in transaction and credit losses on our condensed consolidated statements of income. The allowances are monitored regularly and are updated based on actual claims data. The allowances are based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment and write-off patterns, the mix of transaction and loss types, as well as current and projected macroeconomic factors, as appropriate.

We also establish an allowance for loans and interest receivable, which represents our estimate of lifetime expected credit losses inherent in our portfolio of loans and interest receivable. This evaluation process is subject to numerous estimates and judgments. The allowance is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic factors. Loss curves are generated using historical loss data for our loan portfolios and are applied to segments of each portfolio, categorized by geographic region, first borrowing vs. reuse, delinquency, and vintage, among other factors. We then apply macroeconomic factors such as forecasted trends in unemployment and benchmark credit card charge-off rates, which are sourced externally, using a single scenario that is most appropriate to the economic conditions applicable to a particular period. We utilize externally sourced macroeconomic scenario data to supplement our historical information due to the limited period in which our credit product offerings have been in existence. Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our consumer and merchant receivables. Further, we include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our expected lifetime losses. While our consumer receivables are primarily revolving in nature and do not have a contractual term, the reasonable and supportable forecast period we have included in our projected loss rates based on externally sourced data is approximately seven years. Our merchant receivables also vary in contractual term, and the reasonable and supportable forecast period we have considered for projected loss rates is approximately 2.5 to 3.5 years, dependent upon the product. The allowance for loss against the interest and fees receivable is determined primarily by applying loss curves by geography, delinquency, and period of origination, among other factors.

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Determining appropriate expected credit loss allowances for loans and interest receivable is an inherently uncertain process and ultimate losses may vary from the current estimates. We regularly update our allowance estimates as new facts become known and events occur that may impact the settlement or recovery of losses. The allowances are maintained at a level we deem appropriate to adequately provide for lifetime expected credit losses at the balance sheet date after incorporating the impact of externally sourced macroeconomic forecasts. These forecasts project scenarios for future unemployment and benchmark credit card charge-off rates. As of September 30, 2020, we utilized externally published projections indicating a gradual decline in forecasted U.S. unemployment rates as well as forecasted credit card charge-off rates over the reasonable and supportable period, following peak unemployment rates of approximately 14% and 10% in the second and third quarters of 2020, respectively, resulting in an overall principal and interest coverage ratio of approximately 24%. The projected gradual decline in unemployment and credit card charge-off rates is reflective of a prolonged recovery period where we may experience elevated charge-off rates. A significant change in the forecasted macroeconomic factors could result in a material change in our allowances. Our allowance as of September 30, 2020 has been adjusted to account for the proactive and reactive measures that we have taken that are intended to reduce financial difficulties experienced by our customers, and other limitations in our expected credit loss models that have arisen due to the extreme fluctuations in both the actual and projected macroeconomic conditions during the period. These qualitative adjustments were made to incorporate varying degrees of merchant performance both in the current environment as well as expected future performance, and to account for payment holidays granted. Our allowance as of September 30, 2020 has not been adjusted to account for the potential impacts of the CARES Act, which are also intended to help mitigate the negative impact the current pandemic may have on the financial condition of our customers. We are unable to predict the ultimate impact of these actions which may result in adjustments to our allowance for loans and interest receivable in future periods. An increase of 1% in the principal and interest coverage ratio would increase our allowances by approximately $34 million based on the loans and interest receivable balance outstanding as of September 30, 2020.

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Item 3: Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as interest rates, foreign currency exchange rates, and equity investment risk. Management establishes and oversees the implementation of policies governing our investing, funding, and foreign currency derivative activities in order to mitigate market risks. We monitor risk exposures on an ongoing basis.

Interest Rate Risk

We are exposed to interest-rate risk relating to our investment portfolio and from interest-rate sensitive assets underlying the customer balances we hold on our condensed consolidated balance sheets as customer accounts.

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, approximately ~~60%~~40% and ~~78%~~63%, respectively, of our total cash, cash equivalents, and investment portfolio (excluding restricted cash and strategic investments) was held in cash and cash equivalents. The assets underlying the customer balances which we hold on our condensed consolidated balance sheets as customer accounts are maintained in interest and non-interest bearing bank deposits, time deposits, U.S. and foreign government and agency securities, and corporate debt securities. We seek to preserve principal while holding eligible liquid assets, as defined by applicable regulatory requirements and commercial law in certain jurisdictions where we operate, equal to at least 100% of the aggregate amount of all customer balances. We do not pay interest on amounts due to customers.

OnIf interest rates increased by 100 basis points, the fair value of our available-for-sale debt securities investment portfolio would decrease by approximately $104 million and $68 million at September ~~26,~~30, 2020 and December 31, 2019, ~~we issued~~respectively.

We have $9.0 billion in fixed rate ~~notes~~debt with varying maturity ~~dates for an aggregate principal amount of $5.0 billion.~~dates. Since these notes bear interest at fixed rates, they do not result in any financial statement risk associated with changes in interest rates. However, the fair value of these notes fluctuates when interest rates change.

On We also have a committed credit facility of $5.0 billion available to us. We are obligated to pay interest on borrowings under this facility as well as other customary fees, including an upfront fee and an unused commitment fee based on our debt rating. Borrowings under this facility, if any, bear interest at floating rates. As a result, we are exposed to the risk related to fluctuations in interest rate to the extent of our borrowings. As of both September ~~11,~~30, 2020 and December 31, 2019, we ~~entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $5.0 billion, five-year revolving~~had no amount outstanding under this credit facility. Additionally, on September 11, 2019, we entered into a 364-day credit agreement (“364-Day Credit Agreement”) that provides for an unsecured $1 billion 364-day revolving credit facility. As of September 30, 2019, no borrowings were outstanding under the Credit Agreement and the 364-Day Credit Agreement, and as such, $6.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement and the 364-Day Credit Agreement, subject to customary conditions to borrowing. Upon our entry into the Credit Agreement, the credit agreement that we entered into in the third quarter of 2015 that provided for an unsecured $2.0 billion, five-year revolving credit facility was terminated.

In the fourth quarter of 2018, we entered into an amended credit agreement (“Amended Credit Agreement”) which amended and restated in its entirety the previous agreement entered into in 2017. The Amended Credit Agreement provided for an unsecured $5.0 billion, 364-day delayed-draw term loan credit facility, which was available in up to four separate borrowings until April 6, 2019. As of December 31, 2018, $2.0 billion was outstanding under the Amended Credit Agreement. On April 5, 2019, the Company drew down an additional $500 million under the Amended Credit Agreement. On September 26, 2019, the Amended Credit Agreement was terminated and we repaid $2.5 billion of borrowings outstanding under such agreement.

We also maintain committed and uncommitted credit facilities in various regions throughout the world, with borrowing capacity of approximately $230 million in the aggregate. As of September 30, 2019, substantially all of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

For additional information, see ~~Note~~“Note 12—“Debt” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Interest rates may also adversely impact our customers’ spending levels and ability and willingness to pay outstanding amounts owed to us. Higher interest rates often lead to higher payment obligations by customers of our credit products to us, or to lenders under mortgage, credit card, and other consumer and merchant loans, which may reduce our customers’ ability to remain current on their obligations to us and therefore lead to increased delinquencies, charge-offs, and allowances for loans and interest receivable, which could have an adverse effect on our net income.

~~A 100 basis point increase in interest rates would not have had a material impact on our financial assets or liabilities at September 30, 2019 and December 31, 2018.~~

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Foreign Currency Exchange Rate Risk

We have significant operations internationally that are denominated in foreign currencies, primarily the British Pound, Euro, Australian Dollar, and Canadian Dollar, subjecting us to foreign currency exchange rate risk, which may adversely impact our financial results. We transact business in various foreign currencies and have significant international revenues and costs. In addition, we charge our international subsidiaries for their use of intellectual property and technology and for certain corporate services. Our cash flows, results of operations, and certain of our intercompany balances that are exposed to foreign currency exchange rate fluctuations may differ materially from expectations, and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities. We are generally a net receiver of foreign currencies and therefore benefit from a weakening of the U.S. dollar, and are adversely affected by a strengthening of the U.S. dollar, relative to foreign currencies.

We have a foreign currency exchange exposure management program designed to identify material foreign currency exposures, manage these exposures, and reduce the potential effects of currency fluctuations on our ~~condensed~~ consolidated cash flows and results of operations through the execution of foreign currency exchange contracts. These foreign currency exchange contracts are accounted for as derivative instruments; for additional details related to our foreign currency exchange contracts, please see ~~Note~~“Note 10—“Derivative Instruments” to the condensed consolidated financial statements included in this ~~report.~~Form 10-Q.

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We use foreign currency exchange forward contracts to protect our forecasted U.S. dollar-equivalent earnings and our investment in a foreign subsidiary from adverse changes in foreign currency exchange rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign currency exchange rate movements. We designate these contracts as cash flow and net investment hedges for accounting purposes. The derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) ~~and~~. Cash flow hedges are subsequently reclassified into the financial statement line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. The accumulated gains and losses associated with the net investment hedge will remain in AOCI until the foreign subsidiary is sold or substantially liquidated, at which point they will be reclassified into earnings.

We considered the historical trends in foreign currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 20% for all currencies could be experienced in the near term. If the U.S. dollar weakened by 20% at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately ~~$619~~$821 million and ~~$707~~$900 million lower, respectively. If the U.S. dollar strengthened by 20% at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately ~~$619~~$821 million and ~~$707~~$900 million higher, respectively.

We have an additional foreign currency exchange management program ~~whereby~~in which we use foreign currency exchange contracts to offset the foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. These contracts are not designated as hedging instruments and reduce, but do not entirely eliminate, the impact of currency exchange rate movements on our assets and liabilities. The foreign currency exchange gains and losses on our assets and liabilities are recorded in other income (expense), net, and are offset by the gains and losses on the foreign currency exchange contracts.

Adverse changes in exchange rates of 20% for all currencies would have resulted in an adverse impact on income before income taxes of approximately ~~$226~~$278 million and ~~$295~~$147 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, without considering the offsetting effect of hedging. Foreign currency exchange contracts in place as of September 30, 2020 would have positively impacted income before income taxes by approximately $267 million, resulting in a net negative impact of approximately $11 million. Foreign currency exchange contracts in place as of December 31, 2019 would have positively impacted income before income taxes by approximately $217 million, resulting in a net negative impact of approximately $9 million. Foreign currency exchange contracts in place as of December 31, 2018 would have positively impacted income before income taxes by approximately $308$153 million, resulting in a net positive impact of approximately ~~$13~~$6 million. These reasonably possible adverse changes in exchange rates of 20% were applied to total monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries at the balance sheet dates to compute the adverse impact these changes would have had on our income before income taxes in the near term.

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Equity Investment Risk

Our strategic investments are subject to a variety of market-related risks that could substantially reduce or increase the carrying value of ~~our holdings.~~the portfolio. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, our strategic investments totaled ~~$1.8~~$2.2 billion and ~~$293 million,~~$1.8 billion, respectively, which represented approximately ~~14% and 3%~~13% of our total cash, cash equivalents, and investment portfolio at each of those ~~dates, respectively.~~respective dates. Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are investments in privately held ~~companies.~~companies that are not publicly traded. We are required to record all adjustments to the carrying value of these strategic investments through our condensed consolidated statements of income. As such, we anticipate volatility to our net income in future periods due to changes in fair value related to our investments in marketable equity securities and changes in observable prices related to our non-marketable equity ~~securities.~~securities accounted for under the Measurement Alternative. These changes could be material based on market conditions. A hypothetical adverse change of 10% in the carrying value of our strategic investments as of ~~10%,~~September 30, 2020, which could be experienced in the near term, would ~~result~~have resulted in a decrease of approximately ~~$179~~$222 million to the carrying value of the portfolio. We review our non-marketable equity investments accounted for under the Measurement Alternative for impairment when events and circumstances indicate a decline in fair value of such assets below carrying value. Our analysis includes a review of recent operating results and trends, recent purchases and sales of ~~the~~ securities, ~~in which we have invested,~~ and other publicly available data.

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Item 4: Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) required by Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

(b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1: Legal Proceedings

The information set forth under ~~Note~~“Note 13—“Commitments and Contingencies—Litigation and Regulatory Matters” to the condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.

Item 1A: Risk Factors

We are subject to various risks and uncertainties, which could materially affect our business, results of operations, financial condition, future results, and the trading price of our common stock. You should read carefully the following information together with the information appearing in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 as filed with the SEC on February 7, 6, 2020 (“2019 ~~(“2018~~ Form 10-K”). The following information supplements and, to the extent inconsistent, supersedes some of the information appearing in the Risk Factors section of our ~~2018~~2019 Form 10-K. These risk factors, as well as our condensed consolidated financial statements and notes thereto and the other information appearing in this report, should be reviewed carefully for important information regarding risks that affect us.

~~Global~~The novel coronavirus (“COVID-19”) outbreak could materially and ~~regional~~adversely affect our business, financial condition, and results of operations.

The novel strain of the coronavirus identified in late 2019 has spread globally, and the World Health Organization characterized the outbreak as a pandemic in March 2020. The outbreak has resulted in government authorities and businesses throughout the world implementing numerous measures intended to contain and limit the spread of COVID-19, including travel bans and restrictions, quarantines, shelter-in-place and lock-down orders, and business limitations and shutdowns. These measures have negatively impacted consumer and business spending and payments activity generally, and have significantly contributed to deteriorating macroeconomic conditions and higher unemployment in some countries, including those in which we have significant operations. While governments around the world have taken steps to attempt to mitigate some of the more severe anticipated economic ~~conditions~~effects of COVID-19, there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.

The COVID-19 outbreak has adversely impacted and is likely to further adversely impact the operations of our customers, suppliers, vendors and other business partners, and may adversely impact our results of operations in the future. Cross-border activity and domestic commerce may be adversely impacted by the measures described above, which are intended to contain and limit the outbreak’s spread. While many of these mitigation measures are gradually being lifted, to the extent they may remain in place or are reinstated for significant periods of time, they may adversely affect our business, financial condition, and results of operations. Actions that we have taken or may take in the future intended to assist customers impacted by COVID-19 (e.g., waiving certain fees and payment holidays provided as a part of our COVID-19 payment relief initiatives) may negatively impact our results of operations. In particular, we have experienced and may continue to experience adverse financial impacts from a number of operational factors, including, but not limited to, the following:

•Merchants selling goods or services in advance of the date of their delivery (e.g., travel and events verticals) or experiencing bankruptcy, insolvency, business failure, or other business interruption, which could ~~harm our business.~~

~~Our operations and performance depend significantly on global and regional economic conditions. Uncertainty about global and regional economic events and conditions may~~ result in our becoming liable to the buyers of such goods or services, either through our buyer protection program or through chargebacks on payment cards used by customers to fund their payments;

•Merchants who utilize our merchant credit products such as PayPal Working Capital and PayPal Business Loan products defaulting on their payment obligations;

•Consumers who utilize our PayPal Credit products defaulting on their payment obligations, including U.S. consumers, which may adversely impact our revenue share on the portfolio of U.S. consumer receivables owned by Synchrony Bank;

•Increased cybersecurity and ~~businesses postponing or lowering spending in response to, among other factors:~~

~~tighter credit,~~

~~higher unemployment,~~

~~consumer debt levels or reduced consumer confidence,~~

~~financial market volatility,~~

~~fluctuations in foreign currency exchange rates and interest rates,~~

~~changes and uncertainties~~payment fraud risk related to ~~government fiscal and tax policies,~~

~~changes and uncertainties about trade relationships between~~COVID-19, as cybercriminals attempt to profit from the ~~U.S. and various other countries with respect to international trade agreements and policies, treaties, government regulations and tariffs, including the possibility~~disruption in light of ~~the U.S. and/or other countries imposing greater restrictions on international trade, significant increases in tariffs on imported goods,~~increased online banking, e-commerce, and other ~~restrictive actions,~~

~~the inability of the U.S. Congress to enact a budget in a fiscal year, another sequestration, and/or another shutdown of the U.S. government,~~

~~government austerity programs, and~~

~~other negative financial news or macroeconomic developments.~~

online activity;

~~These~~•Challenges to the availability and ~~other global and regional economic events and conditions, including Brexit, could have a material adverse impact on the demand for~~reliability of our products and services resulting from changes to our normal operations, including due to one or more clusters of COVID-19 cases occurring at our (or our service providers') corporate offices or customer service and operations centers or the temporary closure of these sites due to mandatory local lock-down requirements, which may impact our employees, our level of customer service, and/or the systems or employees of our customers and business partners; and

•An increased volume of unanticipated customer requests for support (resulting in increased volume to our customer support and operations centers) and regulatory requests for information and support or additional regulatory requirements, which could require additional resources and costs to address.

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A sustained or prolonged COVID-19 outbreak or a resurgence could exacerbate the factors described above and intensify the impact on our business, and the resumption of economic activity and business operations to pre-pandemic levels may be delayed or constrained by lingering effects on our merchants and consumers. Accordingly, these factors may adversely affect our business, financial condition, and results of operations, even after the COVID-19 outbreak has subsided.

While the current macroeconomic environment as a result of the COVID-19 outbreak has adversely impacted general consumer and merchant spending with a more pronounced impact on travel and events verticals, the spread of COVID-19 has also accelerated the shift from in-store shopping and traditional in-store payment methods (e.g., credit cards, debit cards, cash) towards e-commerce and digital payments and resulted in increased customer demand for safer payment and delivery solutions (e.g. contactless payment methods, buy online and pick up in store) and a significant increase in online spending in certain verticals that have historically had a strong in-store presence. On balance, our business has benefited from these behavioral shifts, including a ~~reduction~~significant increase in net new active accounts and payments volume. To the extent that consumer preferences revert to pre-COVID-19 behaviors as mitigation measures to limit the spread of COVID-19 are lifted or relaxed, our business, financial condition, and results of operations could be adversely impacted.

The COVID-19 outbreak has required and is likely to continue to require significant management attention, substantial investments of time and resources across our enterprise, and increased costs to effectively manage our operations. The spread of COVID-19 has caused us to make significant modifications to our business practices, including enabling most of our workforce to work from home, establishing strict health and safety protocols for our offices, restricting physical participation in meetings, events, and conferences and imposing restrictions on employee travel. The significant increase in the ~~volume~~number of our employees who are working remotely as a result of the outbreak, and ~~size~~an extended period of ~~transactions~~remote work arrangements and subsequent reintroduction into the workplace could introduce operational risk, increase cybersecurity risk, strain our business continuity plans, negatively impact productivity, give rise to claims by employees, and impair our ability to manage our business or otherwise adversely affect our business. Additionally, COVID-19 could negatively affect our internal controls over financial reporting as a significant portion of our workforce is required to work from home and therefore new or modified processes, procedures, and controls could be required to respond to changes in our business environment. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19 or will otherwise be satisfactory to government authorities.

The spread of COVID-19 has led to disruption and volatility in the global capital markets, which may increase our cost of capital and may adversely affect our ability to access the capital markets. Even after the COVID-19 outbreak has subsided, we may continue to experience adverse impacts to our business as a result of the global economic impact, including the availability of credit, adverse impacts on our ~~Payments Platform.~~liquidity and any recession that has occurred or may occur in the future. In addition, we cannot predict the impact that COVID-19 will have on our customers, suppliers, vendors, and other business partners, and their respective financial condition, and any ~~financial turmoil affecting~~significant negative impact on these parties could materially and adversely impact us. Additionally, government regulations or legislation adopted directly or indirectly in response to the ~~banking system or financial markets could cause additional consolidation~~COVID-19 outbreak may negatively impact our business.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. The extent to which the COVID-19 pandemic impacts our business, financial ~~services industry, significant~~condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict and subject to change, including, but not limited to, the duration, scope, severity, and geographic spread of the outbreak, actions taken to contain COVID-19 or treat its impact, measures taken by various governmental authorities in response to the outbreak (such as continued and/or new quarantines, mask and social distancing requirements, and travel restrictions), geographic variation in how countries and states are handling the outbreak, and how quickly and to what extent normal economic and operating conditions could potentially resume. While we do not yet know the full extent of the impacts on our business, financial ~~service institution failures, new~~condition, and results of operations, or ~~incremental tightening in~~ the ~~credit markets, low liquidity, and extreme volatility~~global economy as a whole, these impacts, individually or ~~distress in the fixed income, credit, currency, and equity markets, which~~collectively, could have a material adverse impact on our ~~business. See also~~business, financial condition and results of operations. In addition, the ~~risk factor captioned,~~ ~~“The United Kingdom's departure from~~impact of COVID-19 may heighten or exacerbate many of the EUother risks discussed in Item 1A—Risk Factors in our 2019 Form 10-K, any of which could ~~adversely affect~~have a material impact on us.”

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We face substantial and increasingly intense competition worldwide in the global payments industry.

The global payments industry is highly competitive, rapidly changing, highly innovative, and increasingly subject to regulatory scrutiny and oversight. We compete against a wide range of businesses, including those that are larger than we ~~cannot keep pace with rapid technological developments to provide new and innovative~~are, have greater name recognition, longer operating histories, or a dominant or more secure position, or offer other products and services to consumers and merchants that we do not offer, as well as smaller or younger companies that may be more agile in respondingquickly to regulatory and technological changes. Many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services. Competition also may intensify as businesses enter into business combinations and partnerships, and established companies in other segments expand to become competitive with different aspects of our business.

We compete primarily on the basis of the following:

•ability to attract, retain, and engage both merchants and consumers on our Payments Platform;

•ability to demonstrate to merchants that they may achieve incremental sales by using and offering our services to consumers;

•consumer confidence in the safety and security of transactions on our Payments Platform, including the ability for consumers to use of our products and services without sharing their financial information with the merchant or any otherparty they are paying;

•simplicity and ~~consequently,~~transparency of our ~~revenues could decline.~~fee structure;

•ability to develop products and services across multiple commerce channels, including e-commerce, mobile, and payments at the point of sale;

~~Rapid, significant,~~•trust in our dispute resolution and ~~disruptive technological changes impact~~buyer and seller protection programs;

•customer service experience;

•brand recognition and preference;

•website, mobile platform, and application onboarding, ease-of-use, speed, availability, and dependability;

•ability of our Payments Platform to provide support across technologies and payment methods;

•system reliability and data security;

•ability to assist merchants in complying with payments-related laws and regulations;

•ease and quality of integration into third-party mobile applications and operating systems; and

•quality of developer tools, such as our application programming interfaces and software development kits.

We compete against a wide range of businesses with varying roles in all forms of payments, including:

•paper-based transactions (principally cash and checks);

•banks and financial institutions providing traditional payment methods, particularly credit and debit cards (collectively, “payment cards”) and electronic bank transfers;

•payment networks which facilitate payments for credit card users;

•providers of “digital wallets” which offer customers the ~~industries in which we operate,~~ability to (i) pay online and/or in-store through a variety of payment methods, including ~~developments in:~~

~~technologies supporting our regulatory~~with mobile applications, through contactless payments, with a variety of payment cards, and ~~compliance obligations (for example in relation to KYC~~using direct debit, credit, installments, or other buy now pay later methods and ~~CIP obligations),~~

~~artificial intelligence~~(ii) buy, sell, and ~~machine learning (for example in relation to fraud and risk decisioning),~~

~~payment technologies (for example real time payments, payment card tokenization and~~hold virtual currencies, such as cryptocurrencies;

•providers of mobile payments solutions that use tokenized card data approaches and contactless payments (e.g., near field communication (“NFC”) or host card emulation functionality) to eliminate the need to swipe or insert a card or enter a personal identification number or password;

•payment-card processors that offer their services to merchants, including for “card on file” payments where the merchant invites the consumer to select a payment method for their first transaction and to use the same payment method for subsequent transactions;

•providers of person-to-person (“P2P”) payments that facilitate individuals sending money using an email address or mobile phone number;

•merchants and merchant associations that may provide proprietary payment networks to facilitate payments within their own retail network;

•providers of money remittance services for transferring money abroad, including those that may provide proprietary payment networks;

•providers of card readers for mobile devices and of other point of sale and multi-channel technologies; and

•providers of virtual currencies and distributed ledger ~~and blockchain technologies, and proximity payment technology, such as NFC and other contactless payments), and~~technologies.

~~commerce technologies, including in-store, online, mobile, virtual and social commerce (i.e., ecommerce through social networks).~~

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~~As a result,~~We often partner with many of these businesses and we ~~expect new services~~consider the ability to continue establishing these partnerships as important to our business. Competition for relationships with these partners is intense, and ~~technologies~~there can be no assurance that we will be able to continue to ~~emerge~~establish, grow, or maintain these partner relationships.

We also face competition and ~~evolve,~~potential competition from:

•services that provide online merchants the option of paying for purchases from their bank account or paying on credit;

•issuers of stored value products targeted at online payments;

•other online and mobile payment-services providers globally;

•services targeting users of social networks and online gaming, including those offering social commerce and P2P payments;

•payment services enabling banking customers to send and receive payments through their bank account, including through immediate or real-time payments systems;

•e-commerce services that provide special offers linked to a specific payment provider;

•services that help merchants and consumers use, accept, buy, sell, and manage virtual currencies; and

•electronic funds transfer services as a method of payment for both online and offline transactions.

Some of our current and potential competitors have larger customer bases, broader geographic scope, volume, scale, resources, and market share than we ~~cannot predict~~do, which may provide them significant competitive advantages. Some competitors may also be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing, and other regulatory requirements. They may devote greater resources to the ~~effects~~development, promotion, and sale of ~~technological changes on~~products and services, and offer lower prices or more effectively offer their own innovative programs, products, and services.

If we are not able to differentiate our ~~business. In addition to our own initiatives~~products and ~~innovations, we rely in part on third parties, including some~~services from those of our competitors, drive value for ~~the development of~~our customers, or effectively and ~~access to new or evolving technologies. These third parties may restrict or prevent~~efficiently align our ~~access to, or utilization of, those technologies, as well as their platforms or products. In addition,~~resources with our goals and objectives, we may not be able to ~~accurately predict which technological developments or innovations will become widely adopted and how those technologies may be regulated. We expect that new services and technologies applicable to~~compete effectively in the industries in which we operate will continue to emerge and may be superior to, or render obsolete, the technologies we currently use in our products and services. Developing and incorporating new technologies into our products and services may require substantial expenditures, take considerable time, and ultimately may not be successful. In addition, our ability to adopt new products and services and to develop new technologies may be inhibited by industry-wide standards, payments networks, changes to laws and regulations, the extent of resistance to change from consumers or merchants, third-party intellectual property rights, or other factors. Our success will depend on our ability to develop and incorporate new technologies and adapt to technological changes and evolving industry standards; if we are unable to do so in a timely or cost-effective manner, our business could be harmed.market.

Brexit: The United Kingdom’s departure from the EU could adversely affect us.

The United Kingdom (“U.K.”) ~~held a referendum in June 2016 in which a majority of voters approved an exit from~~formally exited the European Union (“EU”) ~~(commonly referred~~and the European Economic Area (“EEA”) on January 31, 2020 and a transition period is expected to ~~as “Brexit”). In March 2017, the U.K. government initiated the exit process under Article 50 of the Treaty on European Union. This commenced a two-year period, expiring on March 29, 2019, after~~be in place until December 31, 2020 during which time the ~~U.K was expected~~U.K. will remain in both the EU customs union and single market and follow EU rules, including those extending to ~~leave the EU. The EU subsequently extended this date to October 31, 2019.~~EEA states. There is a significant lack of clarity over the ~~eventual date and terms of the U.K.'s exit from the EU and the~~ terms of the U.K.'s future relationship with the ~~EU. The U.K.'s financial service regulators have implemented Temporary Permission Regimes~~EU, and the international bodies that ~~will be in place should the U.K. exit the EU without an agreement. The regulators will use~~are linked to it, after this and other powers to support European Economic Area (“EEA”) financial services firms, including our EU operations, in continuing to conduct business in the U.K. in an orderly manner should the U.K. exit the EU without an agreement.date.

Brexit could ~~adversely affect U.K., regional (including European), and worldwide economic and market conditions and could~~therefore contribute to instability in ~~global~~ financial, stock, and ~~foreign~~currency exchange markets, including volatility in the value of the British Pound and Euro, ~~which in turn could adversely affect us or our customers and companies with which we do business, particularly in the U.K. Brexit could lead to~~ greater restrictions on the supply and availability of goods and services between the U.K. and ~~the~~ EEA region, ~~with the potential inability of U.K. companies to fulfill orders leading in turn to a risk of increased merchant defaults~~ and ~~buyer protection claims. Brexit could also trigger~~ a general deterioration in ~~credit conditions, a downturn in~~ consumer sentiment and credit conditions leading to overall negative economic ~~growth. Any~~growth and increased risk of ~~these scenarios could have an adverse effect on our business or our customers.~~merchant default .

In addition, Brexit could lead to legal uncertainty and increased complexity for financial services firms as national laws and regulations in the U.K. start to diverge from EU laws and ~~regulations.~~regulations and new licensing requirements are introduced. In particular, depending on the ~~terms~~nature of ~~Brexit,~~the U.K.’s future trading relationships with European countries after December 31, 2020, we ~~may~~expect to face new regulatory costs and challenges, including the following:

•if we are unable to utilize ~~appropriate~~certain licenses and authorizations, ~~and regulatory permissions,~~ our European operations could lose their ability to offer services into the U.K. market on a cross-border basis and ~~for~~ our ~~U.K. based~~U.K.-based operations could lose their ability to offer services on a cross-border basis in the European markets. For example, our ability to work primarily with the Luxembourg regulator as the lead authority for various aspects of the U.K. operations of PayPal (Europe) S.à.r.l. et Cie., SCA (“PayPal (Europe))” and with the Swedish regulator for various aspects of the U.K. operations of iZettle AB (pub)(“iZettle”) may be impacted;markets;

•we could be required to obtain additional regulatory permissions to operate in the U.K. market, adding costs and potential inconsistency to our business (and, depending on the capacity of the U.K. authorities, the criteria for obtaining permission, and any possible transitional arrangements, there is a risk that our business in the U.K. could be materially affected or disrupted);market;

~~we could~~•or be required to comply with legal and regulatory requirements in the U.K. that are in addition to, or inconsistent with, ~~the regulatory requirements~~those of the ~~EU,~~EEA, in each case, leading to increased complexity and costs for our European and U.K. operations; and

•our ability to attract and retain the necessary human resources in appropriate locations to support our U.K. and ~~the~~ European business could be adversely impacted.

These and other factors related to Brexit could, individually or in the aggregate, have a material adverse impact on our business, financial condition, and results of ~~operations~~operations.

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Our business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business.

Our business is subject to laws, rules, regulations, policies, and legal interpretations in the markets in which we operate, including, but not limited to, those governing:

•banking,

•credit,

•deposit taking,

•cross-border and domestic money transmission,

•prepaid access,

•foreign currency exchange,

•privacy,

•data governance,

•data protection,

•cybersecurity,

•banking secrecy,

•fraud detection,

•payment services (including payment processing and settlement services),

•consumer protection,

•antitrust and competition,

•economic and trade sanctions,

•anti-money laundering, and

•counter-terrorist financing.

Our success and increased visibility may result in increased regulatory oversight and enforcement and more restrictive rules and regulations that apply to our business.

As we introduce new products and services, or expand our product and service offerings, in U.S. and international markets, we may become subject to additional regulations, restrictions, and licensing requirements. In particular, as we expand and localize our international activities, we have become increasingly obligated to comply with the laws of the ~~countries or~~ markets in which we operate. In addition, because our services are accessible worldwide and we facilitate sales of goods and provide services to customers worldwide, one or more jurisdictions may claim that we or our customers are required to comply with their laws. Laws regulating the internet, mobile, and related technologies outside of the U.S. often impose different, more specific, or even conflicting obligations on us, as well as broader liability. For example, certain transactions that may be permissible in a local jurisdiction may be prohibited by regulations of U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) or U.S. anti-money laundering or counter-terrorist financing regulations.

Any failure or perceived failure to comply with existing or new laws, regulations, or orders of any ~~governmental~~government authority (including changes to or expansion of the interpretation of those laws, regulations, or orders), including those discussed in this risk factor, may subject us to significant fines, penalties, criminal and civil lawsuits, forfeiture of significant assets, and enforcement actions in one or more ~~jurisdictions,~~jurisdictions; result in additional compliance and licensure ~~requirements,~~requirements; cause us to lose existing licenses or prevent or delay us from obtaining additional licenses that may be required for our ~~business,~~business; increase regulatory scrutiny of our ~~business,~~business; restrict our ~~operations,~~operations; and force us to change our business practices, make product or operational changes, or delay planned transactions, product launches or improvements. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect our results of operations and financial condition. The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the global scope of our operations and the evolving global regulatory environment, could result in a single event ~~giving rise to~~prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, orand agents will not violate such laws and regulations.

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Payments Regulation

In the U.S., PayPal, Inc. has obtained licenses to operate as a money transmitter (or its equivalent) in the states where such licenses are required, as well as in the District of Columbia, the U.S. Virgin Islands, and Puerto Rico. These licenses include not only the PayPal branded products and services in these states, but also our ~~Braintree,~~ Venmo, Hyperwallet and Xoom products and services. ~~We may also maintain such licenses for certain companies that we have acquired, such as Hyperwallet.~~ As a licensed money transmitter, PayPal is subject to, among other requirements, restrictions with respect to the investment of customer funds, reporting requirements, bonding requirements, and inspection by state regulatory agencies. ~~Accordingly, if~~To the extent they are required, these state licenses also cover PayPal’s service offering enabling customers to buy, hold and sell cryptocurrency directly from their PayPal account, except in the State of New York. PayPal has obtained a conditional Virtual Currency License from the New York Department of Financial Services to launch cryptocurrency services in the state in partnership with Paxos Trust Company. If we violate ~~these~~the laws or regulations covered under these licenses, we could be subject to liability and/or additional restrictions, forced to cease doing business with residents of certain states, forced to change our business practices, or required to obtain additional licenses or regulatory approvals, which could impose substantial costs.

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While we currently allow our customers ~~with payment cards~~ to send payments from approximately 200 markets, we allow customers in only approximately half of those markets (including the U.S.) to also receive payments, in some cases with significant restrictions on the manner in which customers can hold balances or withdraw funds. These limitations may adversely affect our ability to grow our business in these markets.

We principally provide our services to customers in the EU and the U.K. through PayPal (Europe) S.à r.l. et Cie, S.C.A ("PayPal (Europe)"), our wholly-owned subsidiary that is licensed and subject to regulation as a credit institution in Luxembourg. Accordingly, PayPal (Europe) is potentially subject to significant fines or other enforcement action if it violates the disclosure, reporting, anti-money laundering, capitalization, ~~fund management,~~ corporate governance, privacy, data protection, data governance, information security, banking secrecy, taxation, cross-border payment, risk management, sanctions, or other requirements imposed on Luxembourg ~~banks.~~credit institutions. In addition, EU laws and regulations are ~~typically~~ subject to ~~different and~~ potentially inconsistent interpretations by the countries that are members of the EU, which can make compliance more costly and operationally difficult to manage. Moreover, the countries that are EU members may each have different and potentially inconsistent domestic regulations implementing European Directives, which could make compliance more costly and operationally difficult to manage. The Revised Payment Services Directive (“PSD2”) took effect in Europe in 2018, with certain requirements ~~only being~~becoming applicable from 2019 or later. ~~The implementation of~~ PSD2 ~~may negatively affect our business. PSD2 seeks to enable~~enables new payment and information sharing models whereby ~~a newly formed category of~~ regulated payment ~~provider would be~~providers are able to access bank and payment accounts (including PayPal accounts) for the purposes of accessing account information or initiating a payment on behalf of a customer. Such access could subject us to data security and other legal and financial risks and could create new competitive forces and new types of competitors in the European payments market. PSD2 seeks to regulate more online platforms that handle payments for their sellers. PayPal merchants with affected business models which are not licensed, or which do not benefit from exemptions or integrate a compliant marketplaces solution may not be able to offer PayPal products in the future. PSD2 also imposes new standards for payment security and strong customer authentication (“SCA”) that may make it more difficult and time consuming to carry out ~~a PayPal transaction,~~transactions on our Payments Platform, which may adversely impact PayPal’s European customer value ~~proposition~~proposition. In line with an opinion issued by the European Banking Authority (“EBA”), national competent authorities (including Luxembourg) have announced enforcement deferral periods for migration to SCA requirements for e-commerce card-based transactions. PayPal (Europe) has implemented SCA customer processes covering the majority of payment transactions initiated within the EU and ~~its~~has plans to finalize full compliance with SCA; amending or accelerating these plans may adversely impact PayPal’s European business. These authentication requirements were originally scheduled to commence from September 2019 but European national supervisory authorities have decided to delay enforcing them during a transitional period (the duration of which is still being determined) due to a lack of industry readiness.customer value proposition.

If the business activities of PayPal (Europe) exceed certain thresholds, or if the European Central Bank (“ECB”) so determines, PayPal (Europe) may be deemed a significant supervised entity such that some activity of PayPal (Europe) could become directly regulated by the ECB, rather than by the CSSF, the Luxembourg regulator, ~~(the “CSSF”),~~ as its national supervisor, which could subject us to additional requirements and would likely increase compliance costs.

In many of the other markets outside the U.S. in which we do business, we serve our customers through PayPal Pte. Ltd., our wholly-owned subsidiary based in Singapore. PayPal Pte. Ltd. is supervised by the Monetary Authority of Singapore ~~and designated as a holder of a stored value facility,~~(“MAS”), but does not hold a remittance license. As a result, PayPal Pte. Ltd. is not able to offer outbound remittance payments from Singapore, and can only offer payments for the purchase of goods and services in Singapore. In many of the markets (other than Singapore) served by PayPal Pte. Ltd., it is unclear and uncertain whether our Singapore-based service is subject only to Singapore law or, if it is subject to the application of local laws, whether such local laws would require a payment processor like us to be licensed as a payments service, bank, financial institution, or otherwise. The Payment Services Act ~~(“PS Act”) passed~~came into ~~law~~effect in Singapore in January ~~2019 and is expected to come into effect in~~ 2020. ~~Under the PS Act,~~ PayPal Pte. Ltd. is currently operating within a statutory transitional period, and will be required to apply for a license with MAS before January 27, 2021 in order to continue to provide payments services in Singapore. ~~Furthermore, once the PS Act comes into force and is fully implemented,~~Once PayPal Pte. Ltd. obtains its license, we ~~may face new regulatory costs and challenges, including the following:~~

~~we could~~will be required to comply with new regulatory requirements ~~resulting~~that will result in increased operational complexity and costs for our Singapore and international ~~operations;~~operations.

we could be required to make changes to our compliance program, resulting in increased complexity and costs to operate both in Singapore as well as in the cross-border markets which are served by PayPal Pte. Ltd; and

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~~we could be required to comply with additional safeguarding requirements, which could increase our operational costs.~~

In certain markets outside the U.S. (e.g., Australia), we provide our services to customers through a local subsidiary subject to local regulatory supervision or oversight, which may be the holder of a local payment license, certification, or other authorization. In such markets, we may be subject to significant fines or other enforcement action if we violate applicable reporting, anti-money laundering, capital requirements, privacy, corporate governance, risk management, or any other applicable requirements.

PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre ~~(AUSTRAC)~~(“AUSTRAC”) on May 22, ~~2019 with respect~~2019. This self-reported matter relates to ~~the reporting of~~PPAU incorrectly filing required international funds transfer instructions over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act ~~2006~~2006. Please see “Note 13—Commitments and Contingencies—Litigation and Regulatory Matters” for additional disclosure regarding this matter.

From time to time, we may acquire entities subject to local regulatory supervision or oversight. For example, in December 2019, we completed our acquisition of a 70% equity stake in Guofubao Information Technology Co. (GoPay), Ltd. (“~~AML/CTF Act”~~GoPay”)~~. On September 23, 2019, PPAU received~~, a ~~notice from AUSTRAC requiring that PPAU appoint an external auditor to review~~provider of online payment services in China. GoPay holds certain ~~aspects of PPAU’s compliance~~licenses associated with its ~~obligations under~~payments business in China and is subject to regulatory supervision by the ~~AML/CFT Act. PPAU is continuing to cooperate with AUSTRAC in this matter.~~

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China and other regulatory bodies.

We have been, and expect to continue to be, required to apply for and renew various licenses, certifications, and regulatory approvals in a number of the jurisdictions where we provide our services, including due to changes in applicable laws and regulations or the interpretation of such laws and regulations. There can be no assurance that we will be able to (or decide to) obtain any such licenses, renewals, certifications, and approvals. In addition, there are substantial costs and potential product changes involved in maintaining and renewing such licenses, certifications, and approvals, and we could be subject to fines, other enforcement action, and litigation if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other requirements of such licenses. These factors could impose substantial additional costs, involve considerable delay to the development or provision of our products or services, require significant and costly operational changes, or prevent us from providing our products or services in a given market.

In many countries, it may not be clear whether we are required to be licensed as a payment services provider, bank, financial institution, or otherwise. In such markets, we may rely on local banks to process payments and conduct foreign currency exchange transactions in local currency. Local regulators may use their ~~power~~authority to slow or halt payments to local merchants conducted through local banks or otherwise prohibit or impede us from doing business in a jurisdiction. Such regulatory actions or the need to obtain licenses, certifications, or other regulatory approvals could impose substantial costs, involve considerable delay to the provision or development of our services, require significant and costly operational changes, impose restrictions, limitations, or additional requirements on our business and products, or prevent us from providing any products or services in a given market.

State Installment Lending Laws

PayPal’s U.S. consumer short-term installment loan product, launched in October 2020, is subject to state lending laws, some of which require licensure and/or state regulator notification, as well as Regulation B, state collection laws, and other applicable regulations. Changes to state laws and regulatory interpretation may require us to undergo product changes, incur substantial additional costs or cease lending in a particular state. We could be subject to fines, other enforcement action, and litigation if we are found to violate disclosure, reporting, advertising requirements, late fee caps, collections laws or other aspects of installment loan regulations.

Consumer Protection

We are subject to consumer protection, antitrust, and competition-related laws and regulations in the countries in which we operate. In the U.S., we are subject to federal and state consumer protection laws and regulations applicable to our activities, including the Electronic Fund Transfer Act (“EFTA”) and Regulation E as implemented by the Consumer Financial Protection Bureau (“CFPB”). These regulations require us to provide advance disclosure of changes to our services, follow specified error resolution procedures, and reimburse consumers for losses from certain transactions not authorized by the consumer. Additionally, technical violations of consumer protection laws could result in the assessment of actual damages or statutory damages or penalties of up to $1,000 in individual cases or up to $500,000 per violation in any class action and treble damages in some instances; we could also be liable for plaintiffs’ attorneys’ fees in such cases. We are subject to, and have paid amounts in settlement of, lawsuits containing allegations that our business violated the EFTA and Regulation E or otherwise advance claims for relief relating to our business practices (e.g., that we improperly held consumer funds or otherwise improperly limited consumer accounts).

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The CFPB issued a final rule on prepaid accounts that came into effect on April 1, 2019. The rule’s definition of prepaid account includes certain accounts that are capable of being loaded with funds and whose primary function is to conduct transactions with multiple, unaffiliated merchants, at ATMs and/or for ~~person-to-person~~P2P transfers. That definition includes certain digital wallets. The rule’s requirements include, among other things, the disclosure of fees and other information to the consumer prior to the creation of a prepaid account; the extension of Regulation E liability limits and error-resolution requirements to all prepaid accounts; the application of Regulation Z credit card requirements to prepaid accounts with overdraft and credit features; and the submission of prepaid account agreements to the CFPB and their publication to the general public. We have implemented certain changes to comply with the final rule and made substantial changes to the design of certain U.S. consumer accounts and their operability, which could lead to unintended customer confusion and dissatisfaction, discourage customers from opening new accounts, require us to reallocate resources, and increase our costs, which could negatively affect our business. In December 2019, we filed a lawsuit in the U.S. District Court for the District of Columbia against the CFPB challenging the validity of the prepaid account rule as applied to PayPal, Inc. All written submissions were filed with the court by the September 25, 2020 deadline, and the assigned judge can resolve the matter without a trial at any time. As with any litigation, there is no guarantee that our claims will succeed.

In May 2015, we entered into a Stipulated Final Judgment and Consent Order (“Consent Order”) with the CFPB in which we settled regulatory claims arising from PayPal Credit practices between 2011 and 2015. The Consent Order included obligations onof PayPal to pay $15 million in redress to consumers and a $10 million civil monetary penalty, and required PayPal to make various changes to PayPal Credit disclosures and related business practices. We continue to cooperate and engage with the CFPB and work to ensure compliance with the Consent Order, which may result in usour incurring additional costs.

PayPal ~~(Europe)~~ principally offers its services in EUEEA countries through a “passport” notification process through the Luxembourg regulator (in the case of PayPal (Europe)) to regulators in other EUEEA member states ~~pursuant to~~in accordance with EU regulations. Regulators in these countries could notify ~~PayPal (Europe)~~us of local consumer protection laws that apply to ~~its~~our business, in addition to Luxembourg consumer protection ~~law,~~laws, and could also seek to persuade the ~~Luxembourg~~local regulator to order PayPal ~~(Europe)~~ to conduct its ~~or the PayPal group's~~ activities in the local country directly or through a branch office. Similarly, as a result of Brexit, the U.K. regulators may impose new or different legal requirements on our U.K. business, or require our activities to be conducted locally in the U.K. through a branch office or directly. These or similar actions by these regulators could increase the cost of, or delay, our plans to expand our business in ~~EU countries.~~

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~~Economic and Trade Sanctions~~

We are required to comply with economic and trade sanctions administered by the United States, the European Union, relevant EU member states, and other jurisdictions in which we operate. We have self-reported to OFAC certain transactions that were inadvertently processed but subsequently identified as possible violations of U.S. economic and trade sanctions. In March 2015, we reached a settlement with OFAC regarding possible violations arising from our sanctions compliance practices between 2009 and 2013, prior to the implementation of our real-time transaction scanning program. Subsequently, we have self-reported additional transactions as possible violations, and we have received new subpoenas from OFAC seeking additional information about certain of these transactions. Such self-reported transactions could result in claims or actions against us, including litigation, injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.

~~Anti-Money Laundering and Counter-Terrorist Financing~~

We are subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that prohibit, among other things, our involvement in transferring the proceeds of criminal activities. Regulators in the U.S. and other regulators globally continue to increase their scrutiny of compliance with 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 international and domestic transactions. Many countries in which we operate also have anti-money laundering and counter-terrorist financing laws and regulations, and we have been and will continue to be required to make changes to our compliance program in various jurisdictions in response. Regulators regularly re-examine 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. In the EU, the implementation of the so-called Fourth and Fifth Anti-Money Laundering DirectivesEurope and the regulation on information accompanying transfer of funds (commonly known as the Revised Wire Transfer Regulation) may make compliance more costly and operationally difficult to manage, lead to increased friction for customers, and result in a decrease in business. Penalties for non-compliance with the revised Anti-Money Laundering Directive could include fines of up to 10% of PayPal (Europe)’s total annual turnover.U.K.

Privacy and Protection of ~~User~~Customer Data

We are subject to a number of laws, rules, directives, and regulations (which we refer to as “privacy and data protection laws”) relating to the collection, use, retention, security, processing, and transfer (which we collectively refer to as “processing”) of personally identifiable information about our customers, our merchants’ customers, and employees (which we refer to as “personal data”) in the countries where we operate. Our business relies on the processing of personal data in many jurisdictions and the movement of data across national borders. As a result, much of the personal data that we process, ~~especially~~which may include certain financial information associated with individuals, is regulated by multiple privacy and data protection laws and, in some cases, the privacy and data protection laws of multiple jurisdictions. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries, and other parties with which we have commercial relationships.

Regulatory scrutiny of privacy, data protection, cybersecurity practices, and the ~~collection, storage, use, and sharing~~processing of personal data is increasing around the world. There is uncertainty associated with the legal and regulatory environment relating to privacy and data protection laws, which continue to develop in ways we cannot predict, including with respect to evolving technologies such as cloud computing, artificial intelligence, and blockchain technology. Any failure or perceived failure to comply with existing or new laws ~~regulations, or orders~~ of any ~~governmental~~government authority (including changes to or expansion of the interpretation of those ~~laws, regulations, or orders)~~laws), including those discussed in this risk factor, may subject us to significant fines, penalties, civil lawsuits, and enforcement actions in one or more jurisdictions, result in additional compliance requirements, increase regulatory scrutiny of our business, restrict our operations, and force us to change our business practices, make product or operational changes, or delay planned product launches or improvements.

Any failure, or perceived failure, by us to comply with our privacy policies as communicated to users prior to our collection, use, storage and transfer, and disclosure of their personal data, with applicable industry data protection or security standards, with any applicable regulatory requirements or orders, or with privacy, data protection, information security, or consumer protection-related laws and regulations in one or more jurisdictions could result in proceedings or actions against us by data protection authorities, ~~(which we refer to as “supervisory authorities”), governmental~~government entities or others, including class action privacy litigation in certain ~~jurisdictions, would~~jurisdictions. Such proceedings or actions could subject us to significant ~~awards,~~ fines, penalties, judgments, and negative publicity ~~arising from any financial or non-financial damages suffered by any individuals. This could, individually or in the aggregate,~~which may materially harm our business. ~~Specifically, this would likely~~The foregoing may require us to change our business practices and would likely increase the costs and complexity of compliance. In addition, compliance with inconsistent privacy and data protection laws may restrict our ability to provide products and services to our customers.

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PayPal relies on a variety of compliance methods to transfer personal data of EEA individuals to the U.S., including reliance on Binding Corporate Rules (“BCRs”) for internal transfers of certain types of personal data and Standard Contractual Clauses (“SCCs”) as approved by the European Commission for transfers to and from third parties. PayPal must also ensure that third parties processing personal data of PayPal’s EEA customers and/or employees outside of the EEA have compliant transfer mechanisms. In October 2015, the European Court of Justice (“ECJ”) invalidated U.S.-EU Safe Harbor framework clauses that were previously relied upon by some PayPal vendors to lawfully transfer personal data of EU citizens to U.S. companies, and PayPal entered into SCCs with those third parties ~~who~~which had previously relied on the U.S.-EU Safe Harbor framework. In July 2016, the U.S. and EU authorities agreed on a replacement for the Safe Harbor framework known as “Privacy Shield.” ~~Both~~PayPal did not certify under the Privacy Shield ~~framework~~regime and continues to use SCCs and BCRs as the primary cross border data transfer mechanisms. In July 2020, the ECJ invalidated the Privacy Shield regime and in September 2020, the Swiss Federal Data Protection and Information Commission invalidated the Swiss-U.S. Privacy Shield framework. In its July 2020 ruling, the ECJ raised several questions regarding the efficacy of SCCs focusing on whether data transfers under SCCs are ~~facing legal challenges in the European justice system.~~consistent with EU privacy principles. To the extent ~~that~~PayPal relies on SCCs, or any third party relies on the Privacy Shield ~~or SCCs are invalidated,~~regime for the transfer of personal data, PayPal’s ability to process EEA personal data ~~with third~~to such parties ~~outside of the EEA and intra-group with its U.S. affiliates~~ could be ~~jeopardized~~. Additionally, there continues to be the lack of clarity from European Commission and Data Protection Authorities around the adequacy of data protections afforded EEA data subjects by applicable UK privacy laws, which includes the use of SCCs and other methods of transferring personal data of EEA data subjects to the UK. jeopardized.

PayPal is not a bank ~~or licensed lender~~ in the U.S. and relies largely upon third parties to ~~make loans~~offer loan and ~~provide~~ other credit products critical to our business, which raises additional risks.

As PayPal is ~~neither~~not a chartered financial institution ~~nor licensed to make loans~~ in any state in the U.S., we rely on third-party chartered financial institutions to provide ~~PayPal branded~~ credit products to our customers in the U.S., including consumer credit products such as our PayPal Credit products and PayPal ~~branded~~ and ~~Venmo-branded Mastercard~~Venmo branded credit cards, and ~~business~~merchant credit products such as our PayPal Working Capital and PayPal Business Loan products. Any termination or interruption in a partner bank’s ability or willingness to lend could interrupt ~~potentially materially,~~or limit our ability to offer consumer credit and ~~business loan~~merchant credit products, which could materially and adversely affect our business. In the event of a partner bank’s inability or unwillingness to lend, we may ~~need~~be unable to reach a similar agreement with another chartered financial institution ~~or obtain our own bank charter or lending licenses. We may be unable to reach a similar agreement with another partner~~ on favorable terms or at all. Obtaining a bank charter ~~or lending licenses~~ would be a costly, time-consuming and uncertain process, and would subject us to additional laws and regulatory requirements, which could ~~be burdensome,~~significantly increase our costs and compliance obligations and require us to change our business ~~practices.~~practices, which could materially and adversely affect our business. In addition, as a service provider to ~~these bank partners,~~our partner banks, which are federally supervised U.S. financial institutions, we are subject from time to time to examination by their federal banking regulators. PayPal also offers a consumer, short-term installment loan product in the U.S. which exposes us to additional risks, including those discussed in the risk factor captioned "Our business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business - State Installment Lending Laws".

In July 2018, we completed the sale of our U.S. consumer credit receivables portfolio to Synchrony Bank, ~~for total consideration of $6.9 billion.~~and do not hold an ownership interest in newly generated consumer credit receivables. As a part of a separate agreement, PayPal earns a revenue share on the portfolio of consumer receivables owned by Synchrony Bank, which includes both the sold and newly generated receivables for the PayPal and Venmo branded credit accounts. In the event the overall return on the PayPal branded credit programs funded by Synchrony does not meet a minimum rate of return (“minimum return threshold”) in a particular quarter, our revenue share for that period would be zero. Further, in the event the overall return on the PayPal branded credit programs managed by Synchrony does not meet the minimum return threshold as measured over four consecutive quarters and in the following quarter, we ~~do not hold an ownership interest in newly generated consumer credit receivables.~~would be required to make a payment to Synchrony, subject to certain limitations. It may take us longer than expected to realize the anticipated benefits of the transaction, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect our business and operating results. In addition, our increased reliance on, and credit exposure to, Synchrony Bank, including in connection with this agreement, subjects us to risks in the nature of those discussed in ~~this~~the “Risk Factors” section of our 2019 Form 10-K under the ~~caption~~captions “We rely on third parties in many aspects of our business, which creates additional risk.” and “If one or more of our counterparty financial institutions default on their financial or performance obligations to us or fail, we may incur significant losses.”

~~Acquisitions, joint ventures, strategic investments, and other strategic transactions could result in operating difficulties and could harm our business.~~

Acquisitions, joint ventures, strategic investments, and other strategic transactions are important elements of our overall corporate strategy. We expect to continue to evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy, including business combinations, acquisitions, and dispositions of certain businesses, technologies, services, products, and other assets, as well as joint ventures, strategic investments, and commercial and strategic partnerships. These transactions may involve significant challenges, uncertainties, and risks, including:

~~the potential loss of key customers, vendors, and other key business partners of the companies we acquire, or dispose of, following and continuing after announcement of our transaction plans;~~

difficulty making strategic hires of new employees, declining employee morale, and retention issues affecting employees (particularly the potential loss of key personnel) of companies that we acquire or dispose of, which may result from changes in compensation, management, reporting relationships, future prospects, or the direction of the acquired or disposed business;

~~diversion of management time and focus;~~

~~inability to realize synergies expected to result from an acquisition;~~

the need to and difficulty of integrating the operations, systems (including accounting, compliance, management, information, human resource, and other administrative systems), technologies, data assets, products, and personnel of each acquired company, which is an inherently risky and potentially lengthy and costly process;

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In April 2020, PayPal was approved to participate in the ~~need~~U.S. Government’s Paycheck Protection Program (“PPP"”) administered by the U.S. Small Business Administration (“SBA”) and enacted in March 2020 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The program is designed to provide a direct incentive for small businesses to keep their workers on payroll during the COVID-19 outbreak and ~~difficulty of implementing and/or enhancing controls, procedures,~~includes initial loan repayment deferrals and ~~policies appropriate~~debt forgiveness provisions for a larger public company at acquired companies which, prior to the acquisition, may have lacked such controls, procedures, and policies or whose controls, procedures, and policies did not meet applicable legal and regulatory standards;

~~the inefficiencies and lack of control that may result if integration of acquired companies is delayed or not implemented, and unforeseen difficulties and costs that may arise as a result;~~

potential exposure to new or increased regulatory oversight and uncertain or evolving legal, regulatory and compliance requirements associated with new products and services or entry into new markets, including transactions with, or investments in, companies involved in new or developing businesses or industries;

~~potential reputational risks that could arise from transactions with, or investments in, companies involved in new or developing businesses or industries, which~~eligible borrowers. The PPP expired on August 8, 2020, but may be subject to ~~uncertain or evolving legal, regulatory~~further extension by the U.S. government. Loans made under this program are funded by an independent chartered financial institution that we partner with, and ~~compliance requirements;~~

~~risks associated with our expansion into new international markets;~~

~~unidentified issues~~the related receivables are not ~~discovered~~purchased by PayPal. We receive a fee for providing origination services and loan servicing for these loans and retain operational risk related to those activities. We have agreed to indemnify the chartered financial institution in ~~our due diligence process, including product or service quality issues, intellectual property issues, and legal contingencies;~~

~~risks associated~~connection with the ~~complexity of entering into and effectively managing joint ventures, strategic investments, and other strategic partnerships;~~services provided for loans made under this program under certain circumstances, including in the event the SBA denies a claim for payment on a loan guaranty or a loan forgiveness payment.

~~risks associated with undetected cyberattacks or security breaches at companies that we acquire or with which we may combine or partner;~~

~~lawsuits or regulatory actions resulting from the transaction;~~

liability for activities or conduct of an acquired company before the acquisition, including legal and regulatory claims or disputes, violations of laws and regulations, commercial disputes, tax liabilities, and other known and unknown liabilities;

the need to maintain, and comply with the requirements of, licenses for certain companies that we have acquired, and risks associated with any failure to maintain such licenses or comply with associated requirements;

~~the acquisition of new customer and employee personal information, which in and of itself may require regulatory approval and/or additional controls, policies, and procedures, and subject~~Our credit products expose us to additional ~~exposure~~risks.

We offer credit products to a wide range of consumers and ~~additional complexity~~merchants in various U.S. and ~~costs~~international markets. The financial success of ~~compliance; and~~

~~our dependence~~these products depends on the ~~accounting, financial reporting, operating metrics~~effective management of related risk. The credit decision-making process for our consumer credit products uses proprietary segmentation and ~~similar systems, controls~~credit algorithms and ~~processes~~other analytical techniques designed to analyze the credit risk of ~~acquired businesses,~~specific consumers based on, among other factors, their past purchase and transaction history with PayPal or Venmo, as well as their credit scores. Similarly, proprietary risk models and other indicators are applied to assess merchants who desire to use our business finance offerings to help predict their ability to repay. These risk models may not accurately predict the creditworthiness of a consumer or merchant due to inaccurate assumptions, including assumptions related to the particular consumer or merchant, market conditions, economic environment, or limited transaction history or other data, among other factors. The accuracy of these risk models and the ~~risk that errors or irregularities in those systems, controls, and processes will lead to errors in our financial statements or make it more difficult~~ability to manage ~~the acquired business.~~

~~At any given time, we~~credit risk related to our credit products may also be ~~engaged~~affected by legal or regulatory requirements, competitors’ actions, changes in ~~discussions or negotiations with respect to one or more of these or other types of transactions, any of which could, individually or~~consumer behavior, changes in the ~~aggregate, be material to~~economic environment, issuing bank policies, and other factors. The international expansion of our financial condition and results of operations. There can be no assurance that we will be successful in identifying, negotiating, and consummating favorable transaction opportunities. It may take us longer than expected to fully realize the anticipated benefits of these transactions, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect our business and operating results. Because acquisitions are inherently risky, our transactions may not be successful and may, in some cases, harm our operating results or financial condition. Any acquisitions, dispositions, or investments may also requirecredit product offerings expose us to ~~issue~~ additional equity securities, spend our cash, or incur debt (and increased interest expense), recognize liabilities, and record gains or losses (realized or unrealized) and amortization expenses related to intangible assets or write-offs of goodwill or intangibles, which could diluterisks, including those discussed in the ~~economic and voting rights~~Risk Factors section of our ~~stockholders and adversely affect our results of operations and~~2019 Form 10-K under the ~~interests of holders of our indebtedness, as applicable.~~

We completed our acquisition of iZettle on September 20, 2018. Prior to the closing of the acquisition, the U.K. Competition and Markets Authority (“CMA”) initiated a review of the transaction. On December 5, 2018, the CMA referred the acquisition for a Phase 2 investigation and on December 24, 2018, directed PayPal to appoint a monitoring trustee. We held PayPal's and iZettle's U.K. businesses separate pursuant to an Initial Enforcement Order ("IEO") imposed by the CMA, pending completion of the CMA’s investigation. On June 12, 2019, the CMA announced that it unconditionally cleared PayPal's acquisition of iZettle. On September 24, 2019, the CMA announced its determination that PayPal failed to comply with certain aspects of CMA’s IEO, and imposed a £250,000 penalty. The decision does not require PayPal to delay or otherwise modify its ongoing integration efforts with iZettle.

In September 2019, PayPal announced that the People’s Bank of China has approved the acquisition of a 70% equity interest in Guofubao Information Technology Co. (GoPay), Ltd., a holder of a payment business license in China, by PayPal Information Technologies Co., a wholly-owned subsidiary of the Company. The transaction is expected to close in the fourth quarter of 2019 and is subject to customary closing conditions. For a discussion of risks associated with our planned domestic (in-country) expansion into China in connection with this acquisition, please see the risk factor captions “Our business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business~~” and~~caption “Our international operations subject us to increased risks, which could harm our ~~business~~business.,” ~~above.~~

~~Table~~Like other businesses with significant exposure to losses from consumer and merchant credit, we face the risk that account holders will default on their payment obligations, creating the risk of ~~Contents~~

~~Joint ventures~~potential charge-offs. We face similar risks with respect to U.S. consumer credit losses through our profit-sharing arrangement with Synchrony Bank. The non-payment rate among account holders may increase due to, among other factors, changes to underwriting standards, risk models not accurately predicting the creditworthiness of a consumer, worsening economic conditions, such as a recession or government austerity programs, increases in prevailing interest rates, and ~~strategic investments where we have a minority ownership stake inherently involve a lesser degree of influence over business operations, thereby potentially increasing~~high unemployment rates. Account holders who miss payments often fail to repay their loans, and account holders who file for protection under the financial, legal, operational, and/or compliance risks associated with the joint venture or strategic investment. In addition, we may be dependent on joint venture partners, controlling shareholders, management, or other persons or entities who control them and who may have business interests, strategies or goals that are inconsistent with ours. Business decisions or other actions or omissions of the joint venture partners, controlling shareholders, management, or other persons or entities who control joint ventures or companies in which we invest may adversely affect the value of our investment, result in litigation or regulatory action against us, and otherwise damage our reputation and brand.

~~There are risks associated with our indebtedness.~~

bankruptcy laws generally do not repay their loans.

We ~~have incurred indebtedness, and we may incur additional indebtedness~~currently purchase receivables related to the PayPal branded merchant credit products in the ~~future. Our outstanding indebtedness and any additional indebtedness~~U.S. If we ~~incur may have significant consequences, including, without limitation,~~are unable to fund our purchase of these receivables adequately or in a cost-effective manner, or if we are unable to efficiently manage the ~~following:~~

~~our ability to pay interest and repay the principal~~cash resources utilized for ~~our indebtedness is dependent upon our ability to manage~~these purposes, our business ~~operations and generate sufficient cash flows to service such debt. We may~~could be required to use a significant portion of our cash flow from operations and other available cash to service our indebtedness, thereby reducing the amount of cash available for other purposes, including capital expenditures and acquisitions;harmed.

~~our indebtedness and leverage may increase our vulnerability to downturns in our business, to competitive pressures, and to adverse changes in general economic and industry conditions;~~

~~our ability to obtain additional financing for working capital, capital expenditures, acquisitions, share repurchases, or other general corporate and other purposes may be limited; and~~

~~our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.~~

Our revolving credit facility and the indenture pursuant to which certain of our outstanding debt securities were issued contain financial and other covenants that restrict or could restrict, among other things, our business and operations. If we fail to pay amounts due under a debt instrument or breach any of its covenants, the lenders would typically have the right to demand immediate repayment of all borrowings thereunder (subject in certain cases to a grace or cure period). Moreover, any such acceleration and required repayment of, or default in respect of, our indebtedness could, in turn, constitute an event of default under other debt instruments, thereby resulting in the acceleration and required repayment of our indebtedness. Any of these events could materially adversely affect our liquidity and financial condition.

In addition, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities and increase our borrowing costs. If our credit ratings are downgraded or other negative action is taken, the interest rate payable by us under out indebtedness may increase. In addition, any downgrades to our credit ratings may affect our ability to obtain additional financing in the future and may affect the terms of any such financing. Any of these factors could adversely affect our financial condition and results of operations.

Our point of sale solutions expose us to additional risks.

We have ~~announced~~ several point of sale solutions, which enable merchants to accept payments ~~using~~at a physical point of sale, including solutions with a payments card reader ~~attached~~combined with point of sale software and solutions leveraging QR codes and other mobile contactless technology to ~~or otherwise communicating with,~~initiate payments using a mobile ~~device or to scan payment cards and codes using the mobile device’s embedded camera, and which enable consumers to use their mobile devices to pay at the point of sale.~~device. We have entered into strategic partnerships with major payment card networks to further expand our relationship in a way that will make it easier for merchants to accept and consumers to choose to pay for transactions utilizing credit ~~and~~cards, debit cards, and contactless payments via PayPal at the point of sale. Those ~~agreements~~partnerships provide us with access to each of these partner's tokenization services ~~in the U.S.~~ for in-store ~~point-of-sale~~point of sale PayPal transactions, which we expect will increase the number of point of sale transactions that we process. We believe that our ~~recent acquisition~~iZettle branded and PayPal contactless point of ~~iZettle~~sale solutions will enable us to further expand our in-store presence. As we continue to expand our product and service offerings, including making available additional payment methods at the point of sale, we will face additional risks, including:

•increased expectations from merchants regarding the reliability and availability of our systems and services and correspondingly lower amounts of downtime, which we may not be able to meet;

•increased expectations from merchants that our systems and services will help them to comply with laws and regulations relating to tax, accounting, and bookkeeping, such as cash register systems, which we may not be able to meet;

•significant competition at the point of sale, particularly from established payment card providers, many of which have substantially greater resources than we ~~do;~~do, and from other competing sale channels (such as e-commerce);

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•increased targeting by ~~fraudsters; given that~~fraudsters for a period of time as our fraud models ~~are less developed in this area, we may experience increases in fraud and associated transaction losses as we adjust~~adapt to potential fraudulent activity at the point of sale;

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exposure to product liability claims to the extent that hardware devices (e.g., card readers) that we produce for use at the point of sale malfunction or are not in compliance with laws, which could result in substantial liability and require product recalls or other actions;

•constraints in key resources to develop and maintain point of sale software and ancillary hardware;

•exposure to additional laws, rules, and regulations;

•application of payment card network rules or other agreements with payment card networks with respect to in-store transactions via PayPal;

•increased reliance on third parties involved with processing in-store payments, including independent software providers, electronic point of sale providers, hardware providers (such as card reader, cash drawer, and pin-pad providers), payment processors, and banks that enable in-store transactions; and

•lower operating income than our other payment solutions.

Unless we are able to successfully manage these risks, including driving adoption of, and significant volume through, our point of sale solutions over time, our business may be harmed.

There are risks associated with our relationship with eBay.

In connection with our separation from eBay, we entered into a separation and distribution agreement with eBay, as well as various other agreements, including an operating agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a data sharing addendum, and a product development agreement. The separation agreement, the tax matters agreement, the employee matters agreement, and the intellectual property matters agreement determined the allocation of assets and liabilities (including by means of licensing) between the companies following the separation for those respective areas and include associated indemnification obligations. The operating agreement, the data sharing addendum, and the product development agreement ~~establish~~established certain commercial relationships between eBay and us related to payment processing, credit, and data sharing. If either we or eBay are unable to satisfy our performance, payment, or indemnification obligations under these agreements, we could incur operational difficulties or losses or be required to make substantial indemnification or other payments to eBay.

Disputes between eBay and us have arisen and others may arise in the future. An adverse outcome in any such matters could materially and adversely affect our business, results of operations, and financial condition. eBay and PayPal are currently involved in a dispute regarding the calculation and amount of referral services fees due to eBay under the operating agreement. The parties are currently in arbitration proceedings with respect to this dispute pursuant to the dispute resolution provisions in the separation and distribution agreement.

Our ~~relationship~~operating agreement with eBay ~~is governed, in part, by an operating agreement~~ entered into at separation ~~with~~had a term of five years ~~(expiring~~that expired in July ~~2020). This~~2020, and provides for a one-year tail period under that agreement and certain related agreements. The operating agreement defines a number of important elements of our commercial relationship with eBay, as well as certain obligations and restrictions ~~that limit~~related to PayPal’s provision of services to certain competitive platform operators of eBay (as specified in the operating agreement). While eBay remains a significant source of our revenues and operating ~~income. We~~income, we expect the portion of our revenue and operating income attributable to eBay towill continue to decline due to various factors (many of which are beyond our control), including the ~~expiration (or earlier termination) of the operating agreement with eBay,~~speed and ~~the~~ extent to which eBay intermediates payments on its platform (including by acting as a merchant of ~~record)~~record and migrating eBay merchants to eBay's managed payments platform), limits the availability of PayPal as a payment option or offers (or promotes) alternative payment options, directs transactions on its platforms to different providers of payment services, or eliminates or modifies its risk management or customer protection programs on its platforms, which could result in customer dissatisfaction, reduction in eBay volume, and other consequences adverse to our business. If we are unable to generate sufficient business from our non-eBay customers to offset the expected reduction in the portion of our business attributable to eBay, it could materially impact the growth in our business and our ability to meet our long-term financial targets.

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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

~~In April 2017, our Board of Directors authorized a stock repurchase program that provides for the repurchase of up to $5 billion of our common stock, with no expiration from the date of authorization.~~ In July 2018, our Board of Directors authorized ~~an additional~~a stock repurchase program that provides for the repurchase of up to $10 billion of our common stock, with no expiration from the date of authorization. ~~This program will become effective upon completion of the April 2017 stock repurchase program.~~ Our stock repurchase ~~programs are~~program is intended to offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, may also be used to make opportunistic repurchases of our common stock to reduce outstanding share count. Any share repurchases under our stock repurchase ~~programs~~program may be made through open market transactions, block trades, privately negotiated transactions including accelerated share repurchase agreements or other means at times and in such amounts as management deems appropriate, and will be funded from our working capital or other financing alternatives. Moreover, any stock repurchases are subject to market conditions and other uncertainties and we cannot predict if or when any stock repurchases will be made. We may terminate our stock repurchase ~~programs~~program at any time without prior notice.

The stock repurchase activity under our stock repurchase ~~programs~~program during the three months ended September 30, ~~2019~~2020 is summarized below:

Total number of shares purchased
Average price
paid per share⁽¹⁾
Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under the plans or programs
(In millions, except per share amounts)
Balance as of June 30, 2019 $ 10,724
July 1, 2019 through July 31, 2019 0.3
$ 111.65
0.3
10,694
August 1, 2019 through August 31, 2019 2.9
$ 107.04
2.9
10,379
September 1, 2019 through September 30, 2019 0.1
$ 107.54
0.1
10,374
Balance as of September 30, 2019 3.3
3.3
$ 10,374


	Total number of shares purchased	Average price paid per share(1)		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
	(In millions, except per share amounts)
Balance as of June 30, 2020					$	9,048
July 1, 2020 through July 31, 2020	—	$	—	—	9,048
August 1, 2020 through August 31, 2020	1.8	$	196.42	1.8	8,698
September 1, 2020 through September 30, 2020	—	$	—	—	8,698
Balance as of September 30, 2020	1.8			1.8	$	8,698

⁽¹⁾Average price paid per share for open market purchases includes broker commissions.

~~No activity has occurred to date under the July 2018 stock repurchase program.~~

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

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Item 6: Exhibits

INDEX TO EXHIBITS

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Date Filed

Filed Herewith

~~Exhibit~~

~~Number~~31.01

~~Exhibit Description~~

~~Form~~

~~Date Filed~~

~~Filed Herewith~~

~~4.01~~

~~Indenture, dated as of September 26, 2019, by and between Registrant and Wells Fargo Bank, National Association, as Trustee.~~

~~8-K~~

~~9/26/2019~~

~~4.02~~

~~Officer’s Certificate, dated September 26, 2019, including the Forms of Note for the Registrant’s 2.200% Notes due 2022, 2.400% Notes due 2024, 2.650% Notes due 2026 and 2.850% Notes due 2029.~~

~~8-K~~

~~9/26/2019~~

~~10.01~~

Credit Agreement, dated as of September 11, 2019, among Registrant, the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P. Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P. Morgan Europe Limited, as the Administrative Agents.

~~8-K~~

~~9/12/2019~~

~~10.02~~

~~364-Day Credit Agreement, dated as of September 11, 2019, among Registrant, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.~~

~~8-K~~

~~9/12/2019~~

~~31.01~~

Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002

31.02

Certification of Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002

32.01*

Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

32.02*

Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

101

The following financial information related to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2019,~~2020, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the related Notes to Condensed Consolidated Financial ~~Statements.~~Statements

104

Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit ~~101.~~101

* The certifications furnished in Exhibits 32.01 and 32.02 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				PayPal Holdings, Inc.
				Principal Executive Officer:

				~~PayPal Holdings, Inc.~~
By:			~~Principal Executive Officer:~~

	~~By:~~	/s/ Daniel H. Schulman
					Daniel H. Schulman
					President and Chief Executive Officer
Date:		~~October 24, 2019~~November 2, 2020
				Principal Financial Officer:

				By:	/s/ John D. Rainey
					John D. Rainey
					Chief Financial Officer and Executive Vice President, Global Customer Operations
Date:		~~October 24, 2019~~November 2, 2020
				Principal Accounting Officer:

				By:	/s/ ~~Aaron A. Anderson~~Jeffrey W. Karbowski
					~~Aaron A. Anderson~~Jeffrey W. Karbowski
					Vice President, Chief Accounting Officer
Date:		~~October 24, 2019~~November 2, 2020

7079



Delaware			47-2989869
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)
2211 North First Street	San Jose,	California	95131
(Address of Principal Executive Offices)			(Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value per share	PYPL	NASDAQ Global Select Market



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, 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. o



	Page Number
Part I.	Financial Information		4
	Item 1.	Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Income	5
		Condensed Consolidated Statements of Comprehensive Income	6
		Condensed Consolidated Statements of Stockholders’ Equity	7
		Condensed Consolidated Statements of Cash Flows	9
		Notes to Condensed Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4146
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5563
	Item 4.	Controls and Procedures	5765
Part II.	Other Information		5866
	Item 1.	Legal Proceedings	5866
	Item 1A.	Risk Factors	5866
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6877
	Item 3.	Defaults Upon Senior Securities	6877
	Item 4.	Mine Safety Disclosures	6877
	Item 5.	Other Information	6877
	Item 6.	Exhibits	6978
Signatures			7079


	September 30, 2019			December 31, 2018				September 30, 2020		December 31, 2019
	(In millions, except par value)							(In millions, except par value)
	(Unaudited)							(Unaudited)
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	6,877		$	7,575		Cash and cash equivalents	$	6,112	$	7,349
Short-term investments	3,585			1,534			Short-term investments	8,046		3,412
Accounts receivable, net	417			313			Accounts receivable, net	482		435
Loans and interest receivable, net of allowances of $243 and $172 as of September 30, 2019 and December 31, 2018, respectively	3,477			2,532
Loans and interest receivable, net of allowances of $819 and $258 as of September 30, 2020 and December 31, 2019, respectively							Loans and interest receivable, net of allowances of $819 and $258 as of September 30, 2020 and December 31, 2019, respectively	2,597		3,972

Funds receivable and customer accounts	22,511			20,062			Funds receivable and customer accounts	30,530		22,527
Prepaid expenses and other current assets	881			947			Prepaid expenses and other current assets	937		800
Total current assets	37,748			32,963			Total current assets	48,704		38,495
Long-term investments	2,771			971			Long-term investments	3,439		2,863
Property and equipment, net	1,701			1,724			Property and equipment, net	1,757		1,693
Goodwill	6,178			6,284			Goodwill	9,119		6,212
Intangible assets, net	629			825			Intangible assets, net	1,146		778
Other assets	1,196			565			Other assets	1,417		1,292
Total assets	$	50,223		$	43,332		Total assets	$	65,582	$	51,333
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	193		$	281		Accounts payable	$	159	$	232
Short-term debt	—			1,998

Funds payable and amounts due to customers	24,011			21,562			Funds payable and amounts due to customers	32,530		24,527
Accrued expenses and other current liabilities	2,038			2,002			Accrued expenses and other current liabilities	2,457		2,087
Income taxes payable	98			61			Income taxes payable	100		73
Total current liabilities	26,340			25,904			Total current liabilities	35,246		26,919
Deferred tax liability and other long-term liabilities	2,436			2,042			Deferred tax liability and other long-term liabilities	2,872		2,520
Long-term debt	4,964			—			Long-term debt	8,937		4,965
Total liabilities	33,740			27,946			Total liabilities	47,055		34,404
Commitments and Contingencies (Note 13)							Commitments and Contingencies (Note 13)
Equity:							Equity:
Common stock, $0.0001 par value; 4,000 shares authorized; 1,174 shares outstanding as of both September 30, 2019 and December 31, 2018	—			—
Common stock, $0.0001 par value; 4,000 shares authorized; 1,172 and 1,173 shares outstanding as of September 30, 2020 and December 31, 2019, respectively							Common stock, $0.0001 par value; 4,000 shares authorized; 1,172 and 1,173 shares outstanding as of September 30, 2020 and December 31, 2019, respectively	0		0
Preferred stock, $0.0001 par value; 100 shares authorized, unissued	—			—			Preferred stock, $0.0001 par value; 100 shares authorized, unissued	0		0
Treasury stock at cost, 102 and 91 shares as of September 30, 2019 and December 31, 2018, respectively	(6,566		)	(5,511		)
Treasury stock at cost, 116 and 105 shares as of September 30, 2020 and December 31, 2019, respectively							Treasury stock at cost, 116 and 105 shares as of September 30, 2020 and December 31, 2019, respectively	(8,242)		(6,872)
Additional paid-in-capital	15,266			14,939			Additional paid-in-capital	16,248		15,588
Retained earnings	7,835			5,880			Retained earnings	10,809		8,342
Accumulated other comprehensive income (loss)	(52		)	78			Accumulated other comprehensive income (loss)	(332)		(173)
Total PayPal Stockholders’ equity							Total PayPal Stockholders’ equity	18,483		16,885
Noncontrolling interest							Noncontrolling interest	44		44
Total equity	16,483			15,386			Total equity	18,527		16,929
Total liabilities and equity	$	50,223		$	43,332		Total liabilities and equity	$	65,582	$	51,333



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



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


	Common Stock Shares	Treasury Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Noncontrolling Interest		Total Equity

	(In millions)
	(Unaudited)
Balances at December 31, 2019	1,173	$	(6,872)	$	15,588	$	(173)	$	8,342	$	44	$	16,929
Adoption of current expected credit loss standard	—	—		—		—		(168)		—		(168)
Net income	—	—		—		—		84		—		84
Foreign CTA	—	—		—		(171)		—		—		(171)
Net investment hedge CTA gain	—	—		—		71		—		—		71

Unrealized gains on cash flow hedges, net	—	—		—		144		—		—		144
Tax expense on unrealized gains on cash flow hedges, net	—	—		—		(2)		—		—		(2)
Unrealized gains on investments, net	—	—		—		15		—		—		15
Tax expense on unrealized gains on investments, net	—	—		—		(4)		—		—		(4)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	8	—		(382)		—		—		—		(382)
Common stock repurchased	(8)	(800)		—		—		—		—		(800)
Stock-based compensation	—	—		295		—		—		—		295
Balances at March 31, 2020	1,173	$	(7,672)	$	15,501	$	(120)	$	8,258	$	44	$	16,011
Net income	—	—		—		—		1,530		—		1,530
Foreign CTA	—	—		—		52		—		—		52
Net investment hedge CTA loss	—	—		—		(16)		—		—		(16)
Unrealized losses on cash flow hedges, net	—	—		—		(92)		—		—		(92)
Tax benefit on unrealized losses on cash flow hedges, net	—	—		—		1		—		—		1
Unrealized gains on investments, net	—	—		—		7		—		—		7
Tax expense on unrealized gains on investments, net	—	—		—		(2)		—		—		(2)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	1	—		52		—		—		—		52
Common stock repurchased	(1)	(220)		—		—		—		—		(220)
Stock-based compensation	—	—		361		—		—		—		361
Balances at June 30, 2020	1,173	$	(7,892)	$	15,914	$	(170)	$	9,788	$	44	$	17,684
Net income	—	—		—		—		1,021		—		1,021
Foreign CTA	—	—		—		8		—		—		8

Unrealized losses on cash flow hedges, net	—	—		—		(163)		—		—		(163)
Tax benefit on unrealized losses on cash flow hedges, net	—	—		—		2		—		—		2
Unrealized losses on investments, net	—	—		—		(12)		—		—		(12)
Tax benefit on unrealized gains on investments, net	—	—		—		3		—		—		3
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	1	—		(41)		—		—		—		(41)
Common stock repurchased	(2)	(350)		—		—		—		—		(350)
Stock-based compensation	—	—		375		—		—		—		375
Balances at September 30, 2020	1,172	$	(8,242)	$	16,248	$	(332)	$	10,809	$	44	$	18,527



	Three Months Ended September 30, 2018
	(In millions)
	As Previously Reported		Adjustments			Revised

Transaction expense	$	1,366	$	—		$	1,366
Transaction and loan losses	295		—			295
Customer support and operations	367		(17		)	350
Sales and marketing	326		(1		)	325
Product development	269		(269		)	—
Technology and development	—		452			452
General and administrative	354		23			377
Depreciation and amortization	188		(188		)	—
Restructuring and other charges	28		—			28
Total operating expenses	$	3,193	$	—		$	3,193



	Nine Months Ended September 30, 2018
	(In millions)
	As Previously Reported		Adjustments			Revised

Transaction expense	$	4,003	$	—		$	4,003
Transaction and loan losses	934		—			934
Customer support and operations	1,075		(45		)	1,030
Sales and marketing	924		(11		)	913
Product development	782		(782		)	—
Technology and development	—		1,341			1,341
General and administrative	1,061		50			1,111
Depreciation and amortization	553		(553		)	—
Restructuring and other charges	297		—			297
Total operating expenses	$	9,629	$	—		$	9,629


	(In millions)
Goodwill	$	2,962
Customer lists and user base	115
Marketing related	30
Developed technology	572
Total intangibles	$	717
Accounts receivable, net	55
Deferred tax liabilities, net	(76)
Other net liabilities	(23)
Total purchase consideration	$	3,635



	(In millions)
Goodwill	$	1,600
Customer lists and user base	426
Marketing related	102
Developed technology	121
All other	1
Total intangibles	$	650
Cash	103
Funds receivable and customer accounts	47
Funds payable and amounts due to customers	(47		)
Deferred tax liabilities, net	(116		)
Other net liabilities	(55		)
Total purchase consideration	$	2,182


	December 31, 2019		Goodwill Acquired		Adjustments		September 30, 2020
	(In millions)
Total goodwill	$	6,212	$	2,962	$	(55)	$	9,119



	September 30, 2019								December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life (Years)
	(In millions, except years)
Intangible assets:
Customer lists and user base	$	1,106	$	(680	)	$	426	7	$	1,134	$	(623	)	$	511	7
Marketing related	293		(230		)	63		3	301		(207		)	94		3
Developed technology	443		(324		)	119		3	453		(269		)	184		3
All other	245		(224		)	21		5	245		(209		)	36		5
Intangible assets, net	$	2,087	$	(1,458	)	$	629		$	2,133	$	(1,308	)	$	825


	September 30, 2020							December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)
	(In millions, except years)
Intangible assets:
Customer lists and user base	$	1,202	$	(768)	$	434	6	$	1,114	$	(700)	$	414	7
Marketing related	321		(268)		53		3	294		(239)		55		3
Developed technology	999		(516)		483		3	445		(343)		102		3
All other	441		(265)		176		7	436		(229)		207		7
Intangible assets, net	$	2,963	$	(1,817)	$	1,146		$	2,289	$	(1,511)	$	778


Fiscal years:
Remaining 2020	$	108
2021	398
2022	336
2023	99
2024	97
Thereafter	108
Total	$	1,146



Fiscal years:
Remaining 2019	$	49
2020	184
2021	132
2022	70
2023	70
Thereafter	124
Total	$	629


	Operating Leases
Fiscal years:	(In millions)
Remaining 2020	$	41
2021	154
2022	118
2023	103
2024	93
Thereafter	319
Total	$	828
Less: present value discount	(101)
Lease liability	$	727



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
	(In millions, except weighted-average figures)
Lease expense
Operating lease expense	$	33		$	99
Sublease income	(5		)	(9		)
Total lease expense cost	$	28		$	90

Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	31		$	93
Right-of-use assets obtained in exchange for new operating lease liabilities	$	32		$	100
Weighted-average remaining lease term—operating leases	6.0 years			6.0 years
Weighted-average discount rate—operating leases	5		%	5		%


	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign Currency Translation Adjustment (“CTA”)		Net Investment Hedge CTA Gain (Loss)		Estimated Tax Benefit (Expense)		Total
	(In millions)
Beginning balance	$	58	$	24	$	(269)	$	24	$	(7)	$	(170)
Other comprehensive income (loss) before reclassifications	(180)		(12)		8		0		5		(179)
Less: Amount of loss reclassified from accumulated other comprehensive income (“AOCI”)	(17)		0		0		0		0		(17)
Net current period other comprehensive income (loss)	(163)		(12)		8		0		5		(162)
Ending balance	$	(105)	$	12	$	(261)	$	24	$	(2)	$	(332)



	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments			Foreign Currency Translation			Estimated Tax Benefit (Expense)			Total
	(In millions)
Beginning balance	$	118	$	8		$	(151	)	$	(3	)	$	(28	)
Other comprehensive income (loss) before reclassifications	141		(6		)	(90		)	—			45
Less: Amount of gain (loss) reclassified from accumulated other comprehensive income	70		(1		)	—			—			69
Net current period other comprehensive income (loss)	71		(5		)	(90		)	—			(24		)
Ending balance	$	189	$	3		$	(241	)	$	(3	)	$	(52	)


	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign CTA		Estimated Tax Benefit (Expense)		Total
	(In millions)
Beginning balance	$	118	$	8	$	(151)	$	(3)	$	(28)
Other comprehensive income (loss) before reclassifications	141		(6)		(90)		0		45
Less: Amount of gain (loss) reclassified from AOCI	70		(1)		0		0		69
Net current period other comprehensive income (loss)	71		(5)		(90)		0		(24)
Ending balance	$	189	$	3	$	(241)	$	(3)	$	(52)


Details about AOCI Components	Amount of Gains (Losses) Reclassified from AOCI				Affected Line Item in the Statement of Income
	Three Months Ended September 30,
	2020		2019
	(In millions)
(Losses) gains on cash flow hedges—foreign exchange contracts	$	(17)	$	70	Net revenues
Unrealized losses on investments	0		(1)		Other income (expense), net
	$	(17)	$	69	Income before income taxes
	0		0		Income tax expense
Total reclassifications for the period	$	(17)	$	69	Net income



Details of Accumulated Other Comprehensive Income (Loss) Components	Amount of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss)					Affected Line Item in the Statement of Income
	Three Months Ended September 30,
	2019			2018
	(In millions)
Gains on cash flow hedges—foreign exchange contracts	$	70		$	7	Net revenues
Unrealized (losses) gains on investments	(1		)	1		Other income (expense), net
	$	69		$	8	Income before income taxes
	—			—		Income tax expense
Total reclassifications for the period	$	69		$	8	Net income


	September 30, 2019									September 30, 2020(1)
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In millions)									(In millions)
Funds receivable and customer accounts:									Funds receivable and customer accounts:
U.S. government and agency securities	$	5,359	$	2	$	—	$	5,361	U.S. government and agency securities	$	8,854	$	6	$	0	$	8,860
Foreign government and agency securities	770		—		—		770		Foreign government and agency securities	1,347		2		0		1,349
Corporate debt securities	1,143		—		—		1,143		Corporate debt securities	1,973		1		0		1,974
Short-term investments:									Short-term investments:
U.S. government and agency securities	155		—		—		155		U.S. government and agency securities	1,786		0		0		1,786
Foreign government and agency securities	379		—		—		379		Foreign government and agency securities	1,574		0		0		1,574
Corporate debt securities	2,098		—		—		2,098		Corporate debt securities	2,917		2		0		2,919
Long-term investments:									Long-term investments:
U.S. government and agency securities	140		—		—		140

Foreign government and agency securities	252		—		—		252		Foreign government and agency securities	486		0		(1)		485
Corporate debt securities	590		1		—		591		Corporate debt securities	696		2		0		698
Total available-for-sale debt securities⁽¹⁾	$	10,886	$	3	$	—	$	10,889
Total available-for-sale debt securities(2)									Total available-for-sale debt securities(2)	$	19,633	$	13	$	(1)	$	19,645


	December 31, 2018										December 31, 2019(1)
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value			Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In millions)										(In millions)
Funds receivable and customer accounts:										Funds receivable and customer accounts:
U.S. government and agency securities	$	6,945	$	2	$	—		$	6,947	U.S. government and agency securities	$	4,996	$	0	$	0	$	4,996
Foreign government and agency securities	772		—		(1		)	771		Foreign government and agency securities	1,392		0		0		1,392
Corporate debt securities	883		—		—			883		Corporate debt securities	2,112		0		0		2,112
Short-term investments:										Short-term investments:

Foreign government and agency securities										Foreign government and agency securities	533		0		0		533
Corporate debt securities	393		—		(3		)	390		Corporate debt securities	1,955		0		0		1,955
Long-term investments:										Long-term investments:
U.S. government and agency securities										U.S. government and agency securities	140		0		0		140
Foreign government and agency securities	38		—		—			38		Foreign government and agency securities	207		0		0		207
Corporate debt securities	639		—		(11		)	628		Corporate debt securities	676		2		0		678
Total available-for-sale debt securities⁽¹⁾	$	9,670	$	2	$	(15	)	$	9,657
Total available-for-sale debt securities(2)										Total available-for-sale debt securities(2)	$	12,011	$	2	$	0	$	12,013


	September 30, 2019														September 30, 2020(1)
	Less than 12 months					12 months or longer				Total					Less than 12 months				12 months or longer				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In millions)														(In millions)
Funds receivable and customer accounts:														Funds receivable and customer accounts:
U.S. government and agency securities	$	594	$	—	⁽¹⁾	$	—	$	—	$	594	$	—	U.S. government and agency securities	$	730	$	0	$	0	$	0	$	730	$	0
Foreign government and agency securities	390		—			—		—		390		—		Foreign government and agency securities	310		0		0		0		310		0
Corporate debt securities	240		—			7		—		247		—		Corporate debt securities	355		0		0		0		355		0
Short-term investments:														Short-term investments:
U.S. government and agency securities														U.S. government and agency securities	475		0		0		0		475		0
Foreign government and agency securities	92		—			—		—		92		—		Foreign government and agency securities	131		0		0		0		131		0
Corporate debt securities	380		—			100		—		480		—		Corporate debt securities	142		0		0		0		142		0
Long-term investments:														Long-term investments:
U.S. government and agency securities	140		—			—		—		140		—

Foreign government and agency securities	160		—			—		—		160		—		Foreign government and agency securities	463		(1)		0		0		463		(1)
Corporate debt securities	142		—			63		—		205		—		Corporate debt securities	291		0		0		0		291		0
Total available-for-sale debt securities	$	2,138	$	—		$	170	$	—	$	2,308	$	—	Total available-for-sale debt securities	$	2,897	$	(1)	$	0	$	0	$	2,897	$	(1)


	September 30, 2019					September 30, 2020
	Amortized Cost		Fair Value			Amortized Cost		Fair Value
	(In millions)					(In millions)
One year or less	$	9,137	$	9,140	One year or less	$	18,106	$	18,116
After one year through five years	1,745		1,745		After one year through five years	1,526		1,528
After five years through ten years	4		4		After five years through ten years	1		1
Total	$	10,886	$	10,889	Total	$	19,633	$	19,645


	September 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In millions)							(In millions)
Assets:							Assets:
Cash and cash equivalents⁽¹⁾	$	1,943	$	—	$	1,943	Cash and cash equivalents(1)	$	1,200	$	0	$	1,200
Short-term investments⁽²⁾:							Short-term investments(2):

U.S. government and agency securities	155		—		155		U.S. government and agency securities	1,786		0		1,786
Foreign government and agency securities	432		—		432		Foreign government and agency securities	1,574		0		1,574
Corporate debt securities	2,170		—		2,170		Corporate debt securities	2,919		0		2,919

Total short-term investments	$	2,757	$	—	$	2,757	Total short-term investments	$	6,279	$	0	$	6,279
Funds receivable and customer accounts⁽³⁾:							Funds receivable and customer accounts(3):
Cash and cash equivalents	2,300		—		2,300		Cash and cash equivalents	732		0		732
U.S. government and agency securities	5,361		—		5,361		U.S. government and agency securities	8,860		0		8,860
Foreign government and agency securities	2,560		—		2,560		Foreign government and agency securities	3,810		0		3,810
Corporate debt securities	1,581		—		1,581		Corporate debt securities	2,116		0		2,116
Total funds receivable and customer accounts	$	11,802	$	—	$	11,802	Total funds receivable and customer accounts	$	15,518	$	0	$	15,518
Derivatives	293		—		293		Derivatives	121		0		121
Long-term investments⁽⁴⁾:
U.S. government and agency securities	140		—		140
Long-term investments(2),(4):							Long-term investments(2),(4):

Foreign government and agency securities	252		—		252		Foreign government and agency securities	485		0		485
Corporate debt securities	591		—		591		Corporate debt securities	698		0		698
Marketable equity securities	1,287		1,287		—		Marketable equity securities	1,617		1,617		0
Total long-term investments	$	2,270	$	1,287	$	983	Total long-term investments	$	2,800	$	1,617	$	1,183
Total financial assets	$	19,065	$	1,287	$	17,778	Total financial assets	$	25,918	$	1,617	$	24,301
Liabilities:							Liabilities:
Derivatives	$	69	$	—	$	69	Derivatives	$	221	$	0	$	221



	Balance Sheet Location	September 30, 2019		December 31, 2018
		(In millions)
Derivative Assets:
Foreign exchange contracts designated as cash flow hedges	Other current assets	$	172	$	170
Foreign exchange contracts designated as cash flow hedges	Other assets (non-current)	17		11
Foreign exchange contracts not designated as hedging instruments	Other current assets	104		139
Total derivative assets		$	293	$	320

Derivative Liabilities:
Foreign exchange contracts designated as cash flow hedges	Other current liabilities	$	—	$	3
Foreign exchange contracts not designated as hedging instruments	Other current liabilities	69		64
Total derivative liabilities		$	69	$	67


	September 30, 2020				December 31, 2019
	Amortized Cost Basis Revolving		Percent		Amortized Cost Basis Revolving		Percent
	(In millions, except percentages)
Current	$	1,593	98.2	%	$	1,279	96.7	%
30-59 days	11		0.7	%	15		1.1	%
60-89 days	6		0.4	%	9		0.7	%
90-179 days	12		0.7	%	19		1.5	%
Total consumer loans and interest receivable(1), (2), (3)	$	1,622	100.0	%	$	1,322	100.0	%


	September 30, 2020						September 30, 2019
	Consumer Loans Receivable		Interest Receivable		Total Allowance(1)		Consumer Loans Receivable		Interest Receivable		Total Allowance(1)
	(In millions)
Beginning balance	$	49	$	8	$	57	$	27	$	3	$	30
Adjustment for adoption of credit losses accounting standard	24		4		28		0		0		0
Provisions	227		47		274		18		6		24
Charge-offs	(57)		(10)		(67)		(30)		(4)		(34)
Recoveries(2)	21		0		21		25		0		25
Other(3)	7		1		8		(1)		0		(1)
Ending balance	$	271	$	50	$	321	$	39	$	5	$	44



	September 30, 2019									September 30, 2018
	Consumer Loans Receivable			Interest Receivable			Total Allowance			Consumer Loans Receivable			Interest Receivable			Total Allowance⁽¹⁾
	(In millions)
Beginning balance	$	27		$	3		$	30		$	57		$	6		$	63
Provisions	18			6			24			50			9			59
Charge-offs	(31		)	(4		)	(35		)	(97		)	(12		)	(109		)
Recoveries⁽²⁾	25			—			25			12			—			12
Ending balance	$	39		$	5		$	44		$	22		$	3		$	25



September 30, 2019
(In millions)
Within Original Expected Repayment Period			30 - 59 Days Greater			60 - 89 Days Greater			90 - 180 Days Greater			180+ Days			Total Past Original Expected Repayment Period			Total
$	2,344		$	96		$	52		$	83		$	16		$	247		$	2,591
90.5		%	3.7		%	2.0		%	3.2		%	0.6		%	9.5		%	100		%



December 31, 2018⁽¹⁾
(In millions)
Within Original Expected Repayment Period			30 - 59 Days Greater			60 - 89 Days Greater			90 - 180 Days Greater			180+ Days			Total Past Original Expected Repayment Period			Total
$	1,706		$	66		$	32		$	57		$	13		$	168		$	1,874
91.0		%	3.6		%	1.7		%	3.0		%	0.7		%	9.0		%	100		%


	September 30, 2020						September 30, 2019
	Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance
	(In millions)
Beginning balance	$	171	$	20	$	191	$	115	$	15	$	130
Adjustment for adoption of credit losses accounting standard	165		17		182		0		0		0
Provisions	298		27		325		181		22		203
Charge-offs	(197)		(20)		(217)		(140)		(16)		(156)
Recoveries	13		0		13		11		0		11
Ending balance	$	450	$	44	$	494	$	167	$	21	$	188


	Number of Accounts (in thousands)	Outstanding Balances(1) (in millions)		Weighted Average Payment Term Extensions (in months)
Loans and interest receivable	6	$	238	38


		Balance at September 30, 2020
	Maturities	Amount	Effective Interest Rate
		(in millions)
September 2019 debt issuance of $5.0 billion:
Fixed-rate 2.200% notes	9/26/2022		$	1,000	2.39%
Fixed-rate 2.400% notes	10/1/2024		1,250		2.52%
Fixed-rate 2.650% notes	10/1/2026		1,250		2.78%
Fixed-rate 2.850% notes	10/1/2029		1,500		2.96%

May 2020 debt issuance of $4.0 billion:
Fixed-rate 1.350% notes	6/1/2023		$	1,000	1.55%
Fixed-rate 1.650% notes	6/1/2025		1,000		1.78%
Fixed-rate 2.300% notes	6/1/2030		1,000		2.39%
Fixed-rate 3.250% notes	6/1/2050		1,000		3.33%
Total term debt			$	9,000

Unamortized premium (discount) and issuance costs, net			(63)


Total carrying amount of term debt			$	8,937