PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Overview and Summary of Significant Accounting Policies

Overview and Organization

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

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

Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

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

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

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

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

~~Reclassifications~~

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

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

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

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

Transaction expense $ 1,362
$ —
$ 1,362
Transaction and loan losses 334
—
334
Customer support and operations 357
(19 ) 338
Sales and marketing 313
(6 ) 307
Product development 255
(255 ) —
Technology and development —
441
441
General and administrative 368
19
387
Depreciation and amortization 180
(180 ) —
Restructuring and other charges 116
—
116
Total operating expenses $ 3,285
$ —
$ 3,285

Six Months Ended June 30, 2018
(In millions)
As Previously Reported Adjustments Revised

Transaction expense $ 2,637
$ —
$ 2,637
Transaction and loan losses 639
—
639
Customer support and operations 708
(28 ) 680
Sales and marketing 598
(10 ) 588
Product development 513
(513 ) —
Technology and development —
889
889
General and administrative 707
27
734
Depreciation and amortization 365
(365 ) —
Restructuring and other charges 269
—
269
Total operating expenses $ 6,436
$ —
$ 6,436

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Use of Estimates

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

Investments

Short-term investments include time deposits, government and agency securities, and corporate debt securities with original maturities of greater than three months but less than one year when purchased or maturities of less than one year on the reporting date. Long-term investments include time deposits, government and agency securities and corporate debt securities with maturities exceeding one year, and our strategic investments. Government and agency securities and corporate debt securities are classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized gains and losses are reported as a component of other comprehensive income (loss), net of related estimated tax provisions or benefits. Accrued interest receivable on available-for-sale debt securities totaled $39 million and $54 million, respectively, at June 30, 2020 and December 31, 2019 and is included in other current assets on our condensed consolidated balance sheets.

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

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

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

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Loans and interest receivable, net

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

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

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

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

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

U.S. Consumer Credit Portfolio

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

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Allowance for loans and interest receivable

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

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

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

Leases

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

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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

Allowance for transaction losses

We are exposed to transaction losses due to credit card and other payment misuse as well as nonperformance from sellers who accept payments through PayPal. We establish an allowance for estimated losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery of goods or services, buyer protection program claims, and account takeovers. This allowance represents an accumulation of the estimated amounts of transaction losses incurred as of the reporting date, including those which we have not yet identified. The allowance is monitored regularly and is updated based on actual data received, including actual claims data reported by our claims processors. The allowance is based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment patterns, the mix of transaction and loss types, as well as macroeconomic factors, as applicable. Additions to the allowance are reflected as a component of transaction and credit losses on our condensed consolidated statements of income. At June 30, 2020 and December 31, 2019, the allowance for transaction losses totaled $152 million and $136 million, respectively, and was included in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

Allowance for negative customer balances

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

Negative customer balances are included in other current assets, net of the allowance on our condensed consolidated balance sheets. Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our condensed consolidated statements of income. The allowance for negative customer balances was $221 million and $263 million at June 30, 2020 and December 31, 2019, respectively.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recent Accounting Guidance

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

Recently Adopted Accounting Guidance

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

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

~~Recently Adopted Accounting Guidance~~

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

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

Note 2—Revenue

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

Disaggregation of Revenue

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

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents our ~~revenues~~revenue disaggregated by primary geographical ~~markets~~market and ~~revenues by major products and services:~~category:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(In millions)
Primary geographical markets
United States (“U.S.”)	$	2,651	$	2,297	$	5,120	$	4,484
United Kingdom (“U.K.”)	586		454		1,064		887
Other countries⁽¹⁾	2,024		1,554		3,695		3,062
Total revenues⁽²⁾	$	5,261	$	4,305	$	9,879	$	8,433

Revenue category
Transaction revenues	$	4,945	$	3,878	$	9,160	$	7,609
Revenues from other value added services	316		427		719		824
Total revenues⁽²⁾	$	5,261	$	4,305	$	9,879	$	8,433

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(In millions)
Primary geographical markets
United States (“U.S.”) $ 2,297
$ 2,150
$ 4,484
$ 4,173
United Kingdom (“U.K.”) 454
402
887
794
Other countries⁽¹⁾
1,554
1,305
3,062
2,575
Total revenues⁽²⁾
$ 4,305
$ 3,857
$ 8,433
$ 7,542

Types of revenues
Transaction revenues $ 3,878
$ 3,318
$ 7,609
$ 6,515
Other value added services 427
539
824
1,027
Total revenues⁽²⁾
$ 4,305
$ 3,857
$ 8,433
$ 7,542

⁽¹⁾No single country included in the other countries category generated more than 10% of total revenue.

⁽²⁾Total revenues include ~~$276~~$154 million and ~~$441~~$276 million for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$533~~$401 million and ~~$800~~$533 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which do not represent revenues recognized in the scope of ~~ASC~~Accounting Standards Codification Topic 606, Revenue from contracts with customers. Such revenues relate to interest, fees, and gains earned on ~~loan~~loans and interest ~~receivables, net and held for sale portfolio,~~receivable, as well as hedging gains or losses, and interest earned on certain ~~PayPal~~assets underlying customer balances.

Net revenues are attributed to the country in which the merchant is located, or in the case of a cross-border transaction, may be earned from the country in which the consumer and the merchant respectively reside. Net revenues earned from other value added services are typically attributed to the country in which either the customer or partner reside.

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Note 3—Net Income Per Share

Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period. The dilutive effect of outstanding equity incentive awards is reflected in diluted net income per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive common shares.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(In millions, except per share amounts)
Numerator:
Net income	$	1,530	$	823	$	1,614	$	1,490
Denominator:
Weighted average shares of common stock - basic	1,173		1,175		1,173		1,173
Dilutive effect of equity incentive awards	11		12		12		15
Weighted average shares of common stock - diluted	1,184		1,187		1,185		1,188
Net income per share:
Basic	$	1.30	$	0.70	$	1.38	$	1.27
Diluted	$	1.29	$	0.69	$	1.36	$	1.25
Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive	—		—		1		2

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(In millions, except per share amounts)
Numerator:
Net income $ 823
$ 526
$ 1,490
$ 1,037
Denominator:
Weighted average shares of common stock - basic 1,175
1,187
1,173
1,190
Dilutive effect of equity incentive awards 12
15
15
19
Weighted average shares of common stock - diluted 1,187
1,202
1,188
1,209
Net income per share:
Basic $ 0.70
$ 0.44
$ 1.27
$ 0.87
Diluted $ 0.69
$ 0.44
$ 1.25
$ 0.86
Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive —
1
2
1

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4—Business Combinations

There were no acquisitions or divestitures completed in the six months ended June 30, 2019. In the six months ended June 30, 2018, we completed one acquisition for a total purchase price of $16 million, consisting of cash consideration.Honey Science Corporation

~~Significant Acquisitions Completed in 2018~~

~~Hyperwallet~~

We completed ~~the~~our acquisition of ~~HWLT Holdings Inc.~~Honey Science Corporation (“~~Hyperwallet”~~Honey”) in ~~November 2018~~January 2020 by acquiring all outstanding shares for a total ~~purchase price~~consideration of approximately $4.0 billion, consisting of approximately $3.6 billion in cash and approximately $400 million ~~consisting~~in assumed restricted stock, restricted stock units, and options, subject to vesting conditions. We believe our acquisition of ~~cash consideration. We acquired Hyperwallet to~~Honey will enhance our ~~payout capabilities~~value proposition by allowing us to further simplify and ~~improve our ability to provide an integrated suite of payment solutions to ecommerce platforms~~personalize shopping experiences for consumers while driving conversion and ~~marketplaces around~~increasing consumer engagement and sales for merchants.

The following table summarizes the ~~world. The~~preliminary allocation of the purchase consideration ~~resulted in approximately $100 million~~to the fair value of ~~customer-related~~the assets acquired and liabilities assumed:


	(In millions)
Goodwill	$	2,957
Customer lists and user base	115
Marketing related	30
Developed technology	572
Total intangibles	$	717
Accounts receivable, net	55
Deferred tax liabilities, net	(76)
Other net liabilities	(18)
Total purchase consideration	$	3,635

The intangible assets ~~approximately $30 million~~acquired consist primarily of customer contracts, trade name/trademarks, and developed technology ~~intangible assets, and approximately $2 million of marketing related intangible assets~~ with estimated useful lives ~~ranging from 3 to 7 years, funds receivable~~of three years. The excess of the purchase consideration over the fair value of net tangible and ~~customer accounts of $412 million, funds payable~~identifiable intangible assets acquired was recorded as goodwill, and ~~amounts due to customers of $412 million, net liabilities of approximately $32 million, and initial goodwill of approximately $300 million, which~~ is attributable to the workforce of ~~Hyperwallet~~Honey and the synergies expected to arise from the ~~acquisition.~~acquisition through continued customer acquisition, cross selling initiatives, and product enhancements. We do not expect goodwill to be deductible for income tax purposes. The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

~~iZettle~~

~~We completed~~In association with the acquisition, of iZettle AB (publ) (“iZettle”) in September 2018 by acquiring all outstanding shares for a total purchase price of $2.2 billion, consisting of cash consideration paid of approximately $2.1 billion (net of cash acquired of $103 million)we assumed restricted stock, restricted stock units, and ~~restricted shares of PayPal~~options with aan approximate grant date fair value of ~~approximately $22 million.~~ $400 million, which represents post business combination expense. The equity granted is a combination of shares issued to certain former Honey employees subject to a holdback arrangement and assumed Honey employee grants, which vest over a period of up to four years and are subject to continued employment.

We ~~acquired iZettle to expand our in-store presence and strengthen our Payments Platform to help small businesses around~~have included the ~~world grow and thrive in an omnichannel retail environment.~~

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~~The following table summarizes the preliminary allocation~~financial results of the ~~purchase consideration~~acquired business in our condensed consolidated financial statements from the date of acquisition. Revenues and expenses related to the ~~fair value~~acquisition and pro forma results of operations have not been presented for the ~~assets acquired~~three and ~~liabilities assumed:~~six months ended June 30, 2020 because the effects of this acquisition were not material to our overall operations.

(In millions)
Goodwill $ 1,602
Customer lists and user base 426
Marketing related 102
Developed technology 121
All other 1
Total intangibles $ 650
Cash 103
Funds receivable and customer accounts 47
Funds payable and amounts due to customers (47 )
Deferred tax liabilities, net (118 )
Other net liabilities (55 )
Total purchase consideration $ 2,182

The intangible assets acquired consist primarily of merchant relationships, trade name/trademarks, developed technology, and existing acquirer relationships with estimated useful lives ranging from 3 to 7 years. The excess ofThere were 0 acquisitions or divestitures completed during the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is attributable to the workforce of iZettle and the synergies expected to arise from the acquisition. We do not expect goodwill to be deductible for income tax purposes. The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.six months ended June 30, 2019.

~~Simility~~

We completed the acquisition of Simility, Inc. (“Simility”) in July 2018 by acquiring all outstanding shares for a total purchase price of $107 million, consisting of cash consideration. We acquired Simility to enhance our ability to deliver fraud prevention and risk management solutions to merchants globally. The allocation of purchase consideration resulted in approximately $18 million of developed technology intangible assets with an estimated useful life of 3 years, net assets of approximately $10 million, and initial goodwill of approximately $79 million, which is attributable to the workforce of Simility and the synergies expected to arise from the acquisition. We do not expect goodwill to be deductible for income tax purposes. The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

Note 5—Goodwill and Intangible Assets

Goodwill

The following table presents goodwill balances and adjustments to those balances during the six months ended June 30, ~~2019:~~2020:


	December 31, 2019		Goodwill Acquired		Adjustments		June 30, 2020
	(In millions)
Total goodwill	$	6,212	$	2,957	$	(51)	$	9,118

December 31,
2018
Goodwill
Acquired
Adjustments June 30,
2019
(In millions)
Total goodwill $ 6,284
$ —
$ (48 ) $ 6,236

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The goodwill acquired during the six months ended June 30, 2020 was associated with the acquisition of Honey. The adjustments to goodwill during the six months ended June 30, ~~2019 are related~~2020 pertain to foreign currency translation adjustments.

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Intangible Assets

The components of identifiable intangible assets are as follows:

June 30, 2019 December 31, 2018

Gross Carrying Amount

Accumulated Amortization
Net Carrying Amount Weighted Average Useful Life (Years)
Gross Carrying Amount

Accumulated Amortization
Net Carrying Amount Weighted Average Useful Life (Years)
(In millions, except years)
Intangible assets:
Customer lists and user base $ 1,121
$ (663 ) $ 458
7 $ 1,134
$ (623 ) $ 511
7
Marketing related 298
(224 ) 74
3 301
(207 ) 94
3
Developed technology 449
(308 ) 141
3 453
(269 ) 184
3
All other 245
(219 ) 26
5 245
(209 ) 36
5
Intangible assets, net $ 2,113
$ (1,414 ) $ 699
$ 2,133
$ (1,308 ) $ 825


	June 30, 2020													December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)
	(In millions, except years)
Intangible assets:
Customer lists and user base	$	1,203	$	(741)	$	462	6	$	1,114	$	(700)	$	414	7
Marketing related	321		(257)		64		3	294		(239)		55		3
Developed technology	999		(452)		547		3	445		(343)		102		3
All other	434		(253)		181		7	436		(229)		207		7
Intangible assets, net	$	2,957	$	(1,703)	$	1,254		$	2,289	$	(1,511)	$	778

Amortization expense for intangible assets was ~~$51~~$115 million and ~~$26~~$51 million for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Amortization expense for intangible assets was ~~$108~~$229 million and ~~$56~~$108 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Expected future intangible asset amortization as of June 30, ~~2019~~2020 was as follows (in millions):


Fiscal years:
Remaining 2020	$	221
2021	398
2022	335
2023	98
2024	96
Thereafter	106
Total	$	1,254

Fiscal years:
Remaining 2019 $ 101
2020 190
2021 137
2022 72
2023 72
Thereafter 127
$ 699

Note 6—Leases

PayPal enters into various leases, which are primarily real estate operating leases. We use these properties for executive and administrative offices, data centers, product development offices, and customer service and operations centers. ~~Our~~Many leases ~~have remaining~~include one or more renewal or termination options. These options are not included in our determination of the lease terms of less than one year to ten years, some of which include options to extend individual leases for up to five years, and some of which include options to terminate individual leases within one year.term at commencement unless it is reasonably certain the Company will exercise the option. When we reach a decision to exercise a lease renewal or termination option, we ~~will~~ recognize the associated impact to the ROU asset and lease liability.

While a majority of lease payments are based on the stated rate in the lease, some lease payments are subject to annual changes based on the Consumer Price Index or another referenced index. ~~While lease liabilities are not re-measured as a result~~In the event of changes to the relevant index, ~~such changes to these indices~~lease liabilities are not remeasured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. All of PayPal’s variable lease payments are based on an index or rate.

The short-term lease exemption has been adopted for all leases with a duration of less than 12 months.

PayPal’s lease portfolio contains a small number of subleases. A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements.

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q 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). Additionally, our forward looking statements include expectations related to anticipated impacts of the outbreak of the novel coronavirus. These forward-looking statements can be identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “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 Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Form 10-K”), as supplemented ~~and, to the extent inconsistent, superseded (if applicable) by some of the information~~ in the risk factors set forth below in Part II, Item 1A, Risk Factors, of this Form 10-Q, as well as in our unaudited condensed 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 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 unaudited condensed 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,” and “PayPal” refer to PayPal Holdings, Inc. and its consolidated subsidiaries.

Business Environment

We are a leading technology platform and digital payments company that enables digital and mobile payments on behalf of ~~consumers~~merchants and ~~merchants~~consumers worldwide. PayPal is committed to democratizing financial services and empowering people and businesses to join and thrive in the global economy. Our goal is to enable our ~~consumers~~merchants and ~~merchants~~consumers to manage and move their money anywhere in the world, anytime, on any platform, and using any device. We also facilitate person-to-person (“P2P”) payments through our PayPal, Venmo, and Xoom ~~products.~~products and services and simplify and personalize shopping experiences for our consumers through our Honey Platform. Our combined payment solutions, including our core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and ~~iZettle~~Hyperwallet products and services, comprise our proprietary Payments Platform.

Information security risks for global payments and technology companies like us have significantly increased in recent years. ~~We are not immune~~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, 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 Part I, Item 1A, Risk Factors in our ~~2018~~2019 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors in this Form 10-Q.

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In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic. The rapidly changing global market and economic conditions as a result of COVID-19 have impacted, and are expected to continue to impact, our operations and business. To protect the health and safety of our employees, we have modified our business practices, including restrictions on employee travel, enabling the majority of our workforce to work from home, establishing a strict health and safety protocol for our offices that remain open including limitations on site visitors, and restricting physical participation in meetings, events, and conferences, among other modifications. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, and business partners. The broader implications of the COVID-19 outbreak on our business, financial condition, and results of operations remain uncertain. While the current macroeconomic environment as a result of the COVID-19 outbreak has adversely impacted general consumer and merchant spending with a more pronounced impact on travel and events verticals, the spread of COVID-19 has also accelerated the shift from in-store shopping and traditional in-store payment methods (e.g., credit cards, debit cards, cash) towards e-commerce and digital payments and resulted in increased customer demand for safer payment and delivery solutions (e.g. contactless payment methods, buy online and pick up in store) and a significant increase in online spending in certain verticals that have historically had a strong in-store presence. On balance, our business has benefited from these behavioral shifts, including a significant increase in net new active accounts and payments volume. To the extent that consumer preferences revert to pre-COVID-19 behaviors as mitigation measures to limit the spread of COVID-19 are lifted, our business, financial condition, and results of operations could be adversely impacted. The COVID-19 outbreak has adversely impacted, and is likely to continue to adversely impact global commerce due to reduced business activity and customer spending, and increased unemployment rates, among other factors, which could materially and adversely impact our business, financial condition, and results of operations in future periods. For additional information on how COVID-19 has impacted and could continue to negatively impact our business, see below for specific discussion in the respective areas, and also refer to Part II, Item 1A, Risk Factors in this Form 10-Q.

The United Kingdom (“U.K.”) held a referendum in June 2016 in which a majority of voters approved an exit from the European Union (“EU”), commonly referred to as “Brexit.” ~~In March 2017,~~The U.K. formally exited the ~~U.K. government initiated~~EU (and the ~~exit process under Article 50 of the Treaty~~European Economic Area (“EEA”)) on ~~European Union, which commenced~~January 31, 2020 and a ~~two-year~~transition period ~~expiring on March 29, 2019, after~~is in place until December 31, 2020 during which time the U.K. ~~was expected~~will remain in both the EU customs union and single market and follow EU rules, including those extending to ~~leave the EU. The EU subsequently extended the date to October 31, 2019 although the U.K. could leave sooner depending on political developments.~~EEA states. There is a significant lack of clarity over the ~~eventual date and terms of the U.K.’s exit from the EU and the~~ terms of the U.K.’s future relationship with the ~~EU. The U.K.’s financial service regulators~~EU, and the international bodies that are ~~implementing Temporary Permission Regimes (“TPR”)~~linked to support European Economic Area (“EEA”) financial service firms in continuing to conduct business in the U.K. should the U.K. exit the EU without an agreement. The final TPR rules will come into effect if the U.K. leaves the EU without an agreement. Accordingly, we may need to adjust our business to comply with additional legal and regulatory requirements if accessing the TPR.it, after this date. We are currently unable to determine the impact that Brexit will have on our business, as any impact will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. For additional information on how Brexit could affect our business, see Part ~~I, Item 1A, Risk Factors in our 2018 Form 10-K, as supplemented and, to the extent inconsistent, superseded (if applicable) below in Part~~ II, Item 1A, Risk Factors in this Form 10-Q.

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Brexit could adversely affect U.K., regional (including European), and worldwide economic and market conditions, and could contribute to instability in global financial 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. Net revenues generated from our U.K. operations constituted ~~approximately~~ 11% of total net revenues for ~~both~~each of the three and six months ended June 30, ~~2019, respectively. Net revenues generated from our U.K. operations constituted approximately 10%~~2020 and ~~11% of total net revenues for the three and six months ended~~ June 30, ~~2018,~~2019, respectively. During each of these periods, net revenues generated from the EU (excluding the U.K.) constituted less than 20% of total net revenues. Approximately ~~32%~~38% and ~~31%~~37% of our gross loans and interest receivables as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, were generated from our U.K. operations. Approximately 7%8% and 6% of our gross loans and interest receivables as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, were generated from ~~our~~the EU ~~operations~~ (excluding the U.K.).

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Overview of Results of Operations

The following table provides a summary of our condensed consolidated ~~GAAP~~ financial ~~measures~~results for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,						Percent Increase/(Decrease)			Six Months Ended June 30,							Percent Increase/(Decrease)				Three Months Ended June 30,												Percent Increase/(Decrease)				Six Months Ended June 30,									Percent Increase/(Decrease)
	2019			2018					2019				2018						2020						2019							2020					2019							Percent Increase/(Decrease)
	(In millions, except percentages and per share data)																				(In millions, except percentages and per share data)
Net revenues	$	4,305		$	3,857			12	%		$	8,433			$	7,542			12	%	Net revenues		$	5,261				$	4,305		22	%			$	9,879			$	8,433			17		%
Operating expenses	3,600			3,285			10	%		7,210				6,436			12	%	Operating expenses		4,310					3,600				20	%			8,530				7,210				18		%
Operating income	$	705		$	572		23	%		$	1,223			$	1,106		11	%	Operating income		$	951				$	705			35	%		$	1,349			$	1,223			10		%
Operating margin	16		%	15		%	**			15		%		15		%	**		Operating margin		18		%			16		%		**			14		%		15		%		**
Other income (expense), net	$	238		$	37		**			$	437			$	51		**		Other income (expense), net		$	848				$	238			256	%		$	713			$	437			63		%
Income tax expense	$	120		$	83		45	%		$	170			$	120		42	%	Income tax expense		$	269				$	120			124	%		$	448			$	170			164		%
Effective tax rate	13		%	14		%	**			10		%		10		%	**		Effective tax rate		15		%			13		%		**			22		%		10		%		**
Net income	$	823		$	526		56	%		$	1,490			$	1,037		44	%	Net income		$	1,530				$	823			86	%		$	1,614			$	1,490			8		%
Net income per diluted share	$	0.69		$	0.44		58	%		$	1.25			$	0.86		46	%	Net income per diluted share		$	1.29				$	0.69			86	%		$	1.36			$	1.25			9		%
Net cash provided by operating activities	$	1,174		$	28		**			$	2,201			$	(321	)	**		Net cash provided by operating activities		$	2,383				$	1,174			103	%		$	3,887			$	2,201			77		%

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Transaction and credit losses

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

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

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

Determining appropriate expected credit loss allowances for loans and interest receivable is an inherently uncertain process and ultimate losses may vary from the current estimates. We regularly update our allowance estimates as new facts become known and events occur that may impact the settlement or recovery of losses. The allowances are maintained at a level we deem appropriate to adequately provide for lifetime expected credit losses at the balance sheet date after incorporating the impact of externally sourced macroeconomic forecasts. These forecasts project scenarios for future unemployment and benchmark credit card charge-off rates. As of June 30, 2020, we utilized externally published projections indicating a forecasted peak U.S. unemployment rate over the reasonable and supportable period of approximately 14% in the second quarter of 2020, resulting in an overall principal and interest coverage ratio of approximately 22%. A significant change in the forecasted macroeconomic factors could result in a material change in our allowances. Our allowance as of June 30, 2020 has been adjusted to account for the proactive and reactive measures that we have taken that are intended to reduce financial difficulties experienced by our customers. These qualitative adjustments were made to incorporate varying degrees of merchant performance both in the current environment as well as expected future performance, and to account for payment holidays granted. Our allowance as of June 30, 2020 has not been adjusted to account for the potential impacts of the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act”, which are also intended to help mitigate the negative impact the current pandemic may have on the financial condition of our customers. We are unable to predict the ultimate impact of these actions which may result in adjustments to our allowance for loans and interest receivable in future periods. An increase of 1% in the principal and interest coverage ratio would increase our allowances by approximately $39 million based on the loans and interest receivable balance outstanding as of June 30, 2020.

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Item 3: Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

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

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, approximately ~~57%~~47% and ~~78%~~63%, respectively, of our total cash, cash equivalents, and investment portfolio (excluding restricted cash and strategic investments) was held in cash and cash equivalents. The assets underlying the customer balances which we hold on our condensed consolidated balance sheets as customer accounts are maintained in interest and non-interest bearing bank deposits, time deposits, U.S. and foreign government and agency securities, and corporate debt securities. We seek to preserve principal while holding eligible liquid assets, as defined by applicable regulatory requirements and commercial law in certain jurisdictions where we operate, equal to at least 100% of the aggregate amount of all customer balances. We do not pay interest on amounts due to customers.

InWe have $9.0 billion in fixed rate debt with varying maturity dates. Since these notes bear interest at fixed rates, they do not result in any financial statement risk associated with changes in interest rates. However, the ~~fourth quarter~~fair value of ~~2018,~~these notes fluctuates when interest rates change. We also have various committed credit facilities available to us aggregating to $6.0 billion. We are obligated to pay interest on borrowings under these facilities as well as other customary fees, including an upfront fee and an unused commitment fee based on our debt rating. Borrowings under these facilities, if any, bear interest at floating rates. As a result, we ~~entered into an amended credit agreement (“Amended Credit Agreement”) which amended and restated~~are exposed to the risk related to fluctuations in ~~its entirety~~interest rate to the previous agreement entered into in 2017. The Amended Credit Agreement provides for an unsecured $5.0 billion, 364-day delayed-draw term loan credit facility, which was available in up to four separate borrowings until April 6, 2019. On April 5, 2019, the Company drew down an additional $500 million under the Amended Credit Agreement.extent of our borrowings. As of both June 30, 2020 and December 31, 2019, ~~$2.5 billion was~~we had no amounts outstanding under ~~the Amended Credit Agreement. No remaining borrowing capacity is available under the Amended Credit Agreement. We maintain uncommitted~~these credit ~~facilities in various regions throughout the world, with borrowing capacity of approximately $130 million~~facilities. For additional information, see “Note 12—Debt” in the aggregate. This available credit includes facilities where we can withdraw and utilize the funds at our discretion for general corporate purposes. As of June 30, 2019, substantially all of the borrowing capacity under these uncommitted credit facilities was available, subject to customary conditions to borrowing. Other than as provided above, there are no significant changesnotes to the ~~information on our credit facilities disclosed~~condensed consolidated financial statements in ~~our 2018~~Part I, Item 1 of this Form ~~10-K.~~10-Q.

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

A 100 basis point increase in interest rates would not have had a material impact on our financial assets or liabilities at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Foreign Currency Exchange Rate Risk

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

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

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

We considered the historical trends in foreign currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 20% for all currencies could be experienced in the near term. If the U.S. dollar weakened by 20% at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately ~~$664~~$736 million and ~~$707~~$900 million lower, respectively. If the U.S. dollar strengthened by 20% at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately ~~$664~~$736 million and ~~$707~~$900 million higher, respectively.

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

Adverse changes in exchange rates of 20% for all currencies would have resulted in an adverse impact on income before income taxes of approximately ~~$198~~$267 million and ~~$295~~$147 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, without considering the offsetting effect of hedging. Foreign currency exchange contracts in place as of June 30, 2020 would have positively impacted income before income taxes by approximately $269 million, resulting in a net positive impact of approximately $2 million. Foreign currency exchange contracts in place as of December 31, 2019 would have positively impacted income before income taxes by approximately $191 million, resulting in a net negative impact of approximately $7 million. Foreign currency exchange contracts in place as of December 31, 2018 would have positively impacted income before income taxes by approximately $308$153 million, resulting in a net positive impact of approximately ~~$13~~$6 million. These reasonably possible adverse changes in exchange rates of 20% were applied to total monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries at the balance sheet dates to compute the adverse impact these changes would have had on our income before income taxes in the near term.

Equity Investment Risk

Our strategic investments are subject to a variety of market-related risks that could substantially reduce or increase the carrying value of ~~our holdings.~~the portfolio. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, our strategic investments totaled ~~$2.0~~$2.6 billion and ~~$293 million,~~$1.8 billion, respectively, which represented approximately ~~23%~~16% and 3%13% of our total cash, cash equivalents, and investment portfolio at those ~~dates, respectively.~~respective dates. Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are investments in privately held ~~companies.~~companies that are not publicly traded. We are required to record all adjustments to the carrying value of these strategic investments through our condensed consolidated statements of income. As such, we anticipate volatility to our net income in future periods due to changes in fair value related to our investments in marketable equity securities and changes in observable prices related to our non-marketable equity ~~securities.~~securities accounted for under the Measurement Alternative. These changes could be material based on market conditions. A hypothetical adverse change of 10% in the carrying value of our strategic investments as of ~~10%,~~June 30, 2020, which could be experienced in the near term, would ~~result~~have resulted in a decrease of approximately ~~$201~~$263 million to the carrying value of the portfolio. We review our non-marketable equity investments accounted for under the Measurement Alternative for impairment when events and circumstances indicate a decline in fair value of such assets below carrying value. Our analysis includes a review of recent operating results and trends, recent purchases and sales of ~~the~~ securities, ~~in which we have invested,~~ and other publicly available data.

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Item 4: Controls and Procedures

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

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

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PART II: OTHER INFORMATION

Item 1: Legal Proceedings

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

Item 1A: Risk Factors

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

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

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

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

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

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

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

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

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

~~tighter credit,~~

~~higher unemployment,~~

~~consumer debt levels or reduced consumer confidence.~~

~~financial market volatility,~~

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

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

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

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

~~government austerity programs, and~~

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

online activity;

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

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

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A sustained or prolonged COVID-19 outbreak or a resurgence could exacerbate the factors described above and intensify the impact on our business, and the resumption of economic activity and business operations to pre-pandemic levels may be delayed or constrained by lingering effects on our merchants and consumers. Accordingly, these factors may adversely affect our business, financial condition, and results of operations, even after the COVID-19 outbreak has subsided. In addition, actions that we have taken or may take in the future intended to assist customers impacted by COVID-19 (e.g., waiving certain fees and deferring repayments on business loans for certain affected small business customers) may negatively impact our results of operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•banking,

•credit,

•deposit taking,

•cross-border and domestic money transmission,

•prepaid access,

•foreign currency exchange,

•privacy,

•data governance,

•data protection,

•cybersecurity,

•banking secrecy,

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•fraud detection,

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

•consumer protection,

•antitrust and competition,

•economic and trade sanctions,

•anti-money laundering, and

•counter-terrorist financing.

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

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

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

Payments Regulation

In the U.S., PayPal, Inc. has obtained licenses to operate as a money transmitter (or its equivalent) in the states where such licenses are required, as well as in the District of Columbia, the U.S. Virgin Islands, and Puerto Rico. These licenses include not only the PayPal branded products and services in these states, but also our ~~Braintree,~~ Venmo, Hyperwallet and Xoom products and services. ~~We may also maintain such licenses for certain companies that we have recently acquired, such as Hyperwallet.~~ As a licensed money transmitter, PayPal is subject to, among other requirements, restrictions with respect to the investment of customer funds, reporting requirements, bonding requirements, and inspection by state regulatory agencies. Accordingly, if we violate these laws or regulations, we could be subject to liability and/or additional restrictions, forced to cease doing business with residents of certain states, forced to change our business practices, or required to obtain additional licenses or regulatory approvals, which could impose substantial costs.

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

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We principally provide our services to customers in the EU and the UK through PayPal (Europe), our wholly-owned subsidiary that is licensed and subject to regulation as a credit institution in Luxembourg. Accordingly, PayPal (Europe) is potentially subject to significant fines or other enforcement action if it violates the disclosure, reporting, anti-money laundering, capitalization, ~~fund management,~~ corporate governance, privacy, data protection, data governance, information security, banking secrecy, taxation, cross-border payment, risk management, sanctions, or other requirements imposed on Luxembourg ~~banks.~~credit institutions. In addition, EU laws and regulations are ~~typically~~ subject to ~~different and~~ potentially inconsistent interpretations by the countries that are members of the EU, which can make compliance more costly and operationally difficult to manage. Moreover, the countries that are EU members may each have different and potentially inconsistent domestic regulations implementing European Directives, which could make compliance more costly and operationally difficult to manage. The Revised Payment Services Directive (“PSD2”) took effect in Europe in 2018, with certain requirements ~~only being~~becoming applicable from ~~2019. The implementation of~~2019 or later. PSD2 ~~may negatively affect our business. PSD2 seeks to enable~~enables new payment and information sharing models whereby ~~a newly formed category of~~ regulated payment ~~provider would be~~providers are able to access bank and payment accounts (including PayPal accounts) for the purposes of accessing account information or initiating a payment on behalf of a customer. Such access could subject us to data security and other legal and financial risks and could create new competitive forces and new types of competitors in the European payments market. PSD2 seeks to regulate more online platforms that handle payments for their sellers. PayPal merchants with affected business models which are not licensed, or which do not benefit from exemptions or integrate a compliant marketplaces solution may not be able to offer PayPal products in the future. PSD2 also imposes new standards ~~scheduled to come into force on September 14, 2019~~ for payment security and strong customer authentication (“SCA”) that may make it more difficult and time consuming to carry out ~~a PayPal transaction,~~transactions on our Payments Platform, which may adversely impact PayPal’s European customer value ~~proposition~~proposition. In line with an opinion issued by the European Banking Authority (“EBA”), national competent authorities (including Luxembourg) have announced enforcement deferral periods for migration to SCA requirements for e-commerce card-based transactions. PayPal (Europe) has implemented SCA customer processes covering the majority of payment transactions initiated within the EU and ~~its~~has plans to finalize full compliance with SCA; amending or accelerating these plans may adversely impact PayPal’s European ~~business.~~

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customer value proposition.

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

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

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

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

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

operations.

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

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

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From time to time, we may acquire entities subject to local regulatory supervision or oversight. For example, in December 2019, we completed our acquisition of a 70% equity stake in Guofubao Information Technology Co. (GoPay), Ltd. (“GoPay”), a provider of online payment services in China. GoPay holds certain licenses associated with its payments business in China and is subject to regulatory supervision by the People’s Bank of China and other regulatory bodies. We have been, and expect to continue to be, required to apply for various licenses, certifications, and regulatory approvals in a number of the jurisdictions where we provide our services, including due to changes in applicable laws and regulations or the interpretation of such laws and regulations. There can be no assurance that we will be able to (or decide to) obtain any such licenses, certifications, and approvals. In addition, there are substantial costs and potential product changes involved in maintaining and renewing such licenses, certifications, and approvals, and we could be subject to fines, , other enforcement action, and litigation if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other requirements of such licenses. These factors could impose substantial additional costs, involve considerable delay to the development or provision of our products or services, require significant and costly operational changes, or prevent us from providing our products or services in a given market.

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

Consumer Protection

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

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

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

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

~~Economic and Trade Sanctions~~

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

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

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

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Privacy and Protection of ~~User~~Customer Data

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

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

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

PayPal relies on a variety of compliance methods to transfer personal data of EEA individuals to the U.S., including reliance on Binding Corporate Rules (“BCRs”) for internal transfers of certain types of personal data and Standard Contractual Clauses (“SCCs”) as approved by the European Commission for transfers to and from third parties. PayPal must also ensure that third parties processing personal data of PayPal’s EEA customers and/or employees outside of the EEA have compliant transfer mechanisms. In October 2015, the European Court of Justice invalidated U.S.-EU Safe Harbor framework clauses that were previously relied upon by some PayPal vendors to lawfully transfer personal data of EU citizens to U.S. companies, and PayPal entered into SCCs with those third parties ~~who~~which had previously relied on the U.S.-EU Safe Harbor framework. In July 2016, the U.S. and EU authorities agreed on a replacement for the Safe Harbor framework known as “Privacy Shield.” PayPal did not certify under the Privacy Shield regime and continues to use SCCs and BCRs as the primary cross border data transfer mechanisms. Both the Privacy Shield framework and SCCs ~~are facing~~continued to face legal challenges and in July 2020, the European ~~justice system.~~Court of Justice invalidated the Privacy Shield. To the extent that an entity acquired by PayPal or third party relies on the Privacy Shield, ~~or SCCs are invalidated,~~ PayPal’s ability to process EEA personal data with third parties outside of the EEA and intra-group with its U.S. affiliates could be ~~jeopardized~~jeopardized.

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

As PayPal is neither a chartered financial institution, nor licensed to make loans in any state in the U.S., we rely on third-party chartered financial institutions to provide PayPal branded credit products to our customers in the U.S., including consumer credit products such as PayPal Credit, ~~and~~ PayPal branded ~~Mastercard~~ credit cards, and ~~business~~merchant credit products such as PayPal Working Capital and PayPal Business Loan products. Any termination or interruption in a partner bank’s ability or willingness to lend could interrupt ~~potentially materially,~~or limit our ability to offer consumer credit and ~~business loan~~merchant credit products, which could materially and adversely affect our business. In the event of a partner bank’s inability or unwillingness to lend, we may ~~need~~be unable to reach a similar agreement with another chartered financial institution ~~or obtain our own bank charter or lending licenses. We may be unable to reach a similar agreement with another partner~~ on favorable terms or at all. Obtaining a bank charter or lending licenses would be a costly, time-consuming and uncertain process, and would subject us to additional laws and regulatory requirements, which could ~~be burdensome,~~significantly increase our costs and compliance obligations and require us to change our business ~~practices.~~practices, which could materially and adversely affect our business. In addition, as a service provider to these bank partners, which are federally supervised U.S. financial institutions, we are subject from time to time to examination by their federal banking regulators.

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

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

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

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

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

~~diversion of management time and focus;~~

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

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

the need to and difficulty of implementing and/or enhancing controls, procedures, and policies appropriate for a larger public company at acquired companies which, prior to the acquisition, may have lacked such controls, procedures, and policies or whose controls, procedures, and policies did not meet applicable legal and regulatory standards;

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

~~potential exposure to new or increased regulatory oversight and regulatory obligations associated with new products and services or entry into new markets;~~

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

~~unidentified issues not discovered in our due diligence process, including product or service quality issues, intellectual property issues, and legal contingencies;~~

~~risks associated with the complexity of entering into and effectively managing joint ventures, strategic investments, and other strategic partnerships;~~

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

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

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

the acquisition of new customer and employee personal information, which in and of itself may require regulatory approval and/or additional controls, policies, and procedures, and subject us to additional exposure and additional complexity and costs of compliance; and

our dependence on the accounting, financial reporting, operating metrics and similar systems, controls and processes of acquired businesses, and the risk that errors or irregularities in those systems, controls, and processes will lead to errors in our financial statements or make it more difficult to manage the acquired business.

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~~At any given time, we may be engaged in discussions or negotiations with respect to~~If one or more of ~~these~~our counterparty financial institutions default on their financial or ~~other types of transactions, any of which could, individually~~performance obligations to us or fail, we may incur significant losses.”

In April 2020, PayPal was approved to participate in the ~~aggregate, be material~~U.S. Government’s Paycheck Protection Program, which is designed to ~~our~~provide a direct incentive for small businesses to keep their workers on payroll during the COVID-19 outbreak. Loans made under this program are funded by an independent chartered financial ~~condition and results of operations. There can be no assurance~~institution that we ~~will be successful in identifying, negotiating,~~partner with, and ~~consummating favorable transaction opportunities. It may take us longer than expected to fully realize~~ the ~~anticipated benefits of~~related receivables are not purchased by PayPal. We receive a fee for providing origination services and loan servicing for these ~~transactions,~~loans and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect our business and operating results. Because acquisitions are inherently risky, our transactions may not be successful and may, in some cases, harm our operating results or financial condition. Any acquisitions, dispositions, or investments may also require us to issue additional equity securities, spend our cash, or incur debt (and increased interest expense), recognize liabilities, and record gains or losses (realized or unrealized) and amortization expensesretain operational risk related to ~~intangible assets or write-offs of goodwill or intangibles, which could dilute~~those activities. We have agreed to indemnify the ~~economic and voting rights of our stockholders and adversely affect our results of operations and the interests of holders of our indebtedness, as applicable.~~

We completed our acquisition of iZettle on September 20, 2018. Prior to the closing of the acquisition, the U.K. Competition and Markets Authority (“CMA”) initiated a review of the transaction. On December 5, 2018, the CMA referred the acquisition for a Phase 2 investigation and on December 24, 2018, directed PayPal to appoint a monitoring trustee. We held parts of the PayPal and iZettle businesses separate as agreedchartered financial institution in connection with the ~~CMA, pending completion of~~services provided for loans made under this program under certain circumstances, including in the ~~CMA’s investigation. On June 12, 2019,~~event the ~~CMA announced that it has cleared PayPal's acquisition of iZettle.~~U.S. Small Business Administration denies a claim for payment on a loan guaranty or a loan forgiveness payment.

Joint ventures and strategic investments where we have a minority ownership stake inherently involve a lesser degree of influence over business operations, thereby potentially increasing the financial, legal, operational, and/or compliance risks associated with the joint venture or strategic investment. In addition, we may be dependent on joint venture partners, controlling shareholders, management, or other persons or entities who control them and who may have business interests, strategies or goals that are inconsistent with ours. Business decisions or other actions or omissions of the joint venture partners, controlling shareholders, management, or other persons or entities who control joint ventures or companies in which we invest may adversely affect the value of our investment, result in litigation or regulatory action against us, and otherwise damage our reputation and brand.

Our point of sale solutions expose us to additional risks.

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

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

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

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

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

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

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

•exposure to additional laws, rules, and regulations;

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

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

•lower operating income than our other payment solutions.

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

There are risks associated with our relationship with eBay.

In connection with our separation from eBay, we entered into a separation and distribution agreement with eBay, as well as various other agreements, including an operating agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a data sharing addendum, and a product development agreement. The separation agreement, the tax matters agreement, the employee matters agreement, and the intellectual property matters agreement determined the allocation of assets and liabilities (including by means of licensing) between the companies following the separation for those respective areas and include associated indemnification obligations. The operating agreement, the data sharing addendum, and the product development agreement established certain commercial relationships between eBay and us related to payment processing, credit, and data sharing. If either we or eBay are unable to satisfy our performance, payment, or indemnification obligations under these agreements, we could incur operational difficulties or losses or be required to make substantial indemnification or other payments to eBay. Disputes between eBay and us have arisen and others may arise in the future. An adverse outcome in any such matters could materially and adversely affect our business, results of operations, and financial condition.

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

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

Repurchases of Equity Securities

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

~~There were no~~The stock ~~repurchases~~repurchase activity under our stock repurchase ~~programs in~~program during the three months ended June 30, ~~2019.~~2020 is summarized below:


	Total number of shares purchased	Average price paid per share⁽¹⁾		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
	(In millions, except per share amounts)
Balance as of March 31, 2020					$	9,268
April 1, 2020 through April 30, 2020	—	$	—	—	9,268
May 1, 2020 through May 31, 2020	—	$	—	—	9,268
June 1, 2020 through June 30, 2020	1.4	$	161.96	1.4	9,048
Balance as of June 30, 2020	1.4			1.4	$	9,048

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

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

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Item 6: Exhibits

~~The information required by this Item is set forth in the Index to Exhibits that precedes the signature page of this Quarterly Report.~~

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INDEX TO EXHIBITS

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Date Filed

Filed Herewith

~~Exhibit~~

~~Number~~4.01

~~Exhibit Description~~

~~Form~~

~~Date Filed~~

~~Filed Herewith~~

~~10.01+†~~

~~Letter Agreement~~Officer’s Certificate, dated as of ~~June 17,~~May 18, 2020, pursuant to the Indenture, dated as of September 26, 2019, by and between ~~William J. Ready~~the Company and ~~PayPal Holdings, Inc.~~Wells Fargo Bank, National Association, as Trustee

-8-K

-5/18/2020

31.01*4.02

Form of 2023 Note (included in Exhibit 4.01 above)

8-K

5/18/2020

4.03

Form of 2025 Note (included in Exhibit 4.01 above)

8-K

5/18/2020

4.04

Form of 2030 Note (included in Exhibit 4.01 above)

8-K

5/18/2020

4.05

Form of 2050 Note (included in Exhibit 4.01 above)

8-K

5/18/2020

31.01

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

31.02*31.02

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

32.01*

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

32.02*

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

~~101.INS~~101

~~XBRL Instance Document -~~The following financial information related to the ~~instance document does not appear~~Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the related Notes to Condensed Consolidated Financial Statements

104

Cover Page Interactive Data File, ~~because its XBRL tags are embedded within the Inline XBRL document.~~

formatted in iXBRL and contained in Exhibit 101

~~101.SCH~~

~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~

~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~

~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~

~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation Linkbase Document~~

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

~~+ Management contract or compensatory plan or arrangement.~~

† Certain portions of this document have been omitted pursuant to Item 601(b)(10) of Regulation S‑K and, where applicable, have been marked with “[***]” to indicate where omissions have been made. The marked information has been omitted because it is (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. The registrant hereby undertakes to provide further information regarding such marked information to the Securities and Exchange Commission upon request.

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SIGNATURES

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

PayPal Holdings, Inc.

Principal Executive Officer:

~~PayPal Holdings, Inc.~~

By:

~~Principal Executive Officer:~~

~~By:~~

/s/ Daniel H. Schulman

Daniel H. Schulman

President and Chief Executive Officer

Date:

July ~~25, 2019~~30, 2020

Principal Financial Officer:

By:

/s/ John D. Rainey

John D. Rainey

Chief Financial Officer and Executive Vice President,

Global Customer Operations

Date:

July ~~25, 2019~~30, 2020

Principal Accounting Officer:

By:

/s/ Aaron A. Anderson

Aaron A. Anderson

Vice President, Chief Accounting Officer

Date:

July ~~25, 2019~~30, 2020

6476



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



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


	June 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
	(In millions, except par value)							(In millions, except par value)
	(Unaudited)							(Unaudited)
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	4,909		$	7,575		Cash and cash equivalents	$	6,353	$	7,349
Short-term investments	3,506			1,534			Short-term investments	6,695		3,412
Accounts receivable, net	379			313			Accounts receivable, net	446		435
Loans and interest receivable, net of allowances of $222 and $172 as of June 30, 2019 and December 31, 2018, respectively	3,166			2,532
Loans and interest receivable, net of allowances of $878 and $258 as of June 30, 2020 and December 31, 2019, respectively							Loans and interest receivable, net of allowances of $878 and $258 as of June 30, 2020 and December 31, 2019, respectively	3,135		3,972

Funds receivable and customer accounts	23,573			20,062			Funds receivable and customer accounts	29,031		22,527
Prepaid expenses and other current assets	902			947			Prepaid expenses and other current assets	840		800
Total current assets	36,435			32,963			Total current assets	46,500		38,495
Long-term investments	2,278			971			Long-term investments	3,175		2,863
Property and equipment, net	1,720			1,724			Property and equipment, net	1,717		1,693
Goodwill	6,236			6,284			Goodwill	9,118		6,212
Intangible assets, net	699			825			Intangible assets, net	1,254		778
Other assets	1,023			565			Other assets	1,402		1,292
Total assets	$	48,391		$	43,332		Total assets	$	63,166	$	51,333
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	199		$	281		Accounts payable	$	252	$	232
Notes payable	2,499			1,998

Funds payable and amounts due to customers	25,073			21,562			Funds payable and amounts due to customers	31,031		24,527
Accrued expenses and other current liabilities	2,022			2,002			Accrued expenses and other current liabilities	2,119		2,087
Income taxes payable	54			61			Income taxes payable	327		73
Total current liabilities	29,847			25,904			Total current liabilities	33,729		26,919
Deferred tax liability and other long-term liabilities	2,405			2,042			Deferred tax liability and other long-term liabilities	2,819		2,520
Long-term debt							Long-term debt	8,934		4,965
Total liabilities	32,252			27,946			Total liabilities	45,482		34,404
Commitments and Contingencies (Note 13)							Commitments and Contingencies (Note 13)
Equity:							Equity:
Common stock, $0.0001 par value; 4,000 shares authorized; 1,177 and 1,174 shares outstanding as of June 30, 2019 and December 31, 2018, respectively	—			—
Common stock, $0.0001 par value; 4,000 shares authorized; 1,173 shares outstanding as of both June 30, 2020 and December 31, 2019							Common stock, $0.0001 par value; 4,000 shares authorized; 1,173 shares outstanding as of both June 30, 2020 and December 31, 2019	—		—
Preferred stock, $0.0001 par value; 100 shares authorized, unissued	—			—			Preferred stock, $0.0001 par value; 100 shares authorized, unissued	—		—
Treasury stock at cost, 99 and 91 shares as of June 30, 2019 and December 31, 2018, respectively	(6,216		)	(5,511		)
Treasury stock at cost, 114 and 105 shares as of June 30, 2020 and December 31, 2019, respectively							Treasury stock at cost, 114 and 105 shares as of June 30, 2020 and December 31, 2019, respectively	(7,892)		(6,872)
Additional paid-in-capital	15,010			14,939			Additional paid-in-capital	15,914		15,588
Retained earnings	7,373			5,880			Retained earnings	9,788		8,342
Accumulated other comprehensive income (loss)	(28		)	78			Accumulated other comprehensive income (loss)	(170)		(173)
Total PayPal Stockholders’ equity							Total PayPal Stockholders’ equity	17,640		16,885
Noncontrolling interest							Noncontrolling interest	44		44
Total equity	16,139			15,386			Total equity	17,684		16,929
Total liabilities and equity	$	48,391		$	43,332		Total liabilities and equity	$	63,166	$	51,333


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(In millions)
	(Unaudited)
Net income	$	1,530	$	823	$	1,614	$	1,490
Other comprehensive income (loss), net of reclassification adjustments:
Foreign currency translation adjustments (“CTA”)	52		9		(119)		(58)
Net investment hedge CTA (loss) gain	(16)		—		55		—
Unrealized (losses) gains on cash flow hedges, net	(92)		(18)		52		(64)
Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net	1		—		(1)		1
Unrealized gains on investments, net	7		10		22		21
Tax expense on unrealized gains on investments, net	(2)		(4)		(6)		(6)
Other comprehensive income (loss), net of tax	(50)		(3)		3		(106)
Comprehensive income	$	1,480	$	820	$	1,617	$	1,384


	Six Months Ended June 30,							Six Months Ended June 30,
	2019			2018				2020		2019
	(In millions)							(In millions)
	(Unaudited)							(Unaudited)
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	1,490		$	1,037		Net income	$	1,614	$	1,490
Adjustments:							Adjustments:
Transaction and loan losses	659			639
Transaction and credit losses							Transaction and credit losses	1,031		659
Depreciation and amortization	458			365			Depreciation and amortization	590		458
Stock-based compensation	470			410			Stock-based compensation	635		470
Deferred income taxes	35			89			Deferred income taxes	31		35
Cost basis adjustments to loans and interest receivable held for sale	—			244
Unrealized gains on strategic investments	(398		)	(31		)	Unrealized gains on strategic investments	(739)		(398)
Other	(92		)	(10		)	Other	(27)		(92)
Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts receivable	(66		)	1			Accounts receivable	47		(66)
Changes in loans and interest receivable held for sale, net	4			(2,268		)	Changes in loans and interest receivable held for sale, net	—		4
Accounts payable	(49		)	(17		)	Accounts payable	(48)		(49)
Income taxes payable	(7		)	(14		)	Income taxes payable	114		(7)
Other assets and liabilities	(303		)	(766		)	Other assets and liabilities	639		(303)
Net cash provided by (used in) operating activities	2,201			(321		)
Net cash provided by operating activities							Net cash provided by operating activities	3,887		2,201
Cash flows from investing activities:							Cash flows from investing activities:
Purchases of property and equipment	(357		)	(376		)	Purchases of property and equipment	(399)		(357)
Proceeds from sales of property and equipment							Proceeds from sales of property and equipment	120		—
Changes in principal loans receivable, net	(732		)	1,000			Changes in principal loans receivable, net	3		(732)
Purchases of investments	(13,191		)	(10,616		)	Purchases of investments	(14,844)		(13,191)
Maturities and sales of investments	10,537			9,669			Maturities and sales of investments	9,793		10,537
Acquisitions, net of cash and restricted cash acquired	—			(16		)	Acquisitions, net of cash and restricted cash acquired	(3,612)		—
Funds receivable	(2,214		)	902			Funds receivable	(1,134)		(2,214)
Net cash (used in) provided by investing activities	(5,957		)	563
Net cash used in investing activities							Net cash used in investing activities	(10,073)		(5,957)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuance of common stock	74			78			Proceeds from issuance of common stock	71		74
Purchases of treasury stock	(756		)	(2,325		)	Purchases of treasury stock	(1,000)		(756)
Tax withholdings related to net share settlements of equity awards	(449		)	(372		)	Tax withholdings related to net share settlements of equity awards	(421)		(449)
Borrowings under financing arrangements	500			2,075			Borrowings under financing arrangements	6,966		500
Repayments under financing arrangements	—			(1,076		)	Repayments under financing arrangements	(3,000)		—
Funds payable and amounts due to customers	3,129			1,078			Funds payable and amounts due to customers	5,918		3,129
Net cash provided by (used in) financing activities	2,498			(542		)
Other financing activities							Other financing activities	(15)		—
Net cash provided by financing activities							Net cash provided by financing activities	8,519		2,498
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1		)	(63		)	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(72)		(1)
Net change in cash, cash equivalents, and restricted cash	(1,259		)	(363		)	Net change in cash, cash equivalents, and restricted cash	2,261		(1,259)
Cash, cash equivalents, and restricted cash at beginning of period	13,233			8,285			Cash, cash equivalents, and restricted cash at beginning of period	15,743		13,233
Cash, cash equivalents, and restricted cash at end of period	$	11,974		$	7,922		Cash, cash equivalents, and restricted cash at end of period	$	18,004	$	11,974

Supplemental cash flow disclosures:							Supplemental cash flow disclosures:
Cash paid for interest	$	45		$	26		Cash paid for interest	$	78	$	45
Cash paid for income taxes, net	$	176		$	180		Cash paid for income taxes, net	$	70	$	176

The below table reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheet to the total of the same amounts shown in the condensed consolidated statement of cash flows:
The below table reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:							The below table reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents	$	4,909		$	2,840		Cash and cash equivalents	$	6,353	$	4,909
Short term investments	12			16			Short term investments	18		12
Funds receivable and customer accounts	7,053			5,066			Funds receivable and customer accounts	11,633		7,053
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows	$	11,974		$	7,922
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows							Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	18,004	$	11,974



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



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


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

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

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



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

Transaction expense	$	1,362	$	—		$	1,362
Transaction and loan losses	334		—			334
Customer support and operations	357		(19		)	338
Sales and marketing	313		(6		)	307
Product development	255		(255		)	—
Technology and development	—		441			441
General and administrative	368		19			387
Depreciation and amortization	180		(180		)	—
Restructuring and other charges	116		—			116
Total operating expenses	$	3,285	$	—		$	3,285



	Six Months Ended June 30, 2018
	(In millions)
	As Previously Reported		Adjustments			Revised

Transaction expense	$	2,637	$	—		$	2,637
Transaction and loan losses	639		—			639
Customer support and operations	708		(28		)	680
Sales and marketing	598		(10		)	588
Product development	513		(513		)	—
Technology and development	—		889			889
General and administrative	707		27			734
Depreciation and amortization	365		(365		)	—
Restructuring and other charges	269		—			269
Total operating expenses	$	6,436	$	—		$	6,436



	(In millions)
Goodwill	$	1,602
Customer lists and user base	426
Marketing related	102
Developed technology	121
All other	1
Total intangibles	$	650
Cash	103
Funds receivable and customer accounts	47
Funds payable and amounts due to customers	(47		)
Deferred tax liabilities, net	(118		)
Other net liabilities	(55		)
Total purchase consideration	$	2,182



	June 30, 2019								December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life (Years)
	(In millions, except years)
Intangible assets:
Customer lists and user base	$	1,121	$	(663	)	$	458	7	$	1,134	$	(623	)	$	511	7
Marketing related	298		(224		)	74		3	301		(207		)	94		3
Developed technology	449		(308		)	141		3	453		(269		)	184		3
All other	245		(219		)	26		5	245		(209		)	36		5
Intangible assets, net	$	2,113	$	(1,414	)	$	699		$	2,133	$	(1,308	)	$	825



Fiscal years:
Remaining 2019	$	101
2020	190
2021	137
2022	72
2023	72
Thereafter	127
	$	699



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	(In millions, except weighted-average figures)
Lease expense
Operating lease expense	$	32		$	66
Sublease income	(2		)	(4		)
Total lease expense cost	$	30		$	62

Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	31		$	62
Right-of-use assets obtained in exchange for new operating lease liabilities	$	63		$	68
Weighted-average remaining lease term - operating leases	6.1 years			6.1 years
Weighted-average discount rate - operating leases	5		%	5		%


	Operating Leases
Fiscal years:	(In millions)
Remaining 2020	$	79
2021	149
2022	114
2023	100
2024	90
Thereafter	315
Total	$	847
Less: present value discount	(107)
Lease liability	$	740


	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign Currency Translation Adjustment (“CTA”)		Net Investment Hedge CTA Gain (Loss)		Estimated Tax Benefit (Expense)		Total
	(In millions)
Beginning balance	$	150	$	17	$	(321)	$	40	$	(6)	$	(120)
Other comprehensive income (loss) before reclassifications	(59)		7		52		(16)		(1)		(17)
Less: Amount of gain reclassified from accumulated other comprehensive income (“AOCI”)	33		—		—		—		—		33
Net current period other comprehensive income (loss)	(92)		7		52		(16)		(1)		(50)
Ending balance	$	58	$	24	$	(269)	$	24	$	(7)	$	(170)


	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign CTA		Estimated Tax Benefit (Expense)		Total
	(In millions)
Beginning balance	$	136	$	(2)	$	(160)	$	1	$	(25)
Other comprehensive income (loss) before reclassifications	40		10		9		(4)		55
Less: Amount of gain reclassified from AOCI	58		—		—		—		58
Net current period other comprehensive income (loss)	(18)		10		9		(4)		(3)
Ending balance	$	118	$	8	$	(151)	$	(3)	$	(28)



	Unrealized Gains (Losses) on Cash Flow Hedges			Unrealized Gains (Losses) on Investments			Foreign Currency Translation			Estimated Tax Benefit (Expense)			Total
	(In millions)
Beginning balance	$	136		$	(2	)	$	(160	)	$	1		$	(25	)
Other comprehensive income (loss) before reclassifications	40			10			9			(4		)	55
Less: Amount of gain (loss) reclassified from accumulated other comprehensive income	58			—			—			—			58
Net current period other comprehensive income (loss)	(18		)	10			9			(4		)	(3		)
Ending balance	$	118		$	8		$	(151	)	$	(3	)	$	(28	)


Details about AOCI Components	Amount of Gains (Losses) Reclassified from AOCI					Affected Line Item in the Statement of Income
	Three Months Ended June 30,
	2020		2019
	(In millions)
Gains on cash flow hedges—foreign exchange contracts	$	33	$	58	Net revenues
Unrealized (losses) gains on investments	—		—		Other income (expense), net
	$	33	$	58	Income before income taxes
	—		—		Income tax expense
Total reclassifications for the period	$	33	$	58	Net income



Details of Accumulated Other Comprehensive Income (Loss) Components	Amount of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss)					Affected Line Item in the Statement of Income
	Three Months Ended June 30,
	2019		2018
	(In millions)
Gains (losses) on cash flow hedges—foreign exchange contracts	$	58	$	(29	)	Net revenues
Unrealized (losses) on investments	—		—			Other income (expense), net
	$	58	$	(29	)	Income before income taxes
	—		—			Income tax expense
Total reclassifications for the period	$	58	$	(29	)	Net income


	June 30, 2020⁽¹⁾
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In millions)
Funds receivable and customer accounts:
U.S. government and agency securities	$	7,503	$	13	$	—	$	7,516
Foreign government and agency securities	1,355		3		—		1,358
Corporate debt securities	1,478		1		—		1,479
Short-term investments:
U.S. government and agency securities	2,255		—		—		2,255
Foreign government and agency securities	1,211		1		—		1,212
Corporate debt securities	1,980		4		—		1,984
Long-term investments:
U.S. government and agency securities	100		—		—		100
Foreign government and agency securities	75		—		—		75
Corporate debt securities	357		2		—		359
Total available-for-sale debt securities⁽²⁾	$	16,314	$	24	$	—	$	16,338


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

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


	June 30, 2020⁽¹⁾
	Less than 12 months						12 months or longer						Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In millions)
Funds receivable and customer accounts:
U.S. government and agency securities	$	2,614	$	—	$	—	$	—	$	2,614	$	—
Foreign government and agency securities	457		—		—		—		457		—
Corporate debt securities	169		—		—		—		169		—
Short-term investments:
U.S. government and agency securities	1,615		—		—		—		1,615		—
Foreign government and agency securities	35		—		—		—		35		—
Corporate debt securities	131		—		—		—		131		—
Long-term investments:


Corporate debt securities	114		—		2		—		116		—
Total available-for-sale debt securities	$	5,135	$	—	$	2	$	—	$	5,137	$	—


	June 30, 2019					June 30, 2020
	Amortized Cost		Fair Value			Amortized Cost		Fair Value
	(In millions)					(In millions)
One year or less	$	11,083	$	11,092	One year or less	$	15,291	$	15,312
After one year through five years	255		254		After one year through five years	1,021		1,024
After five years through ten years	6		6		After five years through ten years	2		2
Total	$	11,344	$	11,352	Total	$	16,314	$	16,338


	June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In millions)
Assets:
Cash and cash equivalents⁽¹⁾	$	1,065	$	—	$	1,065
Short-term investments⁽²⁾:

U.S. government and agency securities	2,255		—		2,255
Foreign government and agency securities	1,212		—		1,212
Corporate debt securities	1,984		—		1,984

Total short-term investments	$	5,451	$	—	$	5,451
Funds receivable and customer accounts⁽³⁾:
Cash and cash equivalents	1,419		—		1,419
U.S. government and agency securities	7,516		—		7,516
Foreign government and agency securities	3,208		—		3,208
Corporate debt securities	1,630		—		1,630
Total funds receivable and customer accounts	$	13,773	$	—	$	13,773
Derivatives	135		—		135
Long-term investments^(2),(4):
U.S. government and agency securities	100		—		100
Foreign government and agency securities	75		—		75
Corporate debt securities	359		—		359
Marketable equity securities	2,041		2,041		—
Total long-term investments	$	2,575	$	2,041	$	534
Total financial assets	$	22,999	$	2,041	$	20,958
Liabilities:
Derivatives	$	55	$	—	$	55



	Balance Sheet Location	June 30, 2019		December 31, 2018
		(In millions)
Derivative Assets:
Foreign exchange contracts designated as cash flow hedges	Other current assets	$	116	$	170
Foreign exchange contracts designated as cash flow hedges	Other assets (non-current)	6		11
Foreign exchange contracts not designated as hedging instruments	Other current assets	87		139
Total derivative assets		$	209	$	320

Derivative Liabilities:
Foreign exchange contracts designated as cash flow hedges	Other current liabilities	$	2	$	3
Foreign exchange contracts designated as cash flow hedges	Other long-term liabilities	2		—
Foreign exchange contracts not designated as hedging instruments	Other current liabilities	83		64
Total derivative liabilities		$	87	$	67


	June 30, 2020						December 31, 2019
	Amortized Cost Basis Revolving		Percent		Amortized Cost Basis Revolving		Percent
	(In millions, except percentages)
Current	$	1,448	97.7	%	$	1,279	96.7	%
30-59 days	7		0.5	%	15		1.1	%
60-89 days	6		0.4	%	9		0.7	%
90-179 days	21		1.4	%	19		1.5	%
Total consumer loans and interest receivable^{(1), (2), (3)}	$	1,482	100.0	%	$	1,322	100.0	%


	June 30, 2020										June 30, 2019
	Consumer Loans Receivable		Interest Receivable		Total Allowance⁽¹⁾		Consumer Loans Receivable		Interest Receivable		Total Allowance⁽¹⁾
	(In millions)
Beginning balance	$	49	$	8	$	57	$	27	$	3	$	30
Adjustment for adoption of credit losses accounting standard	24		4		28		—		—		—
Provisions	226		47		273		6		4		10
Charge-offs	(42)		(7)		(49)		(17)		(3)		(20)
Recoveries⁽²⁾	15		—		15		18		—		18
Ending balance	$	272	$	52	$	324	$	34	$	4	$	38



	June 30, 2019									June 30, 2018
	Consumer Loans Receivable			Interest Receivable			Total Allowance			Consumer Loans Receivable			Interest Receivable			Total Allowance⁽¹⁾
	(In millions)
Beginning balance	$	27		$	3		$	30		$	57		$	6		$	63
Provisions	6			4			10			55			7			62
Charge-offs	(17		)	(3		)	(20		)	(68		)	(7		)	(75		)
Recoveries⁽²⁾	18			—			18			—			—			—
Ending balance	$	34		$	4		$	38		$	44		$	6		$	50



June 30, 2019
(In millions)
Within Original Expected Repayment Period			30 - 59 Days Greater			60 - 89 Days Greater			90 - 180 Days Greater			180+ Days			Total Past Original Expected Repayment Period			Total
$	2,175		$	82		$	41		$	78		$	13		$	214		$	2,389
91.0		%	3.4		%	1.7		%	3.3		%	0.6		%	9.0		%	100		%



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


	June 30, 2020										June 30, 2019
	Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance
	(In millions)
Beginning balance	$	171	$	20	$	191	$	115	$	15	$	130
Adjustment for adoption of credit losses accounting standard	165		17		182		—		—		—
Provisions	284		27		311		115		16		131
Charge-offs	(130)		(13)		(143)		(83)		(9)		(92)
Recoveries	7		—		7		7		—		7
Ending balance	$	497	$	51	$	548	$	154	$	22	$	176


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

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

Unamortized premium (discount) and issuance costs, net		(66)


Total carrying amount of term debt		$	8,934


	Employee Severance and Benefits and Other Associated Costs
	(In millions)
Accrued liability as of January 1, 2020	$	9
Charges	55
Payments	(25)
Accrued liability as of June 30, 2020	$	39



	Employee Severance and Benefits
	(In millions)
Accrued liability as of January 1, 2019	$	3
Charges	78
Payments	(34		)
Accrued liability as of June 30, 2019	$	47