UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended December 31, 2019.2022.
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the Transition Periodtransition period from to .
Commission file number 001-36859
PayPal Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| 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) | ||||||||||
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| 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 | ||||||
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 28, 2019,30, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $134.5$80.7 billion based on the closing sale price as reported on the NASDAQ Global Select Market.
As of January 31, 2020,February 3, 2023, there were 1,172,955,4851,131,373,298 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 20202023 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2019.2022.
TABLE OF CONTENTS
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| Part I | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 1B. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
| Item 7. | ||||||||
| Item 7A. | ||||||||
| Item 8. | ||||||||
| Item 9. | ||||||||
| Item 9A. | ||||||||
| Item 9B. | ||||||||
| Part III | ||||||||
| Item 10. | ||||||||
| Item 11. | ||||||||
| Item 12. | ||||||||
| Item 13. | ||||||||
| Item 14. | ||||||||
| Part IV | ||||||||
| Item 15. | ||||||||
| Item 16. | ||||||||
Trademarks, Trade Names and Service Marks
PayPal owns or has rights to use the trademarks, service marks, and trade names that it uses in conjunction with the operation of its business. Some of the more important trademarks that PayPal owns or has rights to use that appear in this Annual Report on Form 10-K include: PayPal®, PayPal Credit®, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and iZettle,Paidy, which may be registered or trademarked in the United States and other jurisdictions. PayPal’s rights to some of these trademarks may be limited to select markets. Each trademark,This report contains additional trade name,names and trademarks of other companies. The use or service markdisplay of any other company appearing in this Annual Report on Form 10-K is, to PayPal’s knowledge, owned by such other company.companies’ trade names or trademarks does not imply our endorsement or sponsorship of, or a relationship with these companies.
PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions such(such as those relating to future business, future results of operations or financial condition, new or planned features or services, mergers or acquisitions, or management strategies. Youstrategies). These forward-looking statements can identify these forward-looking statementsbe identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” "continue," “strategy,” “future,” “opportunity,” “plan,” “project,” “forecast,” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results and financial condition to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Item 1A. Risk Factors” of this Annual Report on Form 10-K, as well as in our consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission (“SEC”). We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this report to reflect actual results, new information, or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. You should read the information in this report in conjunction with the audited consolidated financial statements and the related notes that appear elsewhere in this report.
ITEM 1. BUSINESS
PayPal Holdings, Inc. was incorporated in Delaware in January 2015 and is a leading technology platform and digital payments company that enables digital payments and mobile paymentssimplifies commerce experiences on behalf of consumersmerchants and merchantsconsumers worldwide. PayPal is committed to democratizing financial services to help improve the financial health of individuals and empowering peopleto increase economic opportunity for entrepreneurs and businesses to join and thrive inof all sizes around the global economy.world. Our goal is to enable our consumersmerchants and merchantsconsumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device.device when sending payments or getting paid, including person-to-person (“P2P”) payments. Our combined payment solutions, includingcore values of Inclusion, Innovation, Collaboration, and Wellness, reflected in our PayPal, PayPal Credit, Braintree, Venmo, Xoom,leadership principles, are the driving forces behind our mission and iZettleform the foundation of our operating philosophy. We believe that our core values help stimulate the creativity and engagement of our global workforce to deliver products and services comprisedesigned to meet the diverse needs of our proprietary Payments Platform.customers. We also believe that effective management of environmental, social, and governance (“ESG”) risks and opportunities is essential to deliver on our mission and strategy. Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” or “PayPal” refer to PayPal Holdings, Inc. and its consolidated subsidiaries.
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PayPal’s payment solutions enable our customers to send and receive payments. We operate a global, two-sided network at scale that connects merchants and consumers with 305 million active accounts (consisting of 281 million consumer active accounts and 24 million merchant active accounts) across more than 200 markets. PayPal helps merchants and consumers connect, transact, and completesend and receive payments, whether they are online on a mobile device, in an app, or in person. PayPal is more than a connection to third-party payment networks. We provide proprietary payment solutions accepted by merchants that enable the completion of payments on our Payments Platformplatform on behalf of our customers. We operate a global, two-sided network at scale that connects merchants and consumers with 435 million active accounts (consisting of 400 million consumer active accounts and 35 million merchant active accounts) across more than 200 markets as of December 31, 2022.
We offer our customers the flexibility to use their PayPal or Venmo accounts to purchase and receive paymentpayments for goods and services, as well as the ability to transfer and withdraw funds. We enable consumers to exchange funds more safely with merchants using a variety of funding sources, which may include a bank account, a PayPal account balance, aor Venmo account balance, a PayPal Credit account,and Venmo branded credit products including our installment products, a credit orcard, a debit card, certain cryptocurrencies, or other stored value products such as coupons, gift cards, and eligible credit card rewards. Our PayPal, Venmo, and Xoom products also make it safer and simpler for friends and family to transfer funds to each other. We offer merchants an end-to-end payments solution that provides authorization and settlement capabilities, as well as instant access to funds.funds and payouts. We also help merchants connect with their customers, process exchanges and returns, and manage risk. We enable consumers to engagehelp reduce the friction typically involved in cross-border shoppingcommerce by offering consumers a simple payment experience and by enabling merchants to extend their reach to consumers in the global reach while reducing the complexity and friction involvedmarkets in enabling overseas and cross-border trade.which our services are available.
We earn revenues primarily by charging fees for completing payment transactions for our customers and other payment-related services, thatwhich are typically based on the volume of activity processed on our Payments Platform. Generally we do not charge consumers to fund or draw from their accounts; however, wepayments platform. We also generate revenue from consumerscustomers on fees charged for foreign currency exchange, andconversion, for instant transfers from their PayPal or Venmo account to their bank account or debit card, and to facilitate the purchase and sale of cryptocurrencies; however, we generally do not charge customers to fund or bank account, as well asdraw from interest and fees from our PayPal Credit product.their accounts. We also earn revenue by providing other value added services, which compriseare comprised primarily of revenue earned through partnerships, interest and fees from our PayPal merchant and consumer credit products, interest earned on certain assets underlying customer balances, referral fees, subscription fees, and gateway services,services.
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KEY PERFORMANCE METRICS
We measure the scale of our platform and otherthe relevance of our products and services that we provide to our customers through certain metrics, including total payment volume, payment transactions, and active accounts:
Total payment volume (“TPV”)is the value of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.
Number of payment transactions are the total number of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.
An active accountis an account registered directly with PayPal or a platform access partner that has completed a transaction on our platform, not including gateway-exclusive transactions, within the past 12 months. A platform access partner is a third party whose customers are provided access to PayPal’s platform or services through such third-party’s login credentials, including individuals and entities that utilize Hyperwallet’s payout capabilities. A user may register on our platform to access different products and may register more than one account to access a product. Accordingly, a user may have more than one active account. The number of active accounts provides management with additional perspective on the overall scale of our platform, but may not have a direct relationship to our operating results.
OUR STRENGTHS
Our business is built on a strong foundation designed to drive growth and differentiate us from our competitors. A critical element of our overall growth strategy involves increasing the engagement of our active accounts, which we expect will contribute to growth in payment transactions, total payment volume, and net revenues. We believe that our competitive strengths include the following:
•Two-sided network—our payments platform connecting merchants and consumers.consumers enables PayPal to offer unique end-to-end product experiences while gaining valuable insights into how our customers use our platform. Our gateway services,payments platform provides for digital and in-store (at the point of sale) transactions while being both technology and platform agnostic.
•Merchant and consumer choice—our branded and unbranded card processing payment solutions support an open ecosystem that provides choice to both merchants and consumers, enabling flexibility to make and receive payments using a wide variety of different funding options and digital wallet solutions.
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•Scale—our global scale helps us to drive organic growth. As of December 31, 2022, we had 435 million active accounts, consisting of 400 million consumer active accounts and 35 million merchant active accounts in more than 200 markets around the world. A market is a geographic area or political jurisdiction, such as a country, territory, or protectorate, in which includewe offer some or all of our Payflow Gateway serviceproducts and services. A country, territory, or protectorate is identified by a distinct set of laws and regulations. In 2022, we processed $1.36 trillion of TPV.
•Trusted brands—we have built and strengthened well-recognized and trusted brands, including PayPal, Braintree, Gateway service,Venmo, Xoom, Hyperwallet, PayPal Zettle, PayPal Honey, and Paidy. Our communications and marketing efforts across multiple geographies and demographic groups play an important role in building brand visibility, usage, and overall preference among customers.
•Risk and compliance management—our enterprise risk and compliance management program is designed to help secure customer information and to help ensure we process legitimate transactions around the world, while identifying and minimizing illegal, high-risk, or fraudulent transactions.
•Regulatory licenses—we believe that our regulatory licenses, which enable us to operate in markets around the world, are a distinct advantage and help support business growth.
MERCHANT AND CONSUMER PAYMENT SOLUTIONS
During 2022, we reorganized our product organization to better align with merchants and consumers to help simplify decision making and enable our teams to innovate and launch new products and features more quickly and efficiently.
Merchant value proposition
We partner with our merchants to help grow and expand their businesses by providing global reach and powering all aspects of digital checkout. We offer alternative payment methods (including access to credit solutions), provide fraud prevention and risk management solutions, reduce merchant losses through proprietary protection programs, and offer tools and insights for utilizing data analytics to attract and engage customers and improve sales conversion. We employ a technology and platform agnostic approach intended to enable merchants of all sizes to quickly and easily provide digital checkout online, including through PayPal-branded checkout and unbranded card processing (primarily consisting of Braintree), as well as in-store at the technology that links a merchant’s websitepoint of sale, across all platforms and devices, and to its processing networksecurely and merchant account andsimply receive payments from their customers.
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PayPal’s payments platform enables merchants to accept all types of online and offline payments, including those made with the PayPal and Venmo digital wallets, our consumer credit products, credit cards and debit cards, and competing digital wallets, as well as other popular local payment methods. Our diversified suite of products and services is tailored to meet the needs of merchants regardless of their size or business complexity. We have expanded our merchant value proposition to enable payment acceptance at the point of sale through our PayPal and Venmo digital wallets and our PayPal Zettle point of sale solutions. We aim to offer a seamless, omni-channel solution that helps merchants manage and grow their business. Through our consumer-focused offerings, we provide simplified and personalized shopping experiences for consumers, including easier exchanges and returns, to help merchants drive increased conversion through higher consumer engagement.
We offer access to merchant finance products for certain small and medium-sized businesses through the PayPal Working Capital and PayPal Business Loan products, which we collectively refer to as our merchant finance offerings. The PayPal Working Capital product allows businesses to access a loan or cash advance for a fixed fee and based on their annual payment volume processed by PayPal. The PayPal Business Loan product provides businesses with short-term financing for a fixed fee based on an evaluation of both the applying business as well as the business owner. In the United States (“U.S.”), these products are provided under a program agreement with an independent chartered financial institution. We believe that our merchant finance offerings enable us to deepen our engagement with our existing small and medium-sized merchants and expand services to new merchants by providing access to capital that may not be available from traditional banks or other lending providers.
We generate revenues from merchants primarily by charging fees for completing their payment transactions and other payment-related services. We also earn revenues from interest and fees earned on our merchant loans receivables.
Consumer value proposition
We focus on providing affordable, convenient, and secure consumer financial products and services intended to democratize the management and movement of money. We provide consumers with a digital wallet that enables them to send payments to merchants more safely using a variety of funding sources, which may include a bank account, a PayPal or Venmo account balance, our consumer credit products, a credit card, a debit card, certain cryptocurrencies, or other stored value products such as gift cards, and eligible rewards. Our goal is to create the simplest checkout experience possible for consumers both online and on mobile devices.
We also offer consumers P2P payment solutions through our PayPal, Venmo, and Xoom products and services. We enable both domestic and international P2P transfers across our payments platform. Our Venmo digital wallet in the U.S. is a leading mobile application used to move money between our customers and to make purchases at select merchants. Our Xoom international money transfer service enables our customers to send money to people around the world in a secure, fast, and cost-effective way. P2P is an important source of customer engagement and also serves as a customer acquisition channel that facilitates organic growth by enabling potential users to establish active accounts with PayPal or Venmo at the time they make or receive a P2P payment. We also focus on simplifying and personalizing shopping experiences for our consumers by offering tools for product discovery, price tracking, offers, convenient tracking and redemption options for their shopping rewards, and easier exchanges and returns, which help our merchants to increase consumer engagement and sales conversion.
We offer credit products to consumers in certain markets as a funding source at checkout, subject to approval of credit for the account holder. Our consumer credit offerings include our buy now, pay later products in the U.S., United Kingdom (“U.K.”), France, and Germany, among others, and in Japan through Paidy. A key attribute of our buy now, pay later products is the absence of interest or consumer late fees for missed payments in most of the geographies where we offer them. Further, we offer consumer interest-bearing installment products for consumers in the U.S., issued by an independent chartered financial institution, and in Germany. In the U.S., consumers may apply for our PayPal- and Venmo-branded consumer credit cards and our PayPal Credit revolving consumer credit product, which are offered through a partnership with an independent chartered financial institution. We offer a PayPal-issued PayPal Credit product in the U.K. We believe that our consumer credit products help enable us to increase engagement with consumers and merchants on our two-sided network.
We have expanded our consumer value proposition through enhancements to the PayPal and Venmo digital wallets, which provide functionality to enable consumers to more easily checkout, explore deals and offers, track and redeem rewards, and to transact with cryptocurrencies, including buying, holding, selling, sending, and receiving them in certain markets. Our goal is to drive increased consumer engagement by providing consumers with a comprehensive set of services to manage their finances and enhance their ability to shop online and in person.
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We generate revenue from consumers on: fees charged for foreign currency conversion, instant transfers from their PayPal or Venmo account to their bank account or debit cards.card, and to facilitate the purchase and sale of cryptocurrencies; interest, fees, or other revenue from our credit products; and other miscellaneous fees.
PROTECTING MERCHANTS AND CONSUMERS
Protecting merchants and consumers on our payments platform from financial and fraud loss is important to successfully competing and sustainably growing our business. Fraudulent activities, such as account takeover, identity theft (including stolen financial information), and malicious activities by counterparties, represent a significant risk to merchants and consumers, as well as their payment partners. We provide merchants and consumers with protection programs for certain purchase transactions completed on our payments platform. We believe that these programs, which help protect both merchants and consumers from financial loss resulting from fraud and counterparty non-performance, are generally consistent with or broader than protections provided by other participants in the payments industry. Our protection programs are designed to promote confidence on both the part of consumers, who will only be required to pay in certain circumstances, such as receiving their purchased item in the condition significantly as described, and merchants, who will receive payment for delivering an item to the customer.
Our ability to help protect both merchants and consumers is based largely on our proprietary, end-to-end payments platform and our ability to utilize the data from both sides of transactions on our two-sided network, specifically from buyers and sellers and from senders and receivers of payments. Our ongoing investment in systems and processes is designed to enhance the safety and security of our products and reflects our goal of having PayPal recognized as one of the world’s most trusted payments brands.
COMPETITION
The global payments industry is highly competitive, dynamic, highly innovative, and increasingly subject to regulatory scrutiny and oversight. Many of the areas in which we compete evolve rapidly with innovative and disruptive technologies, shifting user preferences and needs, price sensitivity of merchants and consumers, and frequent introductions of new products and services. Competition also may intensify as new competitors emerge, businesses enter into business combinations and partnerships, and established companies in other segments expand to become competitive with various aspects of our business.
We compete with a wide range of businesses. Some of our current and potential competitors are or may be larger than we are, have larger customer bases, greater brand recognition, longer operating histories, a dominant or more secure position, broader geographic scope, volume, scale, resources, and market share than we do, or offer products and services that we do not offer. Other competitors are or may be smaller or younger companies that may be more agile in responding to regulatory and technological changes and customer preferences.
We differentiate ourselves to merchants through our ability to innovate and develop products and services that offer new payment experiences for our merchants, demonstrate that they may achieve incremental sales by using and offering our services to consumers, support transactions on our payments platform across varied technologies and payment methods, through the simplicity and transparency of our fee structure, our seller protection programs, analytics, and risk management, as well as other merchant services. In addition, we differentiate ourselves to consumers through the ability to use our products and services across multiple commerce channels, including e-commerce, mobile, and payments at the point of sale, and without sharing their financial information with the merchant or any other party they are paying; our customer service, dispute resolution, and purchase protection programs; and our ability to simplify and personalize shopping experiences. We invest resources towards improving our products and services, offering choice in payment options, providing excellent customer service, and building brands that merchants and consumers trust.
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Our business faces competition from a wide range of businesses and from all forms of physical and electronic payments. We face competition from banks and financial institutions, which provide traditional payment methods (particularly credit cards and debit cards (collectively, “payment cards”), electronic bank transfers, and credit), payment networks that facilitate payments for payment cards or proprietary retail networks, payment card processors, and “card on file” services. We also face competition from providers offering a variety of payment products and services, including tokenized and contactless payment cards, digital wallets and mobile payments solutions, credit, installment or other buy now pay later methods, real-time payment systems, P2P payments and money remittance services, card readers and other devices or technologies for payment at point of sale, virtual currencies and distributed ledger technologies, and tools that simplify and personalize shopping experiences for consumers and merchants. Our products and services face competition from all forms of payments, which include paper-based payments (primarily cash and checks), credit cards, debit cards, electronic bank transfers, account-to-account payments, credit, installment methods, digital wallets and mobile payment solutions, contactless payments (including contactless cards, tokenized cards, Near Field Communication (NFC) based solutions, and Quick Response (QR) code-based solutions), and virtual currencies, such as cryptocurrencies and stablecoins.
In addition to the discussion in this section, see “Item 1A. Risk Factors” under the caption “We face substantial and increasingly intense competition worldwide in the global payments industry” for further discussion of the potential impact of competition on our business.
STRATEGY
Our ability to grow revenue is affected by, among other things, the macroeconomic environment and its impact on consumer spending patterns, merchant and consumer adoption of digital payment methods, the expansion of multiple commerce channels, the growth of mobile devices and merchant and consumer applications on those devices, the growth of consumers globally with internet and mobile access, the pace of transition from cash and checks to digital forms of payment, our share of the digital payments market, and our ability to innovate and introduce new products, services, and servicesfeatures that merchants and consumers value. Our strategy to drive growth in our business includes the following:
•Expanding our value proposition for merchants and consumers:by being technology and platform agnostic, partnering with our merchants to grow and expand their business online and in-store, and providing consumers with simple, secure, and flexible ways to manage and move money across different markets, merchants, and platforms, and simplifying their shopping experiences;
•Forming and expanding strategic partnerships:by building new strategic partnerships and deepening existing ones to provide better experiences for our customers, offer greater choice and flexibility, acquire new customers, and reinforce our role in the payments ecosystem; and
•Seeking new areas of growth: organically and through acquisitions and strategic investments in our existing and new international markets and focusing on innovation in both the digital and physical world.
ESG MANAGEMENT
PayPal is committed to creating a more inclusive global economy and advancing our core values of Inclusion, Innovation, Collaboration, and Wellness across our communities, workforce, and strategies. We manage priority ESG risks and opportunities organized across four key pillars: (1) employees and culture, (2) social innovation, (3) environmental sustainability, and (4) responsible business practices. We believe this integrated, enterprise-wide approach to managing our global business responsibly helps to enable us to create value for all our stakeholders, including our stockholders, employees, partners, and communities. We continue to advance and prioritize efforts to manage key non-financial factors critical to our customers, and therefore the success of ourlong-term business, through active accounts, payment transactions, and total payment volume:
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Our Payments Platformpayments platform utilizes a combination of proprietary and third-party technologies and services intended to facilitate transactions efficiently and securely facilitate transactions between millions of merchants and consumers worldwide across different channels, markets, and networks. Our Payments Platformpayments platform connects with financial service providers around the world and allows consumers to make purchases using a wide range of payment methods, regardless of where a merchant is located. Consumers who use our Payments Platformpayments platform can send payments in more than 200 markets around the world and in more than 100nearly 150 currencies, withdraw funds to their bank accounts in 56 currencies, and hold balances in their PayPal accounts in 25 currencies.
The technology infrastructure supporting our Payments Platform simplifiespayments platform is designed to simplify the storage and processing of large amounts of data and facilitatesfacilitate the deployment and operation of large-scale global products and services in both our own data centers and when hosted by third-party cloud computing.service providers. Our technology infrastructure is designed around industry best practices intended to reduce downtime and help ensure the resiliency of our payments platform in the event of outages or catastrophic occurrences. Our Payments Platformpayments platform incorporates multiple layers of protection for business continuity and system redundancy purposes and to help addressmitigate cybersecurity risks. We have a comprehensive cybersecurity program designed to protect our technology infrastructure and Payments Platformpayments platform against these challenges, includingcybersecurity threats, which includes regularly testing our systems to identify and address potential vulnerabilities. We strive to continually improve our technology infrastructure and Payments Platformpayments platform to enhance the customer experience and to increase efficiency, scalability, and security.
The protection of our intellectual property, including our trademarks, patents, copyrights, domain names, trade dress, patents, and trade secrets, is important to the success of our business. We seek to protect our intellectual property rights by relying on applicable laws, regulations, and regulationsadministrative procedures in the U.S. and internationally, as well as a variety of administrative procedures.internationally. We have registered our core brands as domain names and as trademarks in the U.S. and a large number of othermany international jurisdictions. We also have in place an active program to continue to secure and enforce trademarks and domain names that correspondscorrespond to our brands in markets of interest. We have filed and continue to file patent applications in the U.S. and in international jurisdictions covering certain aspects of our proprietary technology and new innovations. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services. We have routinely enteredenter into confidentiality and invention assignment agreements with our employees and contractors, and non-disclosure agreements with parties with whom we conduct business to control access to, and use and disclosure of, our proprietary information.
For additional information regarding some of the risks relating to our intellectual property, including costs of protecting our intellectual property, see the information in “Item 1A. Risk Factors” under the captions “WeThird parties may allege that we are subject to patent litigationinfringing their patents and other intellectual property rights” and “We may be unable to adequately protect or enforce our intellectual property rights, or third parties may allege that we are infringing their intellectual property rights.”
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GOVERNMENT REGULATION
We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus by regulators globally on all aspects of the payments industry. That focus continues to become even more heightened as regulators on a global basis focus on such important issues asindustry, including 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 theThe laws and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuingcontinue to evolve through legislative and regulatory action and judicial interpretation. New or changing laws and regulations, including how such lawschanges to their interpretation and regulations are interpreted and implemented,implementation, 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, weWe monitor these areas closely to designand are focused on designing compliant solutions for our customers who depend on us.customers.
Government regulation impacts key aspects of our business. We are subject to the laws and regulations that affectapplicable to the payments industry in the markets we operate.operate, which are subject to interpretation and change.
Payments Regulation.regulation. Various laws and regulations govern the payments industry in the U.S. and internationally. In the U.S., PayPal, Inc. (a wholly-owned subsidiary) holds licenses to operate as a money transmitter (or its equivalent), which, in the states where such licenses are required, as well as in the District of Columbia and certain territories. These licenses include not only the PayPal-branded products and services offered in these locations, but also our Venmo, Hyperwallet, and Xoom products and services to the extent offered in these locations. As a licensed money transmitter, PayPal is subject to, among other things, subjects PayPal, Inc.requirements, restrictions with respect to reporting requirements, bonding requirements, limitations on the investment of customer funds, reporting requirements, bonding requirements, and inspection by state regulatory agencies. In certain cases, these licenses also generally cover PayPal’s service enabling customers to buy, hold, transfer, and sell cryptocurrency directly from their PayPal or Venmo account. In the State of New York, PayPal holds a full Bitlicense issued by the New York Department of Financial Services to offer cryptocurrency services in the state.
Outside the U.S., we provide similar services customized for various countries and foreign jurisdictions through our foreign subsidiaries. The activities of those non-U.S. entities are, or may be, supervised by a financial regulatory authority in the jurisdictions in which they operate. Among other regulatory authorities, the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”), the U.K. Financial Conduct Authority (“FCA”), the Australian Prudential Regulation Authority, the People’s Bank of China, the Monetary Authority of Singapore, the Reserve Bank of India, the Central Bank of Russia, and the Central Bank of Brazil and the People's Bank of China have asserted jurisdiction over some or all of our activities in their respective jurisdictions. This list is not exhaustive, and there are numerous other regulatory agencies thatwhich have asserted or may assert jurisdiction over our activities. The laws
In addition, financial services regulators in various jurisdictions, including the U.S. and regulations applicablethe European Union (“EU”), have implemented authentication requirements for banks and payment processors intended to reduce online fraud, which could impose significant costs, make it more difficult for new customers to open PayPal accounts, and reduce the payments industry in any given jurisdiction are subject to interpretation and change.ease of use of our products.
Banking Agency Supervisionagency supervision.We serve our customers in the European Union (“EU”)EU and U.K. through PayPal (Europe) S.à.r.l. et Cie, SCA,S.C.A. (“PayPal (Europe)”), a wholly-owned subsidiary that is licensed and subject to regulation as a bankcredit institution in Luxembourg by the CSSF. Under the U.K.’s Temporary Permissions Regime, PayPal is deemed to be authorized and regulated by the U.K. FCA as a result of Brexit. Consequently, we must comply with rules and regulations of the European banking industry, including those related to capitalization, funds management, corporate governance, anti-money laundering, disclosure, reporting, and inspection. We are, or may be, subject to banking-related regulations in other countries now or in the future related to our role in the financial industry. In addition, based on our relationships with our partner financial institutions, we are, or may be, subject to indirect regulation and examination by the regulators of these partner financial institutions’ regulators.institutions.
Lending regulation. Our U.S. consumer short-term, interest-free, installment product is subject to federal and state laws governing consumer credit and debt collection. PayPal holds multiple state licenses as the lender of this product. Paidy, Inc. holds multiple licenses for the issuance of its consumer installment products in Japan and is registered with the Ministry of Economy, Trade and Industry as a Comprehensive Credit Purchase Intermediary. In Australia, PayPal Credit Pty Limited offers a consumer short-term, interest-free, installment product that is exempt from regulation by the primary consumer credit legislation, but is subject to other laws which cover the provision of financial services, credit reporting, debt collection, and privacy. PayPal’s consumer short-term, interest-free, installment products in the U.K., France, Germany, Spain, and Italy are generally exempt from primary consumer credit legislation; however, certain consumer lending laws, consumer protection, and banking transparency regulations apply to this activity.
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Our U.S. consumer interest-bearing installment product is subject to federal and state laws and is offered by an independent chartered financial institution. PayPal’s interest-bearing installment product for consumers in Germany is subject to applicable local laws such as consumer (lending) laws, consumer protection, or banking transparency regulations. These loans are originated by PayPal (Europe).
PayPal and Venmo co-branded consumer credit cards and the PayPal Credit revolving consumer credit product are issued by an independent chartered financial institution in the U.S., and are subject to laws and regulations governing these programs. PayPal Credit in the U.K. is a regulated, revolving consumer credit product subject to applicable local laws and regulations.
Our U.S. merchant lending products are subject to federal and state regulations and are offered by an independent chartered financial institution. Our merchant lending products offered in Germany, France and the Netherlands are subject to the laws of Luxembourg and certain local laws, and our merchant lending product offered in the U.K. is subject to U.K. regulation. The loans offered to European and U.K. merchants are originated by PayPal (Europe). Our merchant lending product in Australia is subject to the laws of Australia and originated by PayPal Credit Pty Limited.
Consumer Financial Protection Bureau (“CFPB”).. The Consumer Financial Protection Bureau (the “CFPB”)CFPB has significant authority to regulate consumer financial products in the U.S., including consumer credit, deposits, payments, and similar products. As a large market participant of remittance transfers, the CFPB has direct supervisory authority over our business. The CFPB and other similar regulatory agencies in other jurisdictions may have broad consumer protection mandates that could result in the promulgation and interpretation of rules and regulations that may affect our business.
Interchange Fees.fees. Interchange fees associated with four-party payments systems are being reviewed or challenged in various jurisdictions. For example, in the EU, the Multilateral Interchange Fee (“MIF”) Regulation caps interchange fees for credit and debit card payments and provides for business rules to be complied with by any company dealing with payment card transactions, including PayPal. As a result, the fees that we collect in certain jurisdictions may become the subject of regulatory challenge.
Data Protectionprotection and Information Security.privacy. Aspects of our operations or businessWe are subject to a number of laws, rules, directives, and regulations (“privacy and data protection regulationlaws”) relating to the collection, use, retention, security, processing, and transfer (collectively, “processing”) of personally identifiable information about our customers, our merchants’ customers, and employees (“personal data”) in the U.S.,countries where we operate. Our business relies on the EU, Asia Pacific,processing of personal data in many jurisdictions and elsewhere. For example, the EU adoptedmovement of data across national borders. As a comprehensive General Data Protection Regulation (the “GDPR”), which came into effect in May 2018. GDPR expanded the scoperesult, much of the EUpersonal data that we process, which may include certain financial information associated with individuals, is subject to one or more privacy and data protection lawlaws in one or more jurisdictions. In many cases, these laws apply not only to foreign companiesthird-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 processing of personal data of European Economic Area (“EEA”) individuals and imposed a stricter data protection compliance regime. Inis increasing around the U.S., we are subject to privacy and information safeguarding requirements under the Gramm-Leach-Bliley Act and the California Consumer Privacy Act that require similar privacy protections afforded by the GDPR, as well as the maintenance of a written, comprehensive information security program. In Europe, the operations of our Luxembourg bank are subject to confidentiality and information safeguarding requirements under the Luxembourg Banking Act.world. Regulatory authorities around the world are continuously considering numerous legislative and regulatory proposals concerning privacy and data protectioninterpretive guidelines that may contain additional privacy and data protection obligations. Many jurisdictions in which we operate have adopted, or are in the process of adopting, or amending data privacy legislation or regulation aimed at creating and enhancing individual privacy rights. In addition, the interpretation and application of these privacy and data protection laws in the U.S., Europe, and elsewhere are often uncertainsubject to change and in a state of flux.may subject us to increased regulatory scrutiny and business costs.
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Additional Regulatory Developments.regulatory developments. Various regulatory agencies continue to examine and implement laws governing a wide variety of issues, including virtual currencies, identity theft, account management guidelines, privacy, disclosure rules, cybersecurity, competition, and marketing, thatwhich may impact PayPal’s business. Certain governments around the world are adopting laws and regulations pertaining to ESG performance, transparency, and reporting, including those related to general corporate ESG disclosures (e.g., the EU Corporate Sustainability Reporting Directive) as well as topical reporting and risk management requirements, such as obligations related to the management of climate-related risks.
For an additional discussion on governmental regulation affecting our business, please see the risk factors related to regulation of our payments business and regulation in the areas of consumer privacy, data use, and/or security in “Item 1A. Risk Factors” under the caption “Risk Factors That May Affect Our Business, Results of Operations, and Financial Condition” and “Item 3. Legal Proceedings” included elsewhere in this Annual Report on Form 10-K.
our business. As of December 31, 2019,2022, we employed approximately 23,20029,900 people globally, of whomwith 44% in the Americas, 43% in Asia-Pacific, and 13% in Europe and the Middle East. Our global employees work predominantly full-time and represent nearly 150 nationalities, across 27 countries, including approximately 11,200 were11,800 located in the U.S.
Attracting, recruiting, developing, and retaining diverse talent enables us to provide our customers with products and services that help them to thrive in the global economy, and serve our other stakeholders. In 2022, we developed 12 leadership principles based on our four core values that establish a common set of expectations for all employees. We considerbegan integrating these principles across our relationship withglobal talent strategy to help shape our programs throughout the employee lifecycle and achieve key business priorities. We also remain focused on promoting the physical, mental, and financial wellness of our employees, particularly as our workforce continues to be good.navigate changes in where and how we work.
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Employee engagement
We use employee feedback to directly inform the ongoing development of our employee programs. In addition to administering an annual survey to gather input from eBay Inc.
our global workforce, we also conducted specific surveys to gather direct employee feedback on our internal communications approach and evolving workplace preferences. For our 2022 annual employee survey, we heard from 83% of our global employees. Our engagement score, which reflects employees that would recommend PayPal Holdings, Inc.to their peers and/or are happy at PayPal was incorporated in Delaware in January 2015 for the purpose of owning and operating eBay’s Payments business in connection79%. Our score measuring intent to stay was 78%, which reflects an employee’s expectation to remain employed with the separationcompany in two years. Additionally, we observed improvements in employee scores regarding collaboration and distribution described below. eBay completedmanager support. In 2022, we enhanced our survey to incorporate viewpoints on the transferemployee experience, diversity, inclusion, equity, and belonging (“DIE&B”) efforts, and our leadership principles, including specific questions on working style and strategic direction. The detailed scores are shared across the organization and analyzed to understand differences by geography, demographics, business function, and job level, and to help identify opportunities for further improvement.
Talent acquisition, development, and retention
As a leading technology platform that enables digital payments and simplifies commerce experiences, we compete for top global talent around the world. We believe that a strong culture focused on employee experiences that enables advancement, learning, and individual career insights is essential to the successful acquisition, development, and retention of substantiallydiverse talent. Accordingly, we have implemented programs focused on inclusive hiring practices and extending our talent pipeline through targeted partnerships, reimagined our career development program for individuals and managers, extended individual coaching and mentorship programs (particularly for underrepresented and technical talent), and advanced efforts for employees to grow through self-paced and community learning experiences.
Employee wellness
We remain focused on promoting the holistic well-being of our employees, including resources, programs, and services to support our employees’ physical, mental, and financial wellness. In 2022, our initiatives included extending our Global Wellness Days for all employees to take time to rest and recharge, providing resources, trainings, and workshops to foster emotional well-being, preserving workplace flexibility through Crisis Leave and other programs, and strategically extending employee benefits to additional global markets. We also continued our efforts to strengthen employee financial wellness, including offering individual employee financial coaching, promoting the prioritization of employee financial health across the private sector through the Worker Financial Wellness Initiative, and improving our internal measurement and evaluation approaches to identify targeted opportunities for further enhancements. Through our global community impact program, we support our employees’ individual passions and communities by matching eligible employee donations and volunteer time with non-profit organizations up to $2,500 annually per employee.
Diversity, inclusion, equity, and belonging
We believe that fostering DIE&B is critical to our global talent strategy and pivotal to building a culture that embraces individual characteristics, values diversity, minimizes barriers, and enhances feelings of security and support across the workplace. We are committed to equal pay for equal work, promoting enterprise-wide inclusive learning opportunities, and partnering with leading organizations to embed DIE&B considerations into our talent strategy. We believe that our strong commitment to DIE&B is evident at all levels of the assets, liabilities,organization from our Board of Directors to our executive leadership team to our global workforce. As of December 31, 2022, 50% of our Board and operations64% of eBay’s Payments businessour senior leadership team identified as women and/or from a diverse ethnic group. Across our workforce, we reached 56% overall diverse workforce representation, including 44% global gender diversity (inclusive of self-identified women and non-binary employees), and 54% U.S. ethnic diversity, as of December 31, 2022. Additional U.S. workforce diversity metrics can be found in our public EEO-1 reports and annual Global Impact Report available at https://about.pypl.com/values-in-action/reporting/default.aspx.
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Workforce representation is only one aspect of our broader DIE&B strategy. Through the leadership of our Global Head of DIE&B and dedicated DIE&B team, along with functional collaboration and accountability, we are focused on strengthening existing efforts and piloting new initiatives to PayPal in June 2015. Priorpromote an inclusive culture. In 2022, we continued our support for underrepresented communities and employees through activities such as enhanced strategic partnerships, new learning modules to promote effective sponsorship and inclusive performance management, and new tools and resources to incorporate DIE&B considerations across the contributionbusiness. We continue to evaluate DIE&B progress across the company and as part of the Paymentsindividual performance assessment under our 2022 annual incentive plan for our senior executives. In addition, we empower eight employee resource groups to promote community and belonging for employees that identify as Black, Latinx/Hispanic, women, interfaith, veterans, LGBTQ+, Asian, and disabled persons and their allies. These groups drive ongoing employee engagement around the world for all employees, regardless of background, to support and champion their peers and related causes.
Our evolving workplace
We remain focused on creating a culture of flexibility and community by designing ways to collaborate across diverse workplace models, whether working virtually, on-site, or using a hybrid approach. We empower functional leadership to determine the most appropriate workplace strategy for their teams to optimize employee productivity and engagement and deliver on business priorities. Across PayPal, Holdings, Inc. had no operations. On July 17, 2015 (the “distribution date”), PayPal became an independent publicly traded company through the pro rata distribution by eBaywe are focused on providing tools and resources to support our diverse and distributed teams. We believe this flexible approach has broadened our potential global talent pools.
As part of 100% of the outstanding common stock of PayPal to eBay stockholders (whichour annual ESG reporting, we refer to as the “separation” or the “distribution”). Each eBay stockholder of record as of the close of businessprovide additional information on July 8, 2015 received one share of PayPal common stock for every share of eBay common stock held on the record date. Approximately 1.2 billion shares of PayPal common stock were distributed on July 17, 2015 to eBay stockholders. PayPal’s common stock began “regular way” trading under the ticker symbol “PYPL” on the NASDAQour global talent strategy, including detailed representation metrics, in our Global Select Market on July 20, 2015.Impact Report.
The address of our principal executive offices is PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131. Our website is located at www.paypal.com, and our investor relations website is located at http:https://investor.paypal-corp.com.investor.pypl.com. From time to time, we may use our investor relations site and other online and social media channels, including ourthe PayPal Stories BlogNewsroom (https://www.paypal.com/stories/us)newsroom.paypal-corp.com/), Twitter handles (@PayPal and @PayPalNews), LinkedIn page (https://www.linkedin.com/company/paypal), Facebook page (https://www.facebook.com/PayPalUSA/), YouTube channel (https://www.youtube.com/paypal), Dan Schulman’s LinkedIn profile (https://www.linkedin.com/in/dan-schulman/), John Rainey’sGabrielle Rabinovitch’s LinkedIn profile (www.linkedin.com/(https://www.linkedin.com/in/john-rainey-pypl)gabriellerabinovitch/), and Dan Schulman’s Facebook page (https://www.facebook.com/DanSchulmanPayPal/), and Dan Schulman’s Instagram page (https://www.instagram.com/dan_schulman/) as a means of disclosing information about the Company, including information which could be deemed to disclosebe material non-public information and comply with our disclosure obligations under Regulation Fair Disclosure (“FD”).to investors. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge on our investor relations website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The content of our websites and information we may post on, or provide to, or accessible through online and social media channels, including those mentioned above, and information that can be accessed through our websites or these online and social media channels isare not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites or these online and social media channels are intended to be inactive textual references only.
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ITEM 1A. RISK FACTORS
Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business, and financial condition.
The techniques used to attempt to obtain unauthorized improper, or illegal access to systems and information (including customers’ personal data), disable or degrade service, exploit vulnerabilities, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated,evolving. In some circumstances, these attempts may not be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. Unauthorized parties have attempted, and we expect that they will continue to attempt to gain access to our systems or facilities through various means, including but not limited to,through hacking into our systems or facilities or those of our customers, partners, or vendors, and attempting to fraudulently induce users of our systems (including employees, vendor and ourpartner personnel and customers) into disclosing user names, passwords, payment card information, multi-factor authentication application access or other sensitive information whichused to gain access to such systems or facilities. This information may, in turn, be used to access our customers’ confidential personal or proprietary information and financial instrument data that are stored on or accessible through our information technology systems. Threats can come from a varietysystems and those of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insider threats. Certain effortsthird parties with whom we partner. This information may also be supported by significant financial and technological resources, making them even more sophisticated and difficultused to detect.execute fraudulent transactions or otherwise engage in fraudulent actions. Numerous and evolving cybersecurity threats, including advanced and persisting cyberattacks, cyberextortion, distributed denial-of-service attacks, ransomware, spear phishing and social engineering schemes, the introduction of computer viruses or other malware, and the physical destruction of all or portions of our information technology and infrastructure and those of third parties with whom we partner, are becoming increasingly sophisticated and complex, may be difficult to detect, and could compromise the confidentiality, availability, and integrity of the data in our systems. systems, as well as the systems themselves.
We believe that PayPal is a particularly attractivecybercriminals may target for such breaches and attacksPayPal due to our name, and brand recognition, types of data (including sensitive payments- and identity-related data) that customers provide to us, and the widespread adoption and use of our products and services. Although we have developed systems and processes designed to protect data we manage, prevent data loss and other security breaches and effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks.
personally identifiable information for approximately 1.6 million TIO customers.
Any cyberattacks or data security breaches affecting the information technology or infrastructure of companies we acquire or of our customers, partners, or vendors (including data center and cloud computing providers) could have similar negative effects. See Note 4—“Business Combinations,
Our systems and operations and those of our service providers and partners have experienced from time to time, and may experience in the future, servicebusiness interruptions or degradation of service because of distributed denial-of-service and other
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cyberattacks, insider threats, hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, insider threats, human error, earthquakes, hurricanes, floods, fires, and other natural disasters, public health crises (including pandemics), power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events. We have experienced from timeThe frequency and intensity of weather events related to climate change are increasing, which could increase the likelihood and severity of such disasters as well as related damage and business interruption. Our corporate headquarters are located in the San Francisco Bay Area, a seismically active region in California. A catastrophic event that could lead to a disruption or failure of our systems or operations could result in significant losses and require substantial recovery time and may experience in the future, disruptions in our systems duesignificant expenditures to break-ins, sabotage, and intentional acts of vandalism. Someresume or maintain operations. Further, some of our systems, including systemsthose of companies that we have acquired, are not fully redundant and ourany failure of these acquired systems, including due to a catastrophic event, may lead to operational outages or delays.While we engage in disaster recovery planning and testing intended to mitigate risks from outages or delays, our planning and testing may not be sufficient for all possible outcomes or events. In addition, asAs a provider of payments solutions, we are also subject to heightened scrutiny by regulators that may require specific business continuity, resiliency and disaster recovery plans, and more rigorous testing of such plans, which may be costly and time-consuming to implement, and may divert our resources from other business priorities.
We have experienced, and expect to continue to experience, system failures, denial-of-service attacks,cyberattacks, unplanned outages, and other events or conditions from time to time that have and may interrupt the availability, or reduce or adversely affect the speed or functionality, of our products and services. These events have resultedservices and likely will result in loss of revenue. A prolonged interruption in the availabilityof, or reduction in, the availability, speed, or functionality of our products and services could materially harm our business. Frequent or persistent interruptions in our services could cause current or potential customers or partners to believe that our systems are unreliable, leading them to switch to our competitors or to avoid or reduce the use of our products and services, and could permanently harm our reputationrelationship with our customers and brands. Moreover, ifpartners and our reputation. If any system failure or similar event results in damagesdamage to our customers or their business partners, these customers or partnersthey could seek significant compensation or contractual penalties from us for their losses, and thoselosses. These claims, even if unsuccessful, would likely be time-consuming and costly for us to address, and could have other consequences described in this “Risk Factors” section under the caption “address.
We also rely on facilities, components, applications, software, and services supplied by third parties, including data center facilities and cloud data storage services, which subjects us to risks in the nature of those discussed in this “Risk Factors” section under the captions “We rely on third parties in many aspects of our business, which creates additional risk.”and processing services. From time to time, such third partieswe have ceased to provide us withexperienced interruptions in the provision of such facilities and services. Additionally, ifservices provided by these third parties. If these third parties experience operational interference or disruptions breach their agreements with us,(including a cybersecurity incident), fail to perform their obligations, and meet our expectations, or experience a cybersecurity incident,breach their agreements with us, our operations could be disrupted or otherwise negatively affected, which could result in customer dissatisfaction, regulatory scrutiny, and damage to our reputation and brands, and materially and adversely affect our business. While we maintain business interruption insurance policies intended to help offset the financial impact we may experience from these risks, our coverage may be insufficient to compensate us for all losses that may result fromcaused by interruptions in our service as a result ofdue to systems failures and similar events.
In addition, we are continually improving and upgrading our information systems and technologies. Implementation of new systems and technologies is complex, expensive, and time-consuming. If we failany failure to timely and successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies or if such systems and technologies do not operate as intended, thisin a timely manner could have an adverseadversely impact on our business, internal controls, (including internal controls over financial reporting), results of operations, and financial condition.
Rapid, significant, and disruptive technological changes impact the industries in which we operate, including payment technologies (including real-time payments, payment card networkstokenization, virtual currencies, distributed ledger and blockchain technologies, and proximity payment technology such as Near Field Communication and other contactless payments); internet browser technologies, that enable users to easily store their payment card information for use on any retail or bank fees, rules, or practices could harme-commerce website; artificial intelligence and machine learning; developments in technologies supporting our business.regulatory and compliance obligations; and in-store, digital, and social commerce.
We rely on banks or other payment processorsexpect that new technologies applicable to process transactions and pay fees for their services. From timethe industries in which we operate will continue to time, payment card networks have increased,emerge and may continuebe superior to, increaseor render obsolete, the technologies we currently use in our products and services. We cannot predict the future, the interchange feeseffects of technological changes on our business, which technological developments or innovations will become widely adopted, and assessments that they charge for transactions that access their networks. Payment card networks have imposed,how
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those technologies may be regulated. Developing and incorporating new technologies into new and existing products and services may require significant investment, take considerable time, and may imposenot ultimately be successful. We rely in part on third parties, including some of our competitors, for the future, special feesdevelopment of and access to new or assessments for transactions that are executed through a digital wallet such as PayPal’s, which could negatively impact us and significantly increaseevolving technologies. These third parties may restrict or prevent our costs. Our payment card processors may have the rightaccess to, pass any increases in interchange fees and assessments on to usor utilization of, those technologies, as well as increase their own fees for processing, which could increaseplatforms or products. Our ability to develop, provide or incorporate new technologies and adapt our operating costsexisting products and reduce our operating income. We have entered into strategic partnerships with Visa, Mastercardservices or develop future and new products and services using new technologies may be limited or restricted by industry-wide standards, platform providers, payments networks, changes to laws and regulations, changing customer expectations, third-party intellectual property rights, and other credit card networks to further expand our relationships in a way that will make it easier for merchants to accept and consumers to choose to pay with their respective credit cards and debit cards. During the terms of these agreements, Visa and Mastercard have each agreed to not enact or impose any fees or rules that solely target PayPal. Upon termination of the agreements, PayPal could become subject to special digital wallet fees or other special assessments.
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 complex and changing laws, rules, regulations, policies, and legal interpretations in the markets in which we operate,offer services directly or through partners, including but not limited to, those governing:
Any failure or perceivedalleged failure to comply with existing or new laws, regulations, or orders of any government authority (including changes to or expansion of the interpretation of those laws, regulations, or orders), including those discussed in this risk factor,their interpretation) may subject us to significant fines and penalties, criminal and civil lawsuits, forfeiture of significant assets, and enforcement actions in one or more jurisdictions;actions; result in additional compliance and licensure requirements; cause us to lose existing licenses or prevent or delay us from obtaining additional licenses that may be required for our business; increase regulatory scrutiny of our business; restrict or cease our operations; and force us to changemake changes to our business practices, make productproducts or operational changes, oroperations; lead to increased friction for customers; require us to engage in remediation activities; delay planned transactions, product launches or improvements.other activities, or divert management’s time and attention from our business. The complexity of United States (“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 one or more events prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. While we have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors, and agents will not violate such laws and regulations. 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 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, and agents will not violate such laws and regulations.
Payments Regulation
In the U.S., PayPal, Inc. has obtained(a wholly-owned subsidiary) holds 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, and Xoom products and services. We may also maintain such licenses for certain companies thatterritories. If we have acquired, such as Hyperwallet. As a licensed money transmitter, PayPal is subjectfail to among other requirements, restrictionscomply with respect to the investment of customer funds, reporting requirements, bonding requirements, and inspection by state regulatory agencies. Accordingly, if we violate theseapplicable laws or regulations required to maintain our licenses, we could be subject to liability and/or additional restrictions, forced to cease doing business with residents of certain states or territories, forced to change our business practices, or required to obtain additional licenses or regulatory approvals, which could impose substantial costs.costs and harm our business.
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 limitationsrestrictions may adversely affectlimit our ability to grow our business in these markets.business.
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institution in Luxembourg. Accordingly, PayPal (Europe) is potentiallymay be subject to enforcement actions and significant fines or other enforcement action if it violates the disclosure, reporting, anti-money laundering, capitalization, corporate governance, privacy, data protection, data governance, information security, banking secrecy, taxation, risk management, sanctions, or other requirements imposed on Luxembourg credit institutions. In addition, EUapplicable requirements. Additionally, compliance with applicable laws and regulations are subject to potentially inconsistent interpretations by the countries that are members of the EU, which can make compliancecould become more costly and operationally difficult to manage. Moreover, the countries that are EU members may each have different andmanage due to potentially inconsistent interpretations and domestic regulations implementing European Directives,by various countries in the region. Applicable regulation relating to payments, anti-money laundering and digital services, which could make compliance more costlyare key focus areas of regulators and operationally difficultsubject to manage. The Revised Payment Services Directive (“PSD2”) took effect in Europe in 2018, with certain requirements becoming applicable from 2019 or later. PSD2 enablesextensive new payment and information sharing models whereby regulated payment 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 accessregulation, could subject us to data securityadditional and other legal and financialcomplex obligations, risks and could create new competitive forces and new types of competitors in the European payments market. 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, which may adversely impact PayPal’s European customer value proposition. SCA was implemented in 2019. 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 has plans to finalize full compliance with SCA; amending or accelerating these plans may adversely impact PayPal’s European customer value proposition.
associated costs. 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 activityand certain activities of PayPal (Europe) couldwould become directly regulatedsupervised by the ECB, rather than the CSSF,by the Luxembourg regulator , as its national supervisor,Commission de Surveillance du Secteur Financier, which could subject us to additional requirements and would likely increase compliance costs. PayPal (Europe) is also subject to regulation by the ECB under the oversight framework for electronic payment instruments, schemes and arrangements (PISA), which may also lead to increased compliance obligations and 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, but does not hold a remittance license. As a result,(“MAS”). The Payment Services Act came into effect in Singapore in January 2020. PayPal Pte. Ltd. has submitted an application for a Major Payment Institution license to the MAS to continue to provide payments services, and is not ableoperating under an exemption from holding a license within a statutory transition period while the application is pending. Upon PayPal Pte. Ltd. obtaining this license, we will be required to offer outbound remittance payments fromcomply with new regulatory requirements, which will result in increased operational complexity and costs for our Singapore and can only offer payments for the purchase of goods and services in Singapore. international operations.
In many of the markets outside the U.S. (other than Singapore) served by PayPal Pte. Ltd., it is unclear and uncertain or by local branches or subsidiaries subject to local regulatory supervision or oversight, as the case may be, there may be uncertainty whether our Singapore-based service is subject only to Singapore law or if it is subjectalso to the application ofother local laws, and whether such local laws wouldmight 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 into law in Singapore in January 2019 and is expected to come into effect in 2020. Under the PS Act, PayPal Pte. Ltd. will be required to apply for a license to continue to provide payments services in Singapore. Furthermore, once the PS Act comes into force and is fully implemented, we may face new regulatory
There are substantial costs and challenges, including the following:
potential product and operational changes involved in maintaining and renewing licenses, certifications, and approvals, and we could be required to comply with new regulatory requirements, resulting in increased complexity and costs for our Singapore and international operations;
any jurisdiction. 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 suchcertain markets, we may need to rely on local banks or other partners to process payments and conduct foreign currency exchange transactions in local currency. Localcurrency, and local regulators may use their authority over such local partners to slowprohibit, restrict, or halt payments to local merchants conducted through local banks or otherwise prohibit or impedelimit us from doing businessbusiness. Any of the foregoing could, individually or in a jurisdiction. Such regulatory actionsthe aggregate, result in substantial additional costs, delay or the need to obtain licenses, certifications,preclude planned transactions, product launches or other regulatory approvals could impose substantial costs, involve considerable delay to the provision or development of our services,improvements, require significant and costly operational changes, impose restrictions, limitations, or additional requirements on our business, products and services, or prevent or limit us from providing anyour products or services in a given market.
Cryptocurrency Regulation and Related Risks
Our current and planned customer cryptocurrency offerings could subject us to additional regulations, licensing requirements, or other obligations. Within the U.S., we are regulated by the New York Department of Financial Services as a virtual currency business, which does not qualify us to engage in securities brokerage or dealing activities. The regulatory status of particular cryptocurrencies is unclear under existing law. For example, if the SEC were to assert that any of the cryptocurrencies we support are securities, the SEC could assert that our activities involving that cryptocurrency require securities broker-dealer registration or other obligations under the federal securities laws. The rapidly evolving regulatory landscape with respect to cryptocurrency may subject us to additional licensing and regulatory obligations or to inquiries or investigations from the SEC, other regulators and governmental authorities, and require us to make product changes, restrict or discontinue product offerings, implement additional and potentially costly controls, or take other actions. If we fail to comply with regulations, requirements, prohibitions or other obligations applicable to us, we could face regulatory or other enforcement actions, potential fines, and other consequences.
We hold our customers’ cryptocurrency assets through a third-party custodian. Financial and third-party risks related to our customer cryptocurrency offerings, such as inappropriate access to, theft, or destruction of cryptocurrency assets held by our custodian, insufficient insurance coverage by the custodian to reimburse us for all such losses, the custodian’s failure to maintain effective controls over the custody and settlement services provided to us, the custodian’s inability to purchase or liquidate cryptocurrency holdings, and defaults on financial or performance obligations by the custodian, or counterparty financial institutions, could expose our customers and us to loss, and therefore significantly harm our business, financial performance, and reputation.
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We have selected a custodian partner, and may in the future select additional custodian partners, that are subject to regulatory oversight, capital requirements, maintenance of audit and compliance industry certifications, and cybersecurity procedures and policies. Nevertheless, operational disruptions at any such custodian, or such custodian’s failure to safeguard cryptocurrency holdings could result in losses of customer assets, expose us to customer claims, reduce consumer confidence and materially impact our operating results and our cryptocurrency product offerings.
Custodial arrangements to safeguard cryptocurrency assets involve unique risks and uncertainties in the event of the custodian’s bankruptcy. While other types of assets and some custodied cryptocurrencies have been deemed not to be part of the custodian’s bankruptcy estate under various regulatory regimes, bankruptcy courts have not yet definitively determined the appropriate treatment of custodial holdings of digital assets in a bankruptcy proceeding. In the event of our custodian’s bankruptcy, the lack of precedent and the highly fact-dependent nature of the determination could delay or preclude the return of custodied cryptocurrency assets to us or to our customers. Although, we contractually require our custodian to segregate our customer assets and not commingle them with proprietary or other assets, we cannot be certain that these contractual obligations, even if duly observed by the custodian, will be effective in preventing such assets from being treated as part of the custodian’s estate under bankruptcy or other insolvency law. In that event, our claim on behalf of such customers against the custodian’s estate for our customers’ cryptocurrency assets could be treated as a general unsecured claim against the custodian, in which case our customers could seek to hold us liable for any resulting losses.
In addition, our cryptocurrency product offerings could have the effect of heightening or exacerbating many of the risk factors described in this “Risk Factors” section.
Lending Regulation
We hold a number of U.S. state lending licenses for our U.S. consumer short-term installment loan product, which is subject to federal and state laws governing consumer credit and debt collection. While the consumer short-term installment loan products that we offer outside the U.S. are generally exempt from primary consumer credit legislation, certain consumer lending laws, consumer protection or banking transparency regulations continue to apply to these products. Increased global regulatory focus on short-term installment products and consumer credit more broadly could result in laws or regulations requiring changes to our policies, procedures, operations, and product offerings, and restrict or limit our ability to offer credit products, and we could be subject to enforcement action, fines, and litigation if we are found to violate any aspects of applicable law or regulations.
Consumer Protection
PayPal principally offers its services in the EEA countries through a “passport” notification process through thePayPal (Europe)’s Luxembourg regulator (in the case of PayPal (Europe)) or the Swedish regulator (in the case of iZettle AB) to regulators in other EEA member states in accordance with EU regulations.European Union (“EU”) regulations, as well as in the U.K. through the Temporary Permissions Regime. Regulators in these countries could notify us of and seek to enforce local consumer protection laws that apply to our business, in addition to Luxembourg or Swedish consumer protection laws, and could alsoor seek to persuade the local regulator to order PayPal to conduct its 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,impose additional obligations and costs and impact our plansability to expand our business in EEA countries.Europe and the U.K.
Anti-Money Laundering and Counter-Terrorist FinancingFinancing; Economic and Trade Sanctions
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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. Such changes could have the effect of making compliance more costly and operationally difficult to manage, lead to increased friction for customers, and result in a decrease in business. Regulators regularly re-examine the transaction volume thresholds at which we must obtain and keep applicable records or the circumstances in which we must verify identities of customers, and any change into such thresholdsobligations could result in greater compliance costs for compliance.and impact our business. We are also required to comply with economic and trade sanctions administered by the U.S., the EU and its member states, the U.K., and other jurisdictions in which we operate. Non-compliance with anti-money laundering laws and regulations or economic and trade sanctions may subject us to significant fines, penalties, lawsuits, and enforcement actions, result in regulatory sanctions and additional compliance requirements, increase regulatory scrutiny of our business, restrict our operations, orand damage our reputation and brands. In the EU, for example, penalties for non-compliance with anti-money laundering laws could include finesOur compliance history may be considered by OFAC and other regulators as part of up to 10%any potential future investigation of PayPal (Europe)’s total annual turnover.our sanctions regulation.
Privacy and Protection of UserCustomer Data
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. In June 2021, the European Commission imposed new SCC requirements which impose certain contract and operational requirements on PayPal, must alsoits merchants, and vendors to adhere to certain affirmative duties, including requirements related to government access transparency, enhanced data subject rights, and broader third-party assessments to ensure that third parties processingsafeguards necessary to protect personal data ofexported from PayPal’s EEA customers and/or employees to countries outside of the EEA have compliant transfer mechanisms. In October 2015, the European Court of Justice 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 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 the Privacy Shield framework and SCCs continue to face legal challenges in the European justice system.EEA. To the extent thatwe rely on SCCs, we will potentially need to enter into new contractual arrangements reflecting the Privacy Shield or SCCs are invalidated,updated SCC requirements to avoid limitations on PayPal’s ability to process EEA personal data with third partiesin countries outside of the EEAEEA.
Many jurisdictions in which we operate globally have enacted, or are in the process of enacting, data privacy legislation or regulations aimed at creating and intra-groupenhancing individual privacy rights. For example, numerous U.S. states have enacted or are in the process of enacting state level data privacy laws and regulations governing the collection, use, and retention of their residents’ personal information. The continued proliferation of privacy laws in the jurisdictions in which we operate is likely to result in a disparate array of privacy rules with its U.S. affiliatesunaligned or conflicting provisions, accountability requirements, individual rights, and national or local enforcement powers, which may subject us to increased regulatory scrutiny and business costs, and could be jeopardized.lead to unintended consumer confusion.
We have significant amounts of cash, cash equivalents, receivables outstanding,are subject to regulatory scrutiny and other investments on deposit or in accounts with banks or other financial institutionsmay be subject to legal proceedings under antitrust and competition laws.
We are subject to scrutiny by various government agencies regarding antitrust and competition laws and regulations in the U.S. and abroad. As partinternationally, including in connection with proposed or implemented business combinations, acquisitions, investments, partnerships, commercial agreements and business practices. Some jurisdictions also provide private rights of action for competitors or consumers to assert claims of anticompetitive conduct. Companies and government agencies have in the past alleged, and may in the future allege, that our actions violate the antitrust or competition laws in the U.S. or other jurisdictions in which we operate or otherwise constitute unfair competition, or that our products and services are used so broadly that otherwise uncontroversial business practices could be deemed anticompetitive. Any claims or investigations, even if without merit, may be costly to defend or respond to, involve negative publicity, and cause substantial diversion of management’s time and effort, and could result in reputational harm, significant judgments, fines and other remedial actions against us, require us to change our business practices, make product or operational changes, or delay or preclude planned transactions, product launches or improvements.
We are regularly subject to general litigation, regulatory scrutiny, and government inquiries.
We are regularly subject to claims, individual and class action lawsuits, arbitration proceedings, government and regulatory investigations, inquiries, actions or requests, and other proceedings alleging violations of laws, rules, and regulations with
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respect to competition, antitrust, intellectual property, privacy, data protection, information security, anti-money laundering, counter-terrorist financing, sanctions, anti-bribery, anti-corruption, consumer protection (including unfair, deceptive, or abusive acts or practices), fraud, accessibility, securities, tax, labor and employment, commercial disputes, services, charitable fundraising, contract disputes, escheatment of unclaimed or abandoned property, product liability, use of our currency hedging activities, we enter intoservices for illegal purposes, the matters described in “Note 13—Commitments and Contingencies—Litigation and Regulatory Matters—General Matters” to our consolidated financial statements, and other matters. The number and significance of these disputes and inquiries is expected to continue to increase as our products, services, and business expand in complexity, scale, scope, and geographic reach, including through acquisitions of businesses and technology. Investigations and legal proceedings are inherently uncertain, expensive and disruptive to our operations, and could result in substantial judgments, fines, penalties or settlements, negative publicity, substantial diversion of management’s time and effort, reputational harm, criminal sanctions, or orders that prevent or limit us from offering certain products or services; require us to change our business practices in costly ways, develop non-infringing or otherwise altered products or technologies, or pay substantial royalty or licensing fees; or delay or preclude planned transactions involving derivative financial instruments with various financial institutions. Certain banksor product launches or improvements. Determining legal reserves or possible losses from such matters involves significant estimates and financial institutions are also lenders under our credit facilities.judgments and may not reflect the full range of uncertainties and unpredictable outcomes. We regularly monitor our exposure to counterparty credit risk, and actively manage this exposure to mitigate the associated risk. Despite these efforts, we may be exposed to losses in excess of the riskamount recorded, and such amounts could be material. If any of default by,our estimates and assumptions change or deterioratingprove to have been incorrect, this could have a material adverse effect on our business, financial position, results of operations, or cash flows.
Third parties may allege that we are infringing their patents and other intellectual property rights.
We are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. Intellectual property infringement claims against us may result from, among other things, our expansion into new business areas, including through acquisitions of businesses and technology, or new or expanded products and services and their convergence with technologies not previously associated with areas related to our business, products, and services. The ultimate outcome of any allegation or claim is often uncertain and any such claim, with or without merit, may be time-consuming to defend, result in costly litigation, divert management’s time and attention from our business, result in reputational harm, and require us to, among other things, redesign or stop providing our products or services, pay substantial amounts to settle claims or lawsuits, satisfy judgments, or pay substantial royalty or licensing fees.
We may be unable to protect or enforce our intellectual property.
The protection of our proprietary rights, including our trademarks, copyrights, domain names, trade dress, patents and trade secrets, is important to the success of our business. Effective protection of our proprietary rights may not be available in every jurisdiction in which we offer our products and services. Although we have generally taken measures to protect our intellectual property, there can be no assurance that we will be successful in protecting or enforcing our rights in every jurisdiction, that our contractual arrangements will prevent or deter third parties from infringing or misappropriating our intellectual property, or that third parties will not independently develop equivalent or superior intellectual property rights. We may be required to expend significant time and resources to prevent infringement and enforce our rights, and we may be unable to discover or determine the extent of any unauthorized use of our proprietary rights. If we are unable to prevent third parties from infringing or otherwise violating our proprietary rights, the uniqueness and value of our products and services could be adversely affected, the value of our brands could be diminished, and our business could be adversely affected. We expect to continue to license in the future certain of our proprietary rights, such as trademarks or copyrighted material, to others. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation. Any failure to adequately protect or enforce our proprietary rights, or significant costs incurred in doing so, could diminish the value of our intangible assets and materially harm our business.
BUSINESS AND OPERATIONS RISKS
We face substantial and increasingly intense competition worldwide in the global payments industry.
The global payments industry is highly competitive, dynamic, highly innovative, and increasingly subject to regulatory scrutiny and oversight. Many of the areas in which we compete evolve rapidly with innovative and disruptive technologies, shifting user preferences and needs, price sensitivity of merchants and consumers, and frequent introductions of new products and services. Competition also may intensify as new competitors emerge, businesses enter into business combinations and partnerships, and established companies in other segments expand to become competitive with various aspects of our business.
We compete with a wide range of businesses in every aspect of our business. Some of our current and potential competitors are or may be larger than we are, have larger customer bases, greater brand recognition, longer operating resultshistories, a dominant or more secure position, broader geographic scope, volume, scale, resources, and market share than we do, or offer products and
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services that we do not offer. Other competitors are or may be smaller or younger companies that may be more agile in responding to regulatory and technological changes and customer preferences. Our competitors may devote greater resources to the development, promotion, and sale of products and services, and/or offer lower prices or more effectively offer their own innovative programs, products, and services. We often partner with other businesses, and the ability to continue establishing these partnerships is important to our business. Competition for relationships with these partners is intense, and there can be no assurance that we will be able to continue to establish, grow, or maintain these partner relationships. If we are unable to differentiate our products and services from those of our competitors, drive value for our customers, or effectively and efficiently align our resources with our goals and objectives, we may not be able to compete effectively. See “Item 1. Business—Competition” of this Form 10-K for further discussion of the competitive environment in the markets where we operate.
Changes to payment card networks or bank fees, rules, or practices could harm our business.
To process certain transactions, we must comply with applicable payment card, bank or other network (collectively, “network”) rules. The rules govern all aspects of a transaction on the networks, including fees and other practices. From time to time, the networks have increased the fees and assessments that they charge for transactions that access their networks. Certain networks have also imposed special fees or assessments for transactions that are executed through a digital wallet such as the one that PayPal offers. Our payment processors may have the right to pass any increases in fees and assessments on to us and to increase their own fees for processing. Any increase in interchange fees, special fees, or assessments for transactions that we pay to the networks or our payment processors could make our pricing less competitive, increase our operating costs, and reduce our operating income, which could materially harm our business, financial condition, and results of operations.
In some jurisdictions, government regulations have required payment card networks to reduce or failurecap interchange fees. Any changes in interchange fee rates or limitations, or their applicability to PayPal, could adversely affect our competitive position against payment card service providers and the revenue we earn from our branded card programs, require us to change our business practices, and harm our business.
We may also be subject to fines and other penalties assessed by networks resulting from any rule violations by us or our merchants. The networks set and interpret their rules and have alleged from time to time that various aspects of our business model violate these counterparty financial institutions. The risk of counterparty default, deterioration,rules. Such allegations may result in significant fines, penalties, damages, or failureother liabilities or require changes in our business practices that may be heightened during economic downturnscostly and periods of uncertainty in the financial markets. If one ofadversely affect our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default or to access or recover our assets that are deposited, held in accounts with, or otherwise due from, such counterparty may be limited by the counterparty’s liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. In the event of default or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact ourbusiness, results of operations and financial condition. The network rules may also increase the cost of, impose restrictions on, or otherwise impact the development of, our products which may negatively affect product deployment and adoption. The networks could adopt new operating rules or interpret or re-interpret existing rules that we or our payment processors might find difficult or impractical to follow, or costly to implement, which could require us to make significant changes to our products, increase our operational costs, and negatively impact our business. If we become unable or limited in our ability to accept certain payment types such as debit or credit cards, our business would be materially and adversely affected.
Changes in how consumers fund their PayPal transactions could harm our business.
We pay transaction fees when consumers fund payment transactions using credit cards, lower fees when consumers fund payments with debit cards, and nominal fees when consumers fund payment transactions by electronic transfer of funds from bank accounts, from an existing PayPal account balance or Venmo account balance, or through our PayPal branded consumer credit products. Our financial performance is sensitive to changes in the rate at which our consumers fund payments using payment cards, which can significantly increase our costs. Although we provide consumers in certain markets with the opportunity to use their existing PayPal account balance or Venmo account balance to fund payment transactions, some of our consumers may prefer to use payment cards, which may offer features and benefits not provided as part of their PayPal accounts. Any increase in the portion of our payment volume funded using payment cards or in fees associated with our funding mix, or other events or developments that make it more difficult or costly for us to fund transactions with lower-cost funding options, could materially and adversely affect our financial performance and significantly harm our business.
Our ability to receive the benefit of U.S. merchant financing offerings and certain U.S. installment loan products may be subject to challenge.
Merchant loans under our U.S. PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products and certain U.S. installment loan products are provided by a state-chartered industrial bank under a program agreement with us, and we acquire the receivables generated by those loans from the state-chartered bank after origination. In June 2020, the Federal Deposit Insurance Corporation (“FDIC”) approved a final rule clarifying that loans validly originated by state-chartered banks or licensed lenderinsured branches of foreign banks remain valid throughout the lifetime of the loan, reflecting a similar rule finalized by the Office of the Comptroller of Currency (“OCC”) in May 2020 for nationally chartered banks. The final rule reaffirms and
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codifies the so-called “valid-when-made doctrine,” which provides that the permissibility of an interest rate for a loan is determined when the loan is made and will not be affected by subsequent events such as sale, assignment, or other transfer. While a number of state attorneys general have unsuccessfully challenged these FDIC and OCC rules, there remains some uncertainty whether non-bank entities purchasing loan receivables originated by FDIC-insured, state-chartered banks may rely on federal preemption of state usury laws and other state laws. An adverse outcome of these or similar challenges, or changes to applicable laws and regulations or regulatory policy, could materially impact our U.S. PPWC, PPBL, certain installment products, and our business.
Our credit products expose us to additional risks.
We offer credit products to a wide range of consumers and merchants in the U.S. and relies upon third partiesvarious international markets. The financial success of these products depends largely on the effective management of related risk. The credit decision-making process for our consumer credit products uses proprietary methodologies and credit algorithms and other analytical techniques designed to make loansanalyze the credit risk of specific consumers based on, among other factors, their past purchase and providetransaction history with PayPal or Venmo and their credit scores. Similarly, proprietary risk models and other products criticalindicators are applied to assess merchants who desire to use our merchant financing 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 those related to the particular consumer or merchant, market conditions, economic environment, or limited transaction history or other data. The accuracy of these risk models and the ability to manage credit risk related to our business, which raises additional risks.
We generally rely on third-party charteredthe activities and charters of unaffiliated financial institutions to provide PayPal and Venmo branded consumer credit productsand merchant financing offerings to our customers inU.S. customers. As a service provider to these unaffiliated financial institutions, which are federally supervised U.S. financial institutions, we are subject from time to time to examination by their federal banking regulators. In the U.S., including consumer credit products such as PayPal Credit, PayPal branded credit cards, and merchant credit products such as PayPal Working Capital and PayPal Business Loan products. Anyevent of any termination or interruption in a partner bank’s ability or willingness to lend, could interrupt or limit our ability to offer consumer credit and merchant creditfinancing products could be interrupted or limited, which could materially and adversely affect our business. In the event of a partner bank’s inability or unwillingness to lend, weWe may be unable to reach a similar agreementarrangement with another charterunaffiliated financial institution on favorable terms or at all. Obtaining a bank charter orand maintaining the lending licenses required for us to originate such loans ourselves would be a costly, time-consuming and uncertain process, and would subject us to additional laws and regulatory requirements, which could significantly increase our costs and compliance obligations and require us to change our business practices, which could materially and adversely affect our business. In addition, as a service provider to these bank partners, which are federally supervised U.S. financial institutions, wepractices.
We are subject from time to time to examination by their federal banking regulators.
We currently purchase receivables related to the PayPal brandedour U.S. PayPal-branded merchant financing offerings and certain U.S. consumer installment loan products and extend credit for our consumer and merchant products inoutside the U.S. through our international subsidiaries. If we are unable to fund our credit products or the purchase of thesethe receivables related to our credit products and offerings adequately or in a cost-effective manner, orthe growth of our credit products could be negatively impacted.
We rely on third parties in many aspects of our business, which creates additional risk.
We rely on third parties in many aspects of our business, including networks, banks, payment processors, and payment gateways that link us to the payment card and bank clearing networks to process transactions; unaffiliated third-party lenders to originate our U.S. credit products to consumers, U.S. merchant financing, and branded credit card products; branded debit card and savings products issued by unaffiliated banks; cryptocurrency custodial service providers; and external business partners and contractors who provide key functions (e.g., outsourced customer support and product development functions; facilities; information technology, data center facilities and cloud computing). We are subject to additional risks inherent in engaging and relying upon third-party providers, including legal, regulatory, information security, reputational and operational risks. We are undertaking efforts to diversify our reliance on a small number of third-party payment processors in various markets. We are working with our primary payment processor in the U.S. to facilitate the migration of our arrangements to other payment processors over a transition period in connection with the wind-down of our agreement; however, if we are unable to timely and efficiently manage the cash resources utilized for these purposes,migrate our business to other payment processors or experience disruptions in connection with this transition, our business could be harmed. If we are unable to effectively manage our third-party relationships, these third parties are unable to
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meet their obligations to us, or geopolitical conditionswe experience substantial disruptions in these relationships, our operations, results of operations, and financial results could be adversely impacted. Additionally, our relationships with third parties inherently involve a lesser degree of control over business operations, governance, and compliance, which potentially increases our financial, legal, reputational, and operational risk.
Any factors that reduce cross-border trade or make such trade more difficult could harm our business.
Cross-border trade (i.e., transactions where the merchant and consumer are in different countries) is an important source of our revenues and profits. Cross-border transactions generally provide higher revenues and operating income than similar transactions that take place within a single country or market. In certain markets, cross-border trade represents our primary (and in some instances our only) presence.
Cross-border trade may disruptbe negatively impacted by various factors including foreign currency exchange rate fluctuations, tariffs, trade barriers or restrictions, sanctions, import or export controls, and the interpretation and application of laws of multiple jurisdictions in the context of cross-border trade and foreign exchange. Any factors that increase the costs of cross-border trade for us or our customers or that restrict, delay, or make cross-border trade more difficult or impractical could reduce our cross-border transactions and volume, negatively impact our revenues and profits, and harm our business.
Failure to deal effectively with fraud, abusive behaviors, bad transactions, and negative customer experiences may increase our loss rate and could negatively impact our business and severely diminish merchant and consumer confidence in and use of our services.
Our buyerPurchase and seller Seller Protection Programs (“protection programs protectprograms”) are intended to reduce the likelihood of losses for consumers and merchants from unauthorized and fraudulent transactions. The Purchase Protection Program also protects consumers from fraudulent transactions, and protect consumers if theywho do not receive the item ordered or if thewho receive an item receivedthat is significantly different from its description. We incur substantial losses from our protection programs as a result of disputes filed by our customers. We seek to recover losses from our protection programs from the merchant, but may not be able to fully recover our losses (for example, if the merchant is unwilling or unable to pay, the transaction involves a fraudulent merchant, or the merchant provides sufficient evidence that the item was delivered).
In addition, consumers who pay through PayPal or Venmo may have reimbursement rights from their payment card issuer, (usually a bank), which in turn will seek recovery from us. The risk ofIf losses fromincurred by us related to payment card transactions become excessive, we could lose the ability to accept payment cards for payment, which would negatively impact our buyerbusiness. Regulators and seller protection programs are specific to individual buyers, sellers, and transactions, andcard networks may also be impacted by regional variationsadapt error resolution and chargeback requirements to these programs, modificationsaccount for evolving forms of fraud, which could increase PayPal’s exposure to these programs resulting from changes in regulatory requirements, or changes that we decide to implement, such as expandingfraud losses and impact the scope of transactions covered by one or morecoverage of theseour protection programs. Increases in our loss rate, including as a result of changes to the scope of transactions covered by our buyer and seller protection programs, could negatively impact our business. See “Note 13—Commitments and Contingencies—Protection Programs” to our consolidated financial statements.
Failure to effectively monitor and evaluate the financial condition of our merchants may expose PayPal to losses. In the event of the bankruptcy, insolvency, business failure, or other business interruption of a merchant that sells goods or services in advance of the date of their delivery or use (e.g., airline, cruise, or concert tickets, custom-made goods, and subscriptions), we could be liable to the buyers of such goods or services, including through our Purchase Protection Program or through chargebacks on
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payment cards used by customers to fund their purchase. Allowances for transaction losses that we have established may be insufficient to cover incurred losses.
Use of our payments services for illegal activities or improper purposes could harm our business.
We expect that users will continue to attempt to use our payments platform for illegal activities or improper uses, including money laundering, terrorist financing, sanctions evasion, illegal online gambling, fraudulent sales of goods or services, illegal telemarketing activities, illegal sales of prescription medications or controlled substances, piracy of software, movies, music, and other copyrighted, trademarked or digital goods, bank fraud, child pornography, human trafficking, prohibited sales of alcoholic beverages or tobacco products, securities fraud, pyramid or Ponzi schemes, or the facilitation of other illegal or improper activity. Moreover, certain activity that may be legal in one jurisdiction may be illegal in another jurisdiction, and a merchant may be found responsible for intentionally or inadvertently importing or exporting illegal goods, resulting in liability for us. Owners of intellectual property rights or government authorities may seek to bring legal action against providers of payments solutions, including PayPal, that are peripherally involved in the sale of infringing or allegedly infringing items by a user. While we invest in measures intended to prevent and detect illegal activities that may occur on our payments platform, these measures require continuous improvement and may not be effective in detecting and preventing illegal activity or improper uses.
Any illegal or improper uses of our payments platform or failure by us to detect or prevent illegal or improper activity by our users may subject us to claims, individual and class action lawsuits, and government and regulatory requests, inquiries, or investigations that could result in liability, restrict our operations, impose additional restrictions or limitations on our business or require us to change our business practices, harm our reputation, increase our costs, and negatively impact our business.
Acquisitions, strategic investments, and other strategic transactions could result in operating difficulties and could harm our business.
We expect to continue to consider and evaluate 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; strategic investments; and commercial and strategic partnerships (collectively, “strategic transactions”). At any given time, we may be engaged in discussions or negotiations with respect to one or more strategic transactions, any of which could, individually or in the aggregate, be material to our financial condition and results of operations. There can be no assurance that we will be successful in identifying, negotiating, consummating and integrating favorable transaction opportunities. Strategic transactions may involve additional significant challenges, uncertainties, and risks, including challenges of integrating new employees, products, systems, technologies, operations, and business cultures; challenges associated with operating acquired businesses in markets or business areas in which we may have limited or no experience; disruption of our ongoing operations and diversion of our management’s attention; inadequate data security, cybersecurity, or operational and information technology resilience; failure to identify, or our underestimation of, commitments, liabilities, deficiencies and other risks associated with acquired businesses or assets; potential exposure to new or incremental risks associated with acquired businesses and entities, strategic investments and other strategic transactions, including potential new or increased regulatory oversight and uncertain or evolving legal, regulatory, and compliance requirements, particularly with respect to companies in new or developing businesses or industries; failure of the transaction to advance our business strategy or for its anticipated benefits to materialize; potential impairment of goodwill or other acquisition-related intangible assets; and the potential for our acquisitions to result in dilutive issuances of our equity securities or the incurrence of significant additional debt. Strategic transactions are inherently risky, may not be successful, and may harm our business, results of operations, and financial condition.
Strategic investments in which we have a minority ownership stake inherently involve a lesser degree of influence over business operations. The success of our strategic investments may be dependent on controlling shareholders, management, or other persons or entities that may have business interests, strategies, or goals that are inconsistent with ours. Business decisions or other actions or omissions of the controlling shareholders, management, or other persons or entities who control companies in which we invest may adversely affect the value of our investment, result in litigation or regulatory action against us, and damage our reputation.
Our international operations subject us to increased risks, which could harm our business.
Our international operations have generated approximatelygenerate roughly one-half of our net revenues in recent years. There arerevenues. Our international operations subject us to significant challenges, uncertainties, and risks, inherent in doing business internationally on both a domestic (i.e., in-country) and cross-border basis, including but not limited to:
local regulatory, licensing, reporting, and legal obligations related to privacy, data protection, data localization, and user protections;
obligations; costs and challenges associated with localizing our products and services, including offering customers the ability to transact business in the local currency and adapting our products and services to local preferences (e.g., payment methods),operating in markets in which we may have limited or no experience;
services and adapting them to local preferences; difficulties in developing, staffing, and simultaneously managing
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a large number of varying foreign operations as a result of distance, language, and cultural differences;
works councils; difficulties in recruiting and retaining qualified employees and maintaining our company culture; fluctuations in foreign currency exchange rates; exchange control regulations; profit repatriation restrictions;
restrictions; import or export regulations;
compliance with U.S. and foreign laws designed to combat moneyanti-bribery, anti-corruption, sanctions, anti-money laundering and counter-terrorist financing laws and regulations; the financinginterpretation and application of terrorist activities;
national or regional differencespolitical, economic, or social instability.
Our international operations also may heighten many of the other risks described in macroeconomic growth rates; and
Global and regional economic conditions could harm our business.
If our reputation or our brands are damaged, our business and operating results may be harmed.
Our reputation and brands are globally recognized, important to our business, and affect our ability to attract and retain our customers. There are numerous ways our reputation or brands could be damaged. We may experience scrutiny or backlash from customers, partners, employees, government entities, media, advocacy groups, and other influencers or stakeholders that disagree with, among other things, our product offering decisions or public policy positions. Damage to our reputation or our brands may result from, among other things, new features, products, services, operational efforts, or terms of service (or changes to the same), or our decisions regarding user privacy, data practices, or information security. The proliferation of social media may increase and compound the likelihood, speed, magnitude, and unpredictability of negative brand events. If our brands or reputation are damaged, our business and operating results may be adversely impacted.
Brexit: The U.K.’s departure from the EU could harm our business, financial condition, and results of operations.
Following the departure of the U.K. from the EU and the EEA on January 31, 2020 (commonly referred to as “Brexit”) and the expiration of the transition period on December 31, 2020, there continues to be uncertainty over the practical consequences of Brexit, including the potential for greater restrictions on the supply and availability of goods and services between the U.K. and EEA region, and a general deterioration in consumer sentiment and credit conditions leading to overall negative economic growth and increased risk of merchant default.
The consequences of Brexit have brought legal uncertainty and increased complexity for financial services firms, which could continue as national laws and regulations in the U.K. differ from EU laws and regulations and additional authorization requirements come into effect. These developments have led and could lead in the future to additional regulatory costs and challenges for us. Specifically, PayPal (Europe) currently operates in the U.K. within the scope of its passport permissions (as they existed at the end of the transition period) pursuant to the Temporary Permissions Regime pending the grant of new authorizations by the U.K. financial regulators. If we are unable to obtain the required authorizations before the expiry of the longstop dates set by the U.K. regulators under the Temporary Permissions Regime, our European operations could lose their ability to offer services within the U.K. market, or into the U.K. market on a cross-border basis.Our European operations may
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also be required to comply with legal and regulatory requirements in the U.K. that may be in addition to, or inconsistent with, those of the EEA, in each case, leading to increased complexity and costs.
Real or perceived inaccuracies in our key metrics may harm our reputation and negatively affect our business.
Our key metrics are calculated using internal company data based on the activity we measure on our payments platform and compiled from multiple systems, including systems that are internally developed or acquired through business combinations. While the measurement of our key metrics is based on what we believe to be reasonable methodologies and estimates, there are inherent challenges and limitations in measuring our key metrics globally at scale. The methodologies used to calculate our key metrics require judgment.
We are exposedregularly review our processes for calculating these key metrics, and from time to interest rate risktime we may make adjustments to improve the accuracy or relevance of our metrics. For example, we continuously apply models, processes and practices designed to detect and prevent fraudulent account creation on our platforms, and work to improve and enhance those capabilities. When we detect a significant volume of illegitimate activity, we generally remove the activity identified from our investment portfoliokey metrics. Although such adjustments may impact key metrics reported in prior periods, we generally do not update previously reported key metrics to reflect these subsequent adjustments unless the retrospective impact of process improvements or enhancements is determined by management to be material. Further, as our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer appropriate measures of our performance. If investors, analysts, or customers do not consider our reported measures to be sufficient or to accurately reflect our business, we may receive negative publicity, our reputation may be harmed, and from interest-rate sensitive assets, including assets underlying the customer balances we hold on our balance sheet as customer accounts. A low or negative interest rate environment or reductions in interest ratesbusiness may negatively impact our net income. In addition, fluctuations in interest ratesbe adversely impacted.
Environmental, social and governance (“ESG”) issues may 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 to us and other 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 loan and interest receivables, which could have an adverse effect on our net income.business, financial condition and results of operations and damage our reputation.
Customers, investors, employees and other stakeholders are increasingly focused on ESG practices, including with respect to global talent, cybersecurity, data privacy and protection and climate change. If we do not adapt to and comply with new laws and regulations or changes to legal or regulatory requirements concerning ESG matters, or fail to meet rapidly evolving investor, industry or stakeholder expectations and standards, our reputation may be harmed, customers may choose to refrain from using our products and services, and our business or financial condition may be adversely affected. Further, we may experience additional scrutiny or backlash from customers, partners, media, government entities, and other stakeholders that disagree if they perceive PayPal to not have responded appropriately with respect to ESG matters.
We specifically recognize the inherent physical climate-related risks wherever business is conducted. Our primary locations may be vulnerable to the adverse effects of climate change. For example, California, where our headquarters are located, has historically experienced, and is projected to continue to experience, climate-related events more frequently, including drought, water scarcity, flooding, heat waves, wildfires and resultant air quality impacts, and power shutoffs associated with wildfire prevention. These extreme weather conditions may disrupt our business and may cause us to experience additional costs to maintain or resume operations and higher attrition. In addition, current and emerging legal and regulatory requirements with respect to climate change (e.g., carbon pricing) and other aspects of ESG (e.g., disclosure requirements) may result in increased compliance requirements on our business and supply chain, which may increase our operating costs and cause disruptions in our operations.
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.
We have entered into a five-year revolving credit facility and a 364-day revolving credit facility as well as other committed and uncommitted credit facilities around the world. We have borrowed under our credit facilities from time to time, and any borrowings under these credit facilities that bear interest at a floating rate would expose us to interest rate fluctuations.
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There are risks associated with our indebtedness.
We have incurred indebtedness, and we may incur additional indebtedness in the future. Our ability to pay interest and repay the principal for our indebtedness is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt. Our outstanding indebtedness and any additional indebtedness we incur may have significant consequences, including the need to use a significant portion of our cash flow from operations and other available cash to service our indebtedness, thereby reducing the funds available for other purposes, including capital expenditures, acquisitions, strategic investments, and share repurchases; the reduction of our flexibility in planning for or reacting to changes in our business, competitive pressures and market conditions; and limits on our ability to obtain additional financing for working capital, capital expenditures, acquisitions, strategic investments, share repurchases, or other general corporate purposes.
Our revolving credit facilities and the indentures for our senior unsecured notes pursuant to which certain of our customer agreementsoutstanding debt securities were issued contain arbitration provisions with classfinancial 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 or noteholders 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.
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 waiver provisions thatis taken, the interest rates payable by us under our indebtedness may limitincrease, and our exposureability to consumer class action litigation, there can be no assurance that we will be successful in enforcing these arbitration provisions, including the class action waiver provisions,obtain additional financing in the future on favorable terms or in any given case. Legislative, administrative, or regulatory developments may directly or indirectly prohibit or limit the use of pre-dispute arbitration clauses and class action waiver provisions. Any such prohibitions or limitations on or discontinuation of the use of, such arbitration or class action waiver provisionsat all could subject us to additional lawsuits, including additional consumer class action litigation, and significantly limit our ability to avoid exposure from consumer class action litigation.be adversely affected.
Changes in U.S. tax laws, exposure to unanticipated additional tax liabilities, or implementation of reporting or record-keeping obligations could have a material adverse effect on our business, cash flow, resultsbusiness.
An increasing number of operations, and financial conditions.
The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment, and there are many transactions and calculations wherefor which the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign tax jurisdictions. Our determination of our tax liability is always subject to audit and review by applicable domestic and foreign authorities, and weWe are currently undergoing a number of investigations, audits, and reviews by tax authorities throughout the world.in multiple U.S. and foreign tax jurisdictions. Any adverse outcome of any such audit or review could have a negative effect on our business, and the ultimate tax outcome mayresult in unforeseen tax-related liabilities that differ from the amounts recorded in our financial statements, andwhich may, individually or in the aggregate, materially affect our financial results in the periods for which such determination is made. While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves may prove to be insufficient.
In addition, our future income taxes could be adversely affected by the incurrence of losses or earnings being lower than anticipated or by the incurrence of losses, in jurisdictions that have lower statutory tax rates, and earnings being higher than anticipated in jurisdictions that have higher statutory tax rates; by changes in the valuation of our deferred tax assets and liabilities, including as a result of gains on our foreign currency exchange risk management program; orby changes in tax laws, regulations, or accounting principles, as well asprinciples; or by certain discrete items.
A number of U.S. states, the U.S. federal government, and foreign countriesjurisdictions have implemented or are in the process of implementingand may impose reporting or record-keeping obligations on companies that engage in or facilitate e-commerce to improve tax compliance. Additionally, aA number of jurisdictions are also reviewing whether payment service providers and other intermediaries could be deemed to be the legal agent of merchants for certain tax purposes. We have modified our systems to meet applicable requirements and expect that further modifications will be required to comply with future requirements, which may negatively impact our customer experience and increase operational costs. Any failure by us to comply with these and similar reporting and record-keeping obligations could result in substantial monetary penalties and other sanctions, adversely impact our ability to do business in certain jurisdictions, and harm our business.
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Competition for key personnel could harm our ability to maintain and grow our business.
We are subject to risks associated with information disseminated through our products and services.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own and lease various properties in the United States (“U.S.”) and other countries around the world. We use thethese properties for executive and administrative offices, datacustomer services and operations centers, product development offices, warehouses, and customer services and operationsdata centers. As of December 31, 2019,2022, our owned and leased properties provided us with aggregate square footage as follows:
| United States | Other Countries | Total | United States | Other Countries | Total | ||||||||||||||||||||
| (In millions) | (In millions) | ||||||||||||||||||||||||
| Owned facilities | 1.2 | 0.2 | 1.4 | Owned facilities | 1.0 | 0.1 | 1.1 | ||||||||||||||||||
| Leased facilities | 1.2 | 1.8 | 3.0 | Leased facilities | 2.2 | 2.0 | 4.2 | ||||||||||||||||||
| Total facilities | 2.4 | 2.0 | 4.4 | Total facilities | 3.2 | 2.1 | 5.3 | ||||||||||||||||||
We own a total of approximately 113106 acres of land, with approximately 9285 acres in the U.S. Our corporate headquarters are located in San Jose, California and occupy approximately 0.7 million of owned square feet.
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ITEM 3. LEGAL PROCEEDINGS
The information set forth under “Note 13—Commitments and Contingencies—Litigation and Regulatory Matters” to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
PayPal common stock is quoted on the NASDAQ Global Select Market under the ticker symbol “PYPL.”
As of January 31, 2020,February 3, 2023, there were 3,5534,123 holders of record of our common stock. The actual number of stockholders is significantly greater than this number of record holders, and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
We have never paid any cash dividends and we currently do not anticipate paying any cash dividends in the foreseeable future.
The stock repurchase activity under our stock repurchase programs during the three months ended December 31, 20192022 is summarized as follows:
| 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) | |||||||||||||
| October 1, 2019 through October 31, 2019 | — | $ | — | — | $ | 10,374 | |||||||
| November 1, 2019 through November 30, 2019 | — | $ | — | — | 10,374 | ||||||||
| December 1, 2019 through December 31, 2019 | 2.9 | $ | 105.21 | 2.9 | 10,068 | ||||||||
| 2.9 | 2.9 | $ | 10,068 | ||||||||||
| 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 September 30, 2022 | $ | 16,871 | |||||||||||||||||||||||||||
| October 1, 2022 through October 31, 2022 | 8.2 | $ | 85.81 | 8.2 | 16,167 | ||||||||||||||||||||||||
| November 1, 2022 through November 30, 2022 | 3.6 | $ | 85.42 | 3.6 | 15,861 | ||||||||||||||||||||||||
| December 1, 2022 through December 31, 2022 | — | $ | — | — | 15,861 | ||||||||||||||||||||||||
| Balance as of December 31, 2022 | 11.8 | 11.8 | $ | 15,861 | |||||||||||||||||||||||||
(1) Average price paid per share for open market purchases includes broker commissions.
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ITEM 6. SELECTED FINANCIAL DATA
| Year Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||
| Consolidated Statement of Income Data: | |||||||||||||||||||
| Net revenues | $ | 17,772 | $ | 15,451 | $ | 13,094 | $ | 10,842 | $ | 9,248 | |||||||||
| Operating income | 2,719 | 2,194 | 2,127 | 1,586 | 1,461 | ||||||||||||||
| Net income | 2,459 | 2,057 | 1,795 | 1,401 | 1,228 | ||||||||||||||
| Net income per share: | |||||||||||||||||||
| Basic | $ | 2.09 | $ | 1.74 | $ | 1.49 | $ | 1.16 | $ | 1.00 | |||||||||
| Diluted | $ | 2.07 | $ | 1.71 | $ | 1.47 | $ | 1.15 | $ | 1.00 | |||||||||
Weighted average shares(1): | |||||||||||||||||||
| Basic | 1,174 | 1,184 | 1,203 | 1,210 | 1,222 | ||||||||||||||
| Diluted | 1,188 | 1,203 | 1,221 | 1,218 | 1,229 | ||||||||||||||
| Consolidated Balance Sheet Data: | |||||||||||||||||||
| Total assets | $ | 51,333 | $ | 43,332 | $ | 40,774 | $ | 33,103 | $ | 28,881 | |||||||||
| Total long-term liabilities | 7,485 | 2,042 | 1,917 | 1,513 | 1,505 | ||||||||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans, or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, mergers or acquisitions, or management strategies). These forward-looking statements can be identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” "continue," “strategy,” “future,” “opportunity,” “plan,” “project,” “forecast,” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results and financial condition to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Item 1A. Risk Factors” of this Annual Report on Form 10-K, as well as in our consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission (“SEC”). We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this report to reflect actual results, new information, or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. You should read the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the audited consolidated financial statements and the related notes that appear elsewhere in this report. Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company”Company,” and “PayPal” refer to PayPal Holdings, Inc. and its consolidated subsidiaries.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on a discussion of 20192022 results as compared to 20182021 results. For a discussion of 20182021 results as compared to 20172020 results, see “Exhibit 99.1—Revised Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements for the years ended December 31, 2018, 2017 and 2016—“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Form 8-K10-K for the year ended December 31, 2021 filed with the SEC on September 16, 2019.February 3, 2022.
THE COMPANY
We are a leading technology platform and digital payments company that enables digital payments and mobile paymentssimplifies commerce experiences on behalf of consumersmerchants and merchantsconsumers worldwide. PayPal is committed to democratizing financial services to help improve the financial health of individuals and empowering peopleto increase economic opportunity for entrepreneurs and businesses to join and thrive inof all sizes around the global economy.world. Our goal is to enable our consumersmerchants and merchantsconsumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device. We also facilitatedevice when sending payments or getting paid, including person-to-person (“P2P”) payments through our PayPal, Venmo, and Xoom products. Our combined payment solutions, including our PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products, comprise our proprietary Payments Platform.payments.
Regulatory environment
We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus by regulators globally 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 asindustry, including 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 theThe laws and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuingcontinue to evolve through legislative and regulatory action and judicial interpretation. New or changing laws and regulations, including the way lawschanges to their interpretation and regulations are interpreted and implemented,implementation, 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, weWe monitor these areas closely to designand are focused on designing compliant solutions for our customers who depend on us.customers.
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Information security
Information security risks for global payments and technology companies like us have increased significantly increased in recent years. We are not immuneAlthough we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we remain subject to these risks and there can be no assurance that weour security measures will not suffer such losses in the future.provide sufficient security or prevent breaches or attacks. For additional information regarding our information security risks, see “Item 1A. Risk Factors—Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business, and financial condition.”
RUSSIA AND UKRAINE CONFLICT
With respect to the military hostilities commenced by Russia in Ukraine in February 2022, our priority is the safety and well-being of our PayPal employee community impacted by these events. We continue to take actions to comply with all applicable restrictions and sanctions that may impact our operations. In March 2022, we suspended our transactional services in Russia. We are unable to reasonably estimate the total potential financial impact that may ultimately result from this situation. In the years ended December 31, 2022 and 2021, our total net revenues related to Russia and Ukraine were not material.
BREXIT
The United Kingdom (“U.K.”) held a referendum in June 2016 in which a majority of voters approved an exit fromformally exited the European Union (“EU”), commonly referred to as “Brexit.” The U.K. formally exited and the EUEuropean Economic Area (“EEA”) on January 31, 2020 and a(commonly referred to as “Brexit”) with the expiration of the transition period is in place untilon December 31, 2020 during which time2020. PayPal (Europe) S.à.r.l. et Cie, SCA (“PayPal (Europe)”) operates in the U.K. will remain in bothwithin the EU customs union and single market and follow EU rules. There is a significant lackscope of clarity overits passport permissions (as they stood at the termsend of the U.K.’s future relationship withtransition period) under the EU after that date.Temporary Permissions Regime pending the grant of new U.K. authorizations by the U.K. financial regulators. We are currently unable to determine the longer-term impact that Brexit will have on our business, as any impactwhich will depend, in part, on the outcomeimplications of new tariff, trade, and regulatory frameworks that now govern the provision of cross-border goods and other negotiations.services between the U.K. and the EEA, as well as the financial and operational consequences of the requirement for PayPal (Europe) to obtain new U.K. authorizations to operate its business longer-term within the U.K. market. For additional information on how Brexit could affect our business, see “Item 1A. Risk Factors—Brexit: The United Kingdom’sU.K.'s departure from the EU could adversely affect usharm our business, financial condition, and results of operations.”
Brexit could adversely affect U.K., regional (including European), and worldwide economic and market conditions, and couldmay contribute to instability in global financial, stock, and foreign currency exchange markets, including volatility in the value of the British Pound and Euro. We have foreign currency exchange exposure management programs designed to help reduce the impact from foreign currency exchange rate movements.
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net revenues generated from the U.K. | 8 | % | 9 | % | 11 | % | |||||||||||
| Net revenues generated from the EU | 17 | % | 19 | % | 19 | % | |||||||||||
| December 31, 2022 | December 31, 2021 | ||||||||||
| Gross loans and interest receivable due from customers in the U.K. | 29 | % | 40 | % | |||||||
| Gross loans and interest receivable due from customers in the EU | 28 | % | 21 | % | |||||||
The change in the percentage of December 31, 2019 and 2018, respectively, were generated from our U.K. operations. Approximately 6% and 7% of our gross loans and interest receivables asreceivable due from customers in the U.K. and EU year over year was primarily attributable to expansion of December 31, 2019 and 2018, respectively, were generated fromour installment credit products in the EU, (excludingparticularly in Germany where we have increased our product offerings.
MACROECONOMIC ENVIRONMENT
The broader implications of the U.K.macroeconomic environment, including uncertainty around the duration and severity of the coronavirus pandemic (“COVID-19”)., the Russia and Ukraine conflict, supply chain shortages, a recession globally or in markets in which we operate, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown. A deterioration in macroeconomic conditions could increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, foreign currency exchange fluctuations, or other business interruption, which may adversely impact our business. If these conditions continue or worsen, they could adversely impact our future operating results.
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OVERVIEW OF RESULTS OF OPERATIONS
The following table provides a summary of our consolidated financial results for the years ended December 31, 2019, 2018,2022, 2021, and 2017:2020:
| Year Ended December 31, | Percent Increase/(Decrease) | Year Ended December 31, | Percent Increase/(Decrease) | |||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2022 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages and per share amounts) | (In millions, except percentages and per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||
| Net revenues | $ | 17,772 | $ | 15,451 | $ | 13,094 | 15 | % | 18 | % | Net revenues | $ | 27,518 | $ | 25,371 | $ | 21,454 | 8 | % | 18 | % | |||||||||||||||||||||||||
| Operating expenses | 15,053 | 13,257 | 10,967 | 14 | % | 21 | % | Operating expenses | 23,681 | 21,109 | 18,165 | 12 | % | 16 | % | |||||||||||||||||||||||||||||||
| Operating income | 2,719 | 2,194 | 2,127 | 24 | % | 3 | % | Operating income | 3,837 | 4,262 | 3,289 | (10) | % | 30 | % | |||||||||||||||||||||||||||||||
| Operating margin | 15 | % | 14 | % | 16 | % | ** | ** | Operating margin | 14 | % | 17 | % | 15 | % | ** | ** | |||||||||||||||||||||||||||||
| Other income (expense), net | 279 | 182 | 73 | 53 | % | 149 | % | Other income (expense), net | (471) | (163) | 1,776 | 189 | % | (109) | % | |||||||||||||||||||||||||||||||
| Income tax expense | 539 | 319 | 405 | 69 | % | (21 | )% | |||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | Income tax expense (benefit) | 947 | (70) | 863 | ** | (108) | % | |||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 18 | % | 13 | % | 18 | % | ** | ** | Effective tax rate | 28 | % | (2) | % | 17 | % | ** | ** | |||||||||||||||||||||||||||||
| Net income | $ | 2,459 | $ | 2,057 | $ | 1,795 | 20 | % | 15 | % | ||||||||||||||||||||||||||||||||||||
| Net income per diluted share | $ | 2.07 | $ | 1.71 | $ | 1.47 | 21 | % | 16 | % | ||||||||||||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 4,561 | $ | 5,483 | $ | 2,531 | (17 | )% | 117 | % | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | Net income (loss) | $ | 2,419 | $ | 4,169 | $ | 4,202 | (42) | % | (1) | % | |||||||||||||||||||||||||||||||||||
| Net income (loss) per diluted share | Net income (loss) per diluted share | $ | 2.09 | $ | 3.52 | $ | 3.54 | (41) | % | (1) | % | |||||||||||||||||||||||||||||||||||
Net cash provided by operating activities(1) | Net cash provided by operating activities(1) | $ | 5,813 | $ | 5,797 | $ | 6,219 | — | % | (7) | % | |||||||||||||||||||||||||||||||||||
