What changed in this filing

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Item 1A. Risk Factors

2020-11-03 compared with 2020-07-30 · 123 added, 60 removed, 204 unchanged (47% of the section changed)

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While many of these mitigation measures are gradually being lifted, to the extent they may remain in place or are reinstated for significant periods of time, they may adversely affect our business, financial condition, and results of operations.

Actions that we have taken or may take in the future intended to assist customers impacted by COVID-19 (e.g., waiving certain fees and payment holidays provided as a part of our COVID-19 payment relief initiatives) may negatively impact our results of operations.

In particular, we have experienced and may continue to experience adverse financial impacts from a number of operational factors, including, but not limited to, the following:

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

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

• Consumers who utilize our PayPal Credit products defaulting on their payment obligations, including U.S.

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consumer receivables owned by Synchrony Bank ;

• Increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption in light of increased online banking, e-commerce, and other online activity;

• Challenges to the availability and 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;

• 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.

• Increased cybersecurity and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption in light of increased online banking, e-commerce, and other online activity;

• Challenges to the availability and reliability of our products and services resulting from changes to our normal operations, including due to one or more clusters of COVID-19 cases occurring at our (or our service providers') corporate offices or customer service and operations centers or the temporary closure of these sites due to mandatory local lock-down requirements, which may impact our employees, our level of customer service, and/or the systems or employees of our customers and business partners;

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

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.

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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 required and is likely to continue to require significant management attention and substantial investments of time and resources across our enterprise.

To the extent that consumer preferences revert to pre-COVID-19 behaviors as mitigation measures to limit the spread of COVID-19 are lifted or relaxed, our business, financial condition, and results of operations could be adversely impacted.

The COVID-19 outbreak has required and is likely to continue to require significant management attention, substantial investments of time and resources across our enterprise, and increased costs to effectively manage our operations.

The spread of COVID-19 has caused us to make significant modifications to our business practices, including enabling most of our workforce to work from home, establishing strict health and safety protocols for our offices, restricting physical participation in meetings, events, and conferences and imposing restrictions on employee travel.

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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 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 COVID-19 outbreak may directly or indirectly negatively impact our business.

Additionally, government regulations or legislation adopted directly or indirectly in response to the COVID-19 outbreak may negatively impact our business.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and as a result, the ultimate impact of the outbreak is highly uncertain and subject to change.

The extent to which the COVID-19 pandemic impacts our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict and subject to change, including, but not limited to, the duration, scope, severity, and geographic spread of the outbreak, actions taken to contain COVID-19 or treat its impact, measures taken by various governmental authorities in response to the outbreak (such as continued and/or new quarantines, mask and social distancing requirements, and travel restrictions), geographic variation in how countries and states are handling the outbreak, and how quickly and to what extent normal economic and operating conditions could potentially resume.

While we do not yet know the full extent of the impacts on our business, financial condition, and results of operations, or the global economy as a whole, these impacts, individually or collectively, could have a material adverse impact on our business, financial condition and results of operations.

In addition, the impact of COVID-19 may heighten or exacerbate many of the other risks discussed in “Item 1A—Risk Factors” in 2019 Form 10-K, any of which could have a material impact on us.

In addition, the impact of COVID-19 may heighten or exacerbate many of the other risks discussed in Item 1A—Risk Factors in our 2019 Form 10-K, any of which could have a material impact on us.

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

The global payments industry is highly competitive, rapidly changing, highly innovative, and increasingly subject to regulatory scrutiny and oversight.

We compete against a wide range of businesses, including those that are larger than we are, have greater name recognition, longer operating histories, or a dominant or more secure position, or offer other products and services to consumers and merchants that we do not offer, as well as smaller or younger companies that may be more agile in responding quickly to regulatory and technological changes.

Many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services.

Competition also may intensify as businesses enter into business combinations and partnerships, and established companies in other segments expand to become competitive with different aspects of our business.

We compete primarily on the basis of the following:

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

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

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

• simplicity and transparency of our fee structure;

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

• trust in our dispute resolution and buyer and seller protection programs;

• customer service experience;

• brand recognition and preference;

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

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

• system reliability and data security;

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

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

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

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

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

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

• payment networks which facilitate payments for credit card users;

• providers of “digital wallets” which offer customers the ability to (i) pay online and/or in-store through a variety of payment methods, including with mobile applications, through contactless payments, with a variety of payment cards, and using direct debit, credit, installments, or other buy now pay later methods and (ii) buy, sell, and hold virtual currencies, such as cryptocurrencies;

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

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

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

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

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

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

• providers of virtual currencies and distributed ledger technologies.

We often partner with many of these businesses and we consider the ability to continue establishing these partnerships as important to our business.

Competition for relationships with these partners is intense, and there can be no assurance that we will be able to continue to establish, grow, or maintain these partner relationships.

We also face competition and potential competition from:

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

• issuers of stored value products targeted at online payments;

• other online and mobile payment-services providers globally;

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

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

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

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

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

Some of our current and potential competitors have larger customer bases, broader geographic scope, volume, scale, resources, and market share than we do, which may provide them significant competitive advantages.

Some competitors may also be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing, and other regulatory requirements.

They may devote greater resources to the development, promotion, and sale of products and services, and offer lower prices or more effectively offer their own innovative programs, products, and services.

If we are not able to differentiate our products and services from those of our competitors, drive value for our customers, or effectively and efficiently align our resources with our goals and objectives, we may not be able to compete effectively in the market.

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”).

formally exited the EU (and the European Economic Area (“EEA”)) on January 31, 2020 and a transition period is in place until December 31, 2020 during which time the U.K.

The United Kingdom (“U.K.”) formally exited the European Union (“EU”) and the European Economic Area (“EEA”) on January 31, 2020 and a transition period is expected to be in place until December 31, 2020 during which time the U.K.

will remain in both the EU customs union and single market and follow EU rules, including those extending to EEA states.

There is a significant lack of clarity over the terms of the U.K.'s future relationship with the EU, and the international bodies that are linked to it, after this date.

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 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.

Brexit could therefore contribute to instability in financial, stock, and currency exchange markets, including volatility in the value of the British Pound and Euro, greater restrictions on the supply and availability of goods and services between the U.K.

and EEA region, and a general deterioration in consumer sentiment and credit conditions leading to overall negative economic growth and increased risk of merchant default .

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 expect to face new regulatory costs and challenges, including the following:

• if we are unable to utilize appropriate authorizations and regulatory permissions, our European operations could lose their ability to offer services into the U.K.

start to diverge from EU laws and regulations and new licensing requirements are introduced.

In particular, depending on the nature of the U.K.’s future trading relationships with European countries after December 31, 2020, we expect to face new regulatory costs and challenges, including the following:

• if we are unable to utilize certain licenses and authorizations, our European operations could lose their ability to offer services into the U.K.

market on a cross-border basis and our U.K.-based operations could lose their ability to offer services on a cross-border basis in the European markets;

For example, our ability to work primarily with the Luxembourg regulator as the lead authority for various aspects of the U.K.

operations of PayPal (Europe) S.à.r.l.

et Cie., SCA (“PayPal (Europe)”) and with the Swedish regulator for various aspects of the U.K.

operations of iZettle AB (“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.

Depending on the capacity of the U.K.

authorities, the criteria for obtaining permission, and any possible transitional arrangements, our business in the U.K.

could be materially affected or disrupted;

• we could be required to comply with legal and regulatory requirements in the U.K.

that are in addition to, or inconsistent with, those of the EU, leading to increased complexity and costs for our European and U.K.

• or be required to comply with legal and regulatory requirements in the U.K.

that are in addition to, or inconsistent with, those of the EEA, in each case, leading to increased complexity and costs for our European and U.K.

• our ability to attract and retain the necessary human resources in appropriate locations to support our U.K.

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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.

To the extent they are required, these state licenses also cover PayPal’s service offering enabling customers to buy, hold and sell cryptocurrency directly from their PayPal account, except in the State of New York.

PayPal has obtained a conditional Virtual Currency License from the New York Department of Financial Services to launch cryptocurrency services in the state in partnership with Paxos Trust Company.

If we violate the laws or regulations covered under these licenses, we could be subject to liability and/or additional restrictions, forced to cease doing business with residents of certain states, forced to change our business practices, or required to obtain additional licenses or regulatory approvals, which could impose substantial costs.

While we currently allow our customers to send payments from approximately 200 markets, we allow customers in only approximately half of those markets (including the U.S.) to also receive payments, in some cases with significant restrictions on the manner in which customers can hold balances or withdraw funds.

These limitations may adversely affect our ability to grow our business in these markets.

We principally provide our services to customers in the EU and the UK through PayPal (Europe), our wholly-owned subsidiary that is licensed and subject to regulation as a credit institution in Luxembourg.

We principally provide our services to customers in the EU and the U.K.

through PayPal (Europe) S.à r.l.

et Cie, S.C.A ("PayPal (Europe)"), our wholly-owned subsidiary that is licensed and subject to regulation as a credit institution in Luxembourg.

Accordingly, PayPal (Europe) is potentially subject to significant fines or other enforcement action if it violates the disclosure, reporting, anti-money laundering, capitalization, corporate governance, privacy, data protection, data governance, information security, banking secrecy, taxation, cross-border payment, risk management, sanctions, or other requirements imposed on Luxembourg credit institutions.

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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.

PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019.

This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions over a period of time 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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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.

We have been, and expect to continue to be, required to apply for and renew various licenses, certifications, and regulatory approvals in a number of the jurisdictions where we provide our services, including due to changes in applicable laws and regulations or the interpretation of such laws and regulations.

There can be no assurance that we will be able to (or decide to) obtain any such licenses, renewals, certifications, and approvals.

In addition, there are substantial costs and potential product changes involved in maintaining and renewing such licenses, certifications, and approvals, and we could be subject to fines, other enforcement action, and litigation if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other requirements of such licenses.

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Such regulatory actions or the need to obtain licenses, certifications, or other regulatory approvals could impose substantial costs, involve considerable delay to the provision or development of our services, require significant and costly operational changes, impose restrictions, limitations, or additional requirements on our business and products, or prevent us from providing any products or services in a given market.

State Installment Lending Laws

PayPal’s U.S.

consumer short-term installment loan product, launched in October 2020, is subject to state lending laws, some of which require licensure and/or state regulator notification, as well as Regulation B, state collection laws, and other applicable regulations.

Changes to state laws and regulatory interpretation may require us to undergo product changes, incur substantial additional costs or cease lending in a particular state.

We could be subject to fines, other enforcement action, and litigation if we are found to violate disclosure, reporting, advertising requirements, late fee caps, collections laws or other aspects of installment loan regulations.

Consumer Protection

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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.

All written submissions were filed with the court by the September 25, 2020 deadline, and the assigned judge can resolve the matter without a trial at any time.

As with any litigation, there is no guarantee that our claims will succeed.

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We continue to cooperate and engage with the CFPB and work to ensure compliance with the Consent Order, which may result in our incurring additional costs.

PayPal principally offers its services in EEA countries 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 EEA member states in accordance with EU regulations.

Regulators in these countries could notify us of local consumer protection laws that apply to our business, in addition to Luxembourg or Swedish consumer protection laws, and could also seek to persuade the local regulator to order PayPal to conduct its activities in the local country directly or through a branch office.

PayPal principally offers its services in EEA countries through a “passport” notification process through the Luxembourg regulator (in the case of PayPal (Europe)) to regulators in other EEA member states in accordance with EU regulations.

Regulators in these countries could notify us of local consumer protection laws that apply to our business, in addition to Luxembourg consumer protection laws, and could also seek to persuade the local regulator to order PayPal to conduct its activities in the local country directly or through a branch office.

Similarly, as a result of Brexit, the U.K.

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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.

In October 2015, the European Court of Justice (“ECJ”) invalidated U.S.-EU Safe Harbor framework clauses that were previously relied upon by some PayPal vendors to lawfully transfer personal data of EU citizens to U.S.

companies, and PayPal entered into SCCs with those third parties which had previously relied on the U.S.-EU Safe Harbor framework.

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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 continued to face legal challenges and in July 2020, the European Court of Justice invalidated the Privacy Shield.

To the extent that an entity acquired by PayPal or third party relies on the Privacy Shield, 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.

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, PayPal branded credit cards, and merchant credit products such as PayPal Working Capital and PayPal Business Loan products.

In July 2020, the ECJ invalidated the Privacy Shield regime and in September 2020, the Swiss Federal Data Protection and Information Commission invalidated the Swiss-U.S.

Privacy Shield framework.

In its July 2020 ruling, the ECJ raised several questions regarding the efficacy of SCCs focusing on whether data transfers under SCCs are consistent with EU privacy principles.

To the extent PayPal relies on SCCs, or any third party relies on the Privacy Shield regime for the transfer of personal data, PayPal’s ability to process EEA personal data to such parties could be jeopardized.

PayPal is not a bank in the U.S.

and relies largely upon third parties to offer loan and other credit products critical to our business, which raises additional risks.

As PayPal is not a chartered financial institution in any state in the U.S., we rely on third-party chartered financial institutions to provide credit products to our customers in the U.S., including consumer credit products such as our PayPal Credit products and PayPal and Venmo branded credit cards, and merchant credit products such as our PayPal Working Capital and PayPal Business Loan products.

Any termination or interruption in a partner bank’s ability or willingness to lend could interrupt or limit our ability to offer consumer credit and 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 be unable to reach a similar agreement with another chartered financial institution 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 significantly increase our costs and compliance obligations and require us to change our business practices, which could materially and adversely affect our business.

In addition, as a service provider to these bank partners, which are federally supervised U.S.

Obtaining a bank charter would be a costly, time-consuming and uncertain process, and would subject us to additional laws and regulatory requirements, which could significantly increase our costs and compliance obligations and require us to change our business practices, which could materially and adversely affect our business.

In addition, as a service provider to our partner banks, which are federally supervised U.S.

financial institutions, we are subject from time to time to examination by their federal banking regulators.

PayPal also offers a consumer, short-term installment loan product in the U.S.

which exposes us to additional risks, including those discussed in the risk factor captioned " Our business is subject to extensive government regulation and oversight.

Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business - State Installment Lending Laws" .

In July 2018, we completed the sale of our U.S.

consumer credit receivables portfolio to Synchrony Bank, 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.

As a part of a separate agreement, PayPal earns a revenue share on the portfolio of consumer receivables owned by Synchrony Bank, which includes both the sold and newly generated receivables for the PayPal and Venmo branded credit accounts.

In the event the overall return on the PayPal branded credit programs funded by Synchrony does not meet a minimum rate of return (“minimum return threshold”) in a particular quarter, our revenue share for that period would be zero.

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In April 2020, PayPal was approved to participate in the U.S.

Government’s Paycheck Protection Program, which is designed to provide a direct incentive for small businesses to keep their workers on payroll during the COVID-19 outbreak.

Government’s Paycheck Protection Program (“PPP"”) administered by the U.S.

Small Business Administration (“SBA”) and enacted in March 2020 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

The program is designed to provide a direct incentive for small businesses to keep their workers on payroll during the COVID-19 outbreak and includes initial loan repayment deferrals and debt forgiveness provisions for eligible borrowers.

The PPP expired on August 8, 2020, but may be subject to further extension by the U.S.

Loans made under this program are funded by an independent chartered financial institution that we partner with, and the related receivables are not purchased by PayPal.

We receive a fee for providing origination services and loan servicing for these loans and retain operational risk related to those activities.

We have agreed to indemnify the chartered financial institution in connection with the services provided for loans made under this program under certain circumstances, including in the event the U.S.

Small Business Administration denies a claim for payment on a loan guaranty or a loan forgiveness payment.

We have agreed to indemnify the chartered financial institution in connection with the services provided for loans made under this program under certain circumstances, including in the event the SBA denies a claim for payment on a loan guaranty or a loan forgiveness payment.

Our credit products expose us to additional risks.

We offer credit products to a wide range of consumers and merchants in various U.S.

and international markets.

The financial success of these products depends on the effective management of related risk.

The credit decision-making process for our consumer credit products uses proprietary segmentation and credit algorithms and other analytical techniques designed to analyze the credit risk of specific consumers based on, among other factors, their past purchase and transaction history with PayPal or Venmo, as well as their credit scores.

Similarly, proprietary risk models and other indicators are applied to assess merchants who desire to use our business finance offerings to help predict their ability to repay.

These risk models may not accurately predict the creditworthiness of a consumer or merchant due to inaccurate assumptions, including assumptions related to the particular consumer or merchant, market conditions, economic environment, or limited transaction history or other data, among other factors.

The accuracy of these risk models and the ability to manage credit risk related to our credit products may also be affected by legal or regulatory requirements, competitors’ actions, changes in consumer behavior, changes in the economic environment, issuing bank policies, and other factors.

The international expansion of our credit product offerings expose us to additional risks, including those discussed in the Risk Factors section of our 2019 Form 10-K under the caption “ Our international operations subject us to increased risks, which could harm our business.

Like other businesses with significant exposure to losses from consumer and merchant credit, we face the risk that account holders will default on their payment obligations, creating the risk of potential charge-offs.

We face similar risks with respect to U.S.

consumer credit losses through our profit-sharing arrangement with Synchrony Bank.

The non-payment rate among account holders may increase due to, among other factors, changes to underwriting standards, risk models not accurately predicting the creditworthiness of a consumer, worsening economic conditions, such as a recession or government austerity programs, increases in prevailing interest rates, and high unemployment rates.

Account holders who miss payments often fail to repay their loans, and account holders who file for protection under the bankruptcy laws generally do not repay their loans.

We currently purchase receivables related to the PayPal branded merchant credit products in the U.S.

If we are unable to fund our purchase of these receivables adequately or in a cost-effective manner, or if we are unable to efficiently manage the cash resources utilized for these purposes, our business could be harmed.

Our point of sale solutions expose us to additional risks.

We have 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 to enable consumers to use their mobile devices to pay at the point of sale.

We have several point of sale solutions, which enable merchants to accept payments at a physical point of sale, including solutions with a payments card reader combined with point of sale software and solutions leveraging QR codes and other mobile contactless technology to initiate payments using a mobile device.

We have entered into strategic partnerships with major payment card networks to further expand our relationship in a way that will make it easier for merchants to accept and consumers to choose to pay for transactions utilizing credit 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 PayPal transactions, which we expect will increase the number of point of sale transactions that we process.

Those partnerships provide us with access to each of these partner's tokenization services for in-store point of sale PayPal transactions, which we expect will increase the number of point of sale transactions that we process.

We believe that our iZettle branded and PayPal contactless point of 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:

As we continue to expand our product and service offerings, including making available additional payment methods at the point of sale, we will face additional risks, including:

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

1 unchanged sentence

• significant competition at the point of sale, particularly from established payment card providers, many of which have substantially greater resources than we 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;

• increased targeting by fraudsters for a period of time as our fraud models adapt to potential fraudulent activity at the point of sale;

• 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;

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors