What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-05 compared with 2020-02-06 · 911 added, 765 removed, 1210 unchanged (58% of the section changed)

6 unchanged sentences

Based on its evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Annual Report on Form 10-K.

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Form 10-K.

Changes in internal controls over financial reporting.

13 unchanged sentences

(a) The following documents are filed as part of this report:

Consolidated Financial Statements

Consolidated Financial Statements Page

Report of Independent Registered Public Accounting Firm

18 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of January 1, 2019.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on financial instruments in 2020 and the manner in which it accounts for leases in 2019.

Basis for Opinions

21 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Income Taxes

As described in Notes 1 and 16 to the consolidated financial statements, the Company's accounting for income taxes requires the reporting of liabilities for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken on tax returns.

Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertain tax positions related to complex tax laws which may be subject to different interpretations by the taxpayer and respective government taxing authorities.

The Company’s effective income tax rate for the year ended December 31, 2019 is 18% as compared to the federal statutory rate of 21%.

The difference between the effective income tax rate and the federal statutory rate is primarily the result of foreign income taxed at rates other than the federal statutory rate and stock based compensation deductions, partially offset by incremental tax expense related to the intra-group transfer of intellectual property.

The Company also benefits from tax rulings concluded in several jurisdictions, most significantly Singapore and Luxembourg.

The principal considerations for our determination that performing procedures relating to accounting for income taxes is a critical audit matter are there was significant judgment by management in determining the income tax provision and other tax positions, specifically taxable income by jurisdiction taxed at rates other than the federal statutory rate and the identification of uncertain tax positions and assessment of the technical merits of those positions.

This in turn led to a high level of effort, and degree of subjectivity, in performing our audit procedures and in evaluating audit evidence relating to income taxes.

Also, the audit effort involved the use of professionals with specialized skill and knowledge.

Allowance for Loans Receivable

As described in Notes 1 and 11 to the consolidated financial statements, as of December 31, 2020, the Company recorded total loans and interest receivable of $2,769 million, net of an allowance for current expected credit losses of $838 million.

The allowance for loans receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio, which is segmented by factors such as geographic region, delinquency and vintage.

Management applies macroeconomic factors such as forecasted trends in unemployment and benchmark credit card charge-off rates, which are sourced externally, using a single scenario to reflect the economic conditions applicable to a particular period.

Management also includes qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of current expected credit losses.

The principal considerations for our determination that performing procedures relating to the allowance for loans receivable is a critical audit matter are (i) the significant judgment by management in estimating the allowance for loans receivable, which in turn led to a high level of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s application of macroeconomic forecasts and certain qualitative adjustments to the allowance for loans receivable;

and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures involved testing the effectiveness of controls relating to accounting for income taxes, including controls over the assessment of uncertain tax positions, and determination of foreign income taxed at rates other than the federal statutory rate.

These procedures also included, among others, (1) testing the income tax provision, including taxable income by jurisdiction, (2) testing management’s process for evaluating tax rulings and compliance with related requirements in certain foreign jurisdictions such as Singapore and Luxembourg, (3) testing the identification of reserves for unrecognized tax benefits and the reasonableness of the “more likely than not” determination, which includes certain considerations including, but not limited to, jurisdictions involved, court decisions, legislative actions and guidance, and developments in tax examinations, and (4) testing the calculation of the liability for uncertain tax positions by jurisdiction, including management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained for each uncertain tax position selected for testing.

Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of management’s judgment and estimates, including application of foreign and domestic tax laws and regulations.

These procedures included testing the effectiveness of controls relating to the allowance for loans receivable, including controls over the application of macroeconomic forecasts and qualitative adjustments to the allowance.

These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for estimating the allowance for loans receivable.

Testing management’s process included (i) evaluating the appropriateness of the methodology and models (ii) testing the completeness and accuracy of certain data used in the estimate, and (iii) evaluating the reasonableness of management’s application of macroeconomic forecasts and certain qualitative adjustments to the allowance.

/s/ PricewaterhouseCoopers LLP

10 unchanged sentences

Accounts receivable, net 577 435

Loans and interest receivable, net of allowances of $258 in 2019 and $172 in 2018

Loans and interest receivable, net of allowances of $ 838 and $ 258 as of December 31, 2020 and 2019, respectively

Funds receivable and customer accounts 33,418 22,527

3 unchanged sentences

Property and equipment, net 1,807 1,693

Goodwill 9,135 6,212

Intangible assets, net 1,048 778

Other assets 1,305 1,292

Total assets $ 70,379 $ 51,333

LIABILITIES AND EQUITY

1 unchanged sentence

Accounts payable $ 252 $ 232

Short-term debt

Funds payable and amounts due to customers 35,418 24,527

12 unchanged sentences

Treasury stock at cost, 117 and 105 shares as of December 31, 2020 and 2019, respectively

( 8,507 ) ( 6,872 )

Additional paid-in-capital 16,644 15,588

3 unchanged sentences

Noncontrolling interest 44 44

Total equity 20,063 16,929

Total liabilities and equity $ 70,379 $ 51,333

3 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions, except for per share amounts)

Net revenues $ 21,454 $ 17,772 $ 15,451

Operating expenses:

Transaction expense 7,934 6,790 5,581

Transaction and loan losses

Transaction and credit losses 1,741 1,380 1,274

Customer support and operations 1,778 1,615 1,407

8 unchanged sentences

Income tax expense 863 539 319

Net income $ 4,202 $ 2,459 $ 2,057

Net income per share:

Basic $ 3.58 $ 2.09 $ 1.74

Diluted $ 3.54 $ 2.07 $ 1.71

Weighted average shares:

Basic 1,173 1,174 1,184

Diluted 1,187 1,188 1,203

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions)

Net income $ 4,202 $ 2,459 $ 2,057

Other comprehensive income (loss), net of reclassification adjustments:

Foreign currency translation adjustments (“CTA”) ( 48 ) ( 57 ) ( 68 )

Net investment hedge CTA loss

Net investment hedge CTA gain (loss) 55 ( 31 ) —

Unrealized (losses) gains on cash flow hedges, net ( 329 ) ( 176 ) 293

7 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Stock Shares

Treasury Stock

Additional Paid-In Capital

Accumulated Other

Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other

Comprehensive Income

Retained Earnings

Noncontrolling Interest

(Loss) Retained Earnings Noncontrolling Interest Total

(In millions)

Balances at December 31, 2017 1,200 $ ( 2,001 ) $ 14,314 $ ( 142 ) $ 3,823 $ — $ 15,994

Foreign currency translation

Unrealized losses on cash flow hedges, net

Tax benefit on unrealized losses on cash flow hedges, net

Unrealized losses on investments, net

Tax benefit on unrealized losses on investments, net

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes

Common stock repurchased

Stock-based compensation

Income tax adjustment for intra entity transfers

Balances at December 31, 2017

Foreign currency translation

Unrealized gains on cash flow hedges, net

Net income — — — — 2,057 — 2,057

Foreign CTA — — — ( 68 ) — — ( 68 )

Unrealized gain on cash flow hedges, net — — — 293 — — 293

Tax expense on unrealized gains on cash flow hedges, net — — — ( 5 ) — — ( 5 )

6 unchanged sentences

Adoption of lease accounting standard 3 — 3

Foreign currency translation

Net income — — — — 2,459 — 2,459

Foreign CTA — — — ( 57 ) — — ( 57 )

Net investment hedge CTA loss ( 31 ) ( 31 )

8 unchanged sentences

Balances at December 31, 2019 1,173 $ ( 6,872 ) $ 15,588 $ ( 173 ) $ 8,342 $ 44 $ 16,929

Adoption of current expected credit loss standard — — — — ( 178 ) — ( 178 )

Net income — — — — 4,202 — 4,202

Foreign CTA — — — ( 48 ) — — ( 48 )

Net investment hedge CTA gain — — — 55 — — 55

Unrealized losses on cash flow hedges, net — — — ( 329 ) — — ( 329 )

Tax benefit on unrealized losses on cash flow hedges, net — — — 4 — — 4

Unrealized gains on investments, net — — — 9 — — 9

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 11 — ( 365 ) — — — ( 365 )

Common stock repurchased ( 12 ) ( 1,635 ) — — — — ( 1,635 )

Stock-based compensation — — 1,421 — — — 1,421

Balances at December 31, 2020 1,172 $ ( 8,507 ) $ 16,644 $ ( 484 ) $ 12,366 $ 44 $ 20,063

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions)

Cash flows from operating activities:

Transaction and loan losses

Net income $ 4,202 $ 2,459 $ 2,057

Adjustments to reconcile net income to net cash provided by operating activities:

Transaction and credit losses 1,741 1,380 1,274

Depreciation and amortization 1,189 912 776

2 unchanged sentences

Cost basis adjustments to loans and interest receivable held for sale — — 244

Unrealized (gains) losses on strategic investments

Net gains on strategic investments ( 1,914 ) ( 208 ) ( 87 )

Other 47 ( 149 ) ( 85 )

Changes in assets and liabilities:

2 unchanged sentences

Transaction loss allowance for cash losses, net ( 1,120 ) ( 1,079 ) ( 1,046 )

Funds receivable

Other current assets and non-current assets ( 498 ) ( 566 ) ( 93 )

Accounts payable ( 4 ) 4 26

Funds payable and amounts due to customers

Income taxes payable ( 230 ) ( 40 ) ( 44 )

17 unchanged sentences

Funds payable and amounts due to customers 10,597 3,009 1,595

Other financing activities ( 52 ) — —

Net cash provided by (used in) financing activities 12,492 4,187 ( 1,240 )

6 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions)

4 unchanged sentences

Cash and cash equivalents $ 4,794 $ 7,349 $ 7,575

Short-term investments

Short-term and long-term investments 24 7 16

Funds receivable and customer accounts 13,222 8,387 5,642

6 unchanged sentences

(“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 merchants and 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 merchants and 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.

Our combined payment solutions, including our PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products, comprise our proprietary Payments Platform.

PayPal is committed to democratizing financial services to improve the financial health of individuals and to increase economic opportunity for entrepreneurs and business of all sizes around the world.

Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world, anytime, on any platform, and using any device when sending payments or getting paid.

We also facilitate person-to-person (“P2P”) payments through our PayPal, Venmo, and Xoom 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 Hyperwallet products and services, comprise our proprietary Payments Platform.

The terms “we,” “our,” “us,” “the Company,” and “PayPal” mean PayPal Holdings, Inc.

and, unless otherwise expressly stated or the context requires, its subsidiaries.

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.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection.

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 changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition.

We monitor these areas closely and are focused on designing compliant solutions for our customers.

SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

Noncontrolling interest reported as a component of equity on our consolidated balance sheets represents the equity interests not owned by PayPal and is recorded for consolidated entities we control in which we own less than 100%.

Noncontrolling interest is not presented separately on our consolidated statements of income as the amount is de minimis.

3 unchanged sentences

Our investment balance is included in long-term investments on our consolidated balance sheets.

We determine at the inception of each investment, and re-evaluate if certain events occur, whether an entity in which we have made an investment is considered a variable interest entity (“VIE”).

If we determine an investment is a VIE, we then assess if we are the primary beneficiary, which would require consolidation.

As of December 31, 2020, none of these VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct the activities that would significantly impact their economic performance.

The carrying value of our investments that are VIEs was de minimis and included as non-marketable equity securities accounted for using the equity method of accounting in long-term investments on our consolidated balance sheets.

Our maximum exposure to loss, including the carrying value of the investments and any future funding commitments, was $ 105 million as of December 31, 2020.

In the opinion of management, these consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated financial statements for all periods presented.

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the year ended December 31, 2019 .

Reclassifications

Beginning with the first quarter of 2019, we reclassified certain operating expenses within the 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.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The classification changes related 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 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 consolidated statements of income:

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the year ended December 31, 2020.

Reclassifications

Beginning with the fourth quarter of 2020, we reclassified certain cash flows related to customer balances from cash flows from operating activities to cash flows from investing activities and cash flows from financing activities within the consolidated statements of cash flows.

Prior period amounts have been reclassified to conform to the current period presentation.

These changes have no impact on our previously reported consolidated net income, financial position, net change in cash, cash equivalents, and restricted cash, or total cash, cash equivalents, and restricted cash as reported on our consolidated statements of cash flows.

The current period presentation classifies all changes in funds receivable and customer accounts and funds payable and amounts due to customers consistently on our consolidated statement of cash flows as cash flows from investing activities and cash flows from financing activities, respectively, regardless of which product the cash flows relate to on our Payments Platform.

The current period presentation provides a more meaningful representation of the cash flows related to the movement of customer funds due to the restrictions on and use of those funds.

The following tables present the effects of the changes on the presentation of these cash flows to the previously reported consolidated statements of cash flows:

Year Ended December 31, 2019

1 unchanged sentence

As Previously Reported (1)

Transaction expense

Transaction and loan losses

Customer support and operations

Sales and marketing

Product development

Technology and development

General and administrative

Depreciation and amortization

Restructuring and other charges

Total operating expenses

(*) As reported in our 2018 Form 10-K dated February 7, 2019.

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 4,561 $ ( 490 ) $ 4,071

Investing activities (3)

( 5,733 ) ( 9 ) ( 5,742 )

Financing activities (4)

3,688 499 4,187

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 6 ) — ( 6 )

Net increase in cash, cash equivalents, and restricted cash $ 2,510 $ — $ 2,510

(1) As reported in our 2019 Form 10-K filed with the SEC on February 6, 2020.

(2) Financial statement lines impacted in operating activities were “Funds receivable” and “Funds payable and amounts due to customers,” which increased by $ 9 million and decreased by $ 499 million, respectively, to arrive at the reclassified amounts.

(3) Financial statement line impacted in investing activities was “Funds receivable.”

(4) Financial statement line impacted in financing activities was “Funds payable and amounts due to customers.”

Year Ended December 31, 2018

1 unchanged sentence

As Previously Reported (1)

Transaction expense

Transaction and loan losses

Customer support and operations

Sales and marketing

Product development

Technology and development

General and administrative

Depreciation and amortization

Restructuring and other charges

Total operating expenses

(*) As reported in our 2018 Form 10-K dated February 7, 2019.

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 5,483 $ ( 3 ) $ 5,480

Investing activities (3)

840 ( 19 ) 821

Financing activities (4)

( 1,262 ) 22 ( 1,240 )

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 113 ) — ( 113 )

Net increase in cash, cash equivalents, and restricted cash $ 4,948 $ — $ 4,948

(1) As reported in our 2019 Form 10-K filed with the SEC on February 6, 2020.

(2) Financial statement lines impacted in operating activities were “Funds receivable” and “Funds payable and amounts due to customers,” which increased by $ 19 million and decreased by $ 22 million, respectively, to arrive at the reclassified amounts.

(3) Financial statement line impacted in investing activities was “Funds receivable.”

(4) Financial statement line impacted in financing activities was “Funds payable and amounts due to customers.”

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Use of estimates

1 unchanged sentence

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 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 losses, loss contingencies, income taxes, revenue recognition, and the valuation of goodwill and intangible assets.

On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and 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.

Actual results could differ from those estimates.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

These estimates may change as new events occur, and as additional information surrounding the continued impact of the novel coronavirus (“COVID-19”) pandemic becomes available.

Actual results could differ from these estimates and any such differences may be material to our financial statements.

Cash and cash equivalents

1 unchanged sentence

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 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 excluded from earnings and reported as a component of other comprehensive income (loss), net of related estimated tax provisions or benefits.

Long-term investments include time deposits, government and agency securities, corporate debt securities, and asset-backed securities with maturities exceeding one year, and our strategic investments.

Government and agency securities, corporate debt securities, and asset-backed 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.

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.

1 unchanged sentence

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.

Non-marketable equity securities include investments that do not have a readily determinable fair value, as well as 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 recognized in other income (expense), net on our consolidated statements of income.

All gains and losses on these investments, realized and unrealized, are recorded in other income (expense), net on our 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 debt securities and 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 debt securities and equity method investments, we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our consolidated statements of income.

With respect to our debt securities, this assessment takes into account the severity and duration of the decline in value, our intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, and whether we expect to recover the entire amortized cost basis of the security (that is, whether a credit loss exists).

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 PayPal Credit product.

In the U.S., we partner with independent chartered financial institutions that extend credit to the merchant using our PPWC product or PPBL product, and purchase the related receivables extended by the independent chartered financial institutions.

For our consumer credit products outside the U.S., 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.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As part of our arrangements with independent chartered financial institutions in the U.S., we sell back a participation interest in the pool of merchant receivables.

For these arrangements, gains or losses on the sale of the participation interest are not material as the carrying amount of the participation interest sold approximates the fair value at time of transfer.

The independent chartered financial institutions have 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 institutions 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.

We assess whether an impairment loss on our non-marketable equity securities and an other-than-temporary impairment loss on our equity method investments (and available-for-sale debt securities, prior to 2020) 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 (and available-for-sale debt securities, prior to 2020), we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our consolidated statements of income.

With respect to our available-for-sale debt securities, prior to 2020, this assessment took into account the severity and duration of the decline in value, our intent to sell the security, whether it was more likely than not we would be required to sell the security before recovery of its amortized cost basis, and whether we expected to recover the entire amortized cost basis of the security (that is, whether a credit loss existed).

Beginning in 2020, 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 consolidated statements of income if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis.

For the remaining available-for-sale debt securities in an unrealized loss position, if we identify that the decline in fair value has resulted from credit losses, taking into consideration changes to the rating of the security by rating agencies, implied yields versus benchmark yields, and the extent to which fair value is less than amortized cost, among other factors, we will estimate the present value of cash flows expected to be collected.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis.

Any portion of impairment not related to 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 consumer loans originated under our PayPal Credit and installment 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 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 working capital loans in Australia through an Australian subsidiary.

In the U.S., we extend installment loans to consumers through a U.S.

For our international consumer credit products, we extend credit through our Luxembourg banking 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.

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 interest for which control has been surrendered.

Loans, advances, and interest and fees receivable are reported at their outstanding principal balances, net of any participation interest sold and pro rata allowances, including unamortized deferred origination costs and estimated collectible interest and fees.

We account for the asset transfer as a sale and derecognize the portion of the participation interests for which control has been surrendered.

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.

In instances where a merchant is able to demonstrate that they are experiencing financial difficulty, there may be a modification of the loans or advances and the related interest receivable for which it is probable that, without modification, we will be unable to collect all amounts due, therefore resulting in a troubled debt restructuring (“TDR”).

Refer to “Note 11—Loans and Interest Receivable” for further information related to TDRs.

Loans, advances, and interest and fees receivable are reported at their outstanding balances, net of any participation interests sold and pro rata current expected credit losses, including unamortized deferred origination costs.

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 consumers.

The terms of our consumer relationships require us to submit monthly bills to the consumer detailing loan repayment requirements.

1 unchanged sentence

Due to the relatively small dollar amount of individual loans and interest receivable, we do not require collateral on these balances.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consumer Credit Portfolio

2 unchanged sentences

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 (other than charged off or designated to be charged off receivables) and thus, no longer record these receivables on our 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 consolidated financial statements.

See “Note 11—Loans and Interest Receivable” for additional information related to this arrangement.

Until the transaction with Synchrony closed, we continued to work with independent chartered financial institutions to extend credit to 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 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 revenues from other value added services on our consolidated statements of income.

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 independent chartered financial institutions 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.

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 institution in the U.S., we sold back a participation interest in the pool of U.S.

consumer receivables outstanding under PayPal Credit consumer accounts.

1 unchanged sentence

Allowance for loans and interest receivable

The allowance for loans and interest receivable represents management’s estimate of incurred losses inherent in our loans and interest receivables.

Increases to the allowance for loans receivables are reflected as a component of transaction and loan losses on our consolidated financial statements.

The evaluation process to assess the adequacy of allowances is subject to numerous estimates and principle judgments.

For our consumer loans receivable, the allowance is primarily based on forecasted principal balance delinquency rates (“roll rates”).

Roll rates are the percentage of balances which we estimate will migrate from one stage of delinquency to the next based on our historical experience, as well as external factors such as estimated bankruptcies and levels of unemployment.

Roll rates are applied to the principal amount of our consumer receivables for each stage of delinquency, from current to 180 days past the payment due date, in order to estimate the principal loans which have incurred losses and are probable to be charged off.

We charge off consumer loan receivable balances in the month in which a customer’s balance becomes 180 days past the payment due date.

The allowance for loans and interest receivable represents our estimate of current 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 consolidated statements of income.

Increases to the allowance for interest and fees receivable are reflected as a reduction of net revenues on our 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.

Beginning in 2020, the allowance for loans and interest receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio, which is segmented by factors such as geographic region, delinquency, and vintage.

Loss curves are generated using historical loss data for each loan portfolio and are applied to segments of each portfolio, categorized by factors such as geographic region, first borrowing versus reuse, delinquency, credit rating, and vintage, 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 we believe is most appropriate to the economic conditions applicable to a particular period.

Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our consumer and merchant receivables.

We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit 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 credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors.

Prior to 2020, the allowance for our consumer loans receivable was primarily based on forecasted principal balance delinquency rates (“roll rates”).

Roll rates are the percentage of balances which we estimate would migrate from one stage of delinquency to the next based on our historical experience, as well as external factors such as estimated bankruptcies and levels of unemployment.

Roll rates were applied to the principal amount of our consumer receivables for each stage of delinquency, from current to 179 days past the payment due date, in order to estimate the principal loans which had incurred losses and were probable to be charged off.

For merchant loans and advances receivable, the allowance was primarily based on principal balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model.

The determination of delinquency, from current to 179 days past due, for principal balances related to merchant receivables outstanding was based on the current expected or contractual repayment period of the loan or advance and interest or fixed fee as compared to the original expected or contractual repayment period.

The allowance for loss against interest receivable was primarily determined by applying historical average customer account roll rates to the interest receivable balance in each stage of delinquency to project the value of accounts that had incurred losses and were probable to be charged off.

The allowance for fees receivable was primarily based on fee balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In connection with our agreement to sell our U.S.

2 unchanged sentences

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 in our consolidated statements of income.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For merchant loans and advances receivable, the allowance is primarily based on principal balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model.

The determination of delinquency, from current to 180 days past due, for principal balances related to merchant receivables outstanding is based on the current expected or contractual repayment period of the loan or advance and interest or fixed fee as compared to the original expected or contractual repayment period.

For our PPWC product, there is a general requirement that at least 10 % of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days.

We calculate the repayment rate of the merchant’s future payment volume so that repayment of the loan or advance and fixed fee is expected to generally occur within 9 to 12 months from the date of the loan or advance.

On a monthly basis, we recalculate the repayment period based on the repayment activity on the receivable.

As such, actual repayment periods are dependent on actual merchant payment processing volumes.

For our PPBL product, we receive fixed periodic payments over the contractual term of the loan which generally ranges from 3 to 12 months.

We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period.

The allowance for loss against interest receivable is primarily determined by applying historical average customer account roll rates to the interest receivable balance in each stage of delinquency to project the value of accounts that have incurred losses and are probable to be charged off.

The allowance for fees receivable is primarily based on fee balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model.

Increases to the allowance for interest receivable are reflected as a reduction of net revenues in our consolidated statements of income.

Increases to the allowance for fees receivable are recognized as a reduction of deferred revenues included in other current liabilities in our consolidated balance sheets.

We charge off the receivables under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days or when the repayments are 360 days past due regardless of whether the merchant has made a payment within the last 60 days.

We charge off the receivables under our PPBL product when the repayments are 180 days past due.

Bankrupt accounts are charged off within 60 days for merchants and 90 days for consumers after receipt of notification of bankruptcy.

Consumer loans receivable past the payment due date continue to accrue interest until such time as they are charged off.

Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

Adjustments to the cost basis of this portfolio until the sale was completed in July 2018, which were primarily driven by charge-offs, were recorded in restructuring and other charges on our consolidated statements of income.

Customer accounts

4 unchanged sentences

We classify the assets underlying the customer balances as current based on their purpose and availability to fulfill our direct obligation under amounts due to customers.

Customer funds whereby PayPal is an agent and custodian on behalf of our customers are not reflected on our consolidated balance sheet.

Customer funds for which PayPal is an agent and custodian on behalf of our customers are not reflected on our consolidated balance sheets.

These funds include U.S.

dollar funds which are deposited at one or more third-party financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”) and are eligible for FDIC pass-through insurance (subject to applicable limits).

We act as an agent in facilitating cryptocurrency transactions on behalf of our customers.

Cryptocurrencies held on behalf of our customers are not PayPal’s assets and therefore are not reflected on our consolidated balance sheets.

In June 2018, the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 35 % of European customer balances held in our Luxembourg banking subsidiary to be used for European and U.S.

credit activities.

During the year ended December 31, 2019 , an additional amount of $ 500 million was designated by management to fund such credit activities.

As of December 31, 2019 , the cumulative amount approved by management to be designated for credit activities aggregated to $ 2.0 billion and represented approximately 31 % of European customer balances potentially available for corporate use by us at that date as determined by applying financial regulations maintained by the CSSF.

On the date PayPal’s management designates the European customer balances held in our Luxembourg banking subsidiary to be used to extend credit, the balances are classified as cash and cash equivalents and no longer classified as customer accounts on our consolidated balance sheets.

As of December 31, 2020, the cumulative amount approved by management to be designated for credit activities aggregated to $ 2.0 billion and represented approximately 21 % of European customer balances potentially available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF.

At the time PayPal’s management designates the European customer balances held in our Luxembourg banking subsidiary to be used to extend credit, the balances are classified as cash and cash equivalents and no longer classified as customer accounts on our consolidated balance sheets.

The remaining assets underlying the customer balances remain separately classified as customer accounts on our consolidated balance sheets.

We do not commingle these customer accounts with corporate funds and maintain these assets separately in interest and non-interest bearing bank deposits, time deposits, corporate debt securities, and government and agency securities.

See “Note 8—Funds Receivable and Customer Accounts and Investments” for additional information related to customer accounts.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We have generally presented changes in funds receivable and customer accounts as cash flows from investing activities in our consolidated statements of cash flows based on the nature of the activity underlying our customer accounts.

We present changes in funds receivable and customer accounts as cash flows from investing activities in our consolidated statements of cash flows based on the nature of the activity underlying our customer accounts.

Funds receivable and funds payable

4 unchanged sentences

These funds are also classified as funds receivable and funds payable and arise due to the time required to initiate collection from and clear transactions through external payment networks.

These funds are classified differently on our consolidated statements of cash flows as operating activities based on the nature of this activity.

Property and equipment

Property and equipment consists primarily of computer equipment, software and website development costs, land and buildings, and leasehold improvements.

Property and equipment are stated at historical cost less accumulated depreciation.

Property and equipment are stated at historical cost less accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets;

generally, one to three years for computer equipment and software, including capitalized software and website development costs, three years for furniture and fixtures, up to thirty years for buildings and building improvements, and the shorter of five years or the non-cancelable term of the lease for leasehold improvements.

generally, one to four years for computer equipment and software, including capitalized software and website development costs, three years for furniture and fixtures, up to 30 years for buildings and building improvements, and the shorter of five years or the non-cancelable term of the lease for leasehold improvements.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 consolidated balance sheets.

Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other current liabilities and deferred tax liability and other long-term liabilities on our 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 our consolidated balance sheets throughout the term of the lease and the proceeds to be recognized as a financing obligation.

As of December 31, 2020, we had no finance leases.

1 unchanged sentence

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.

Our leases do not provide an implicit rate and therefore 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.

When we reach a decision to exercise a lease renewal or termination option, we recognize the associated impact to the ROU asset and lease liability.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable.

When a decision has been made to exit a lease prior to the contractual term or to sublease that space, we evaluate the asset for impairment and recognize the associated impact to the ROU asset and related expense, if applicable.

The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level.

Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives.

If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques.

We have lease agreements with lease and non-lease components.

We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all leases.

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, where applicable.

In addition, we have elected the practical expedients related to lease classification, hindsight, and land easement.

We apply a single portfolio approach to account for the ROU assets and lease liabilities.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) effective January 1, 2019, using a modified retrospective basis and applied the optional practical expedients related to the transition.

Goodwill and intangible assets

2 unchanged sentences

Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value.

The fair value of the reporting unit is estimated using income and market approaches.

The fair value of the reporting unit may be estimated using income and market approaches.

The discounted cash flow method, a form of the income approach, uses expected future operating results and a market participant discount rate.

4 unchanged sentences

As of December 31, 2020, we determined that no events occurred, or circumstances changed from August 31, 2020 through December 31, 2020 that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Intangible assets consist of acquired customer-related intangible assets, marketing related intangibles, developed technology, and other intangible assets.

Intangible assets consist of acquired customer list and user base intangible assets, marketing related intangibles, developed technology, and other intangible assets.

Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to eight years .

No significant residual value is estimated for intangible assets.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Impairment of long-lived assets

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.

An asset is considered impaired if its carrying amount exceeds the future net cash flow the asset is expected to generate.

Allowance for transaction losses and negative customer balances

We are exposed to transaction losses due to credit card and other payment misuse as well as nonperformance of and credit losses 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, Automated Clearing House (“ACH”) returns, buyer protection program claims, account takeovers, and account overdrafts.

This allowance represents an accumulation of the estimated amounts necessary to provide for transaction losses incurred as of the reporting date, including those which we have not yet identified.

An asset is considered impaired if its carrying amount exceeds the future net discounted cash flow the asset is expected to generate.

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 or unsatisfactory delivery of purchased items, buyer protection program claims, and account takeovers.

This allowance represents an accumulation of the estimated amounts of probable transaction losses as of the reporting date, including those which we have not yet identified.

The allowance is monitored regularly and is updated based on actual data received, including actual claims data reported by our claims processors.

The allowance is based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment patterns, and the mix of transaction and loss types.

Additions to the allowance are reflected as a component of transaction and loan losses in our consolidated statements of income.

At December 31, 2019 and 2018 , the allowance for transaction losses totaled $ 136 million and $ 129 million , respectively, and was included in accrued expenses and other current liabilities in our consolidated balance sheets.

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.

The allowance is based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment patterns, the mix of transaction and loss types, as applicable.

Additions to the allowance are reflected as a component of transaction and credit losses on our consolidated statements of income.

The allowance for transaction losses was included in accrued expenses and other current liabilities on our consolidated balance sheets.

Allowance for negative customer balances

Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for Automated Clearing House returns, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, 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 uncollectible accounts.

The allowance is estimated based on known facts and circumstances, internal factors including our experience with similar cases, and historical trends involving collection and write-off patterns.

For negative customer balances that are not expected to be cured or otherwise collected, we provide an allowance for expected losses.

The allowance represents expected losses based on historical trends involving collection and write-off patterns, internal factors including our experience with similar cases, other known facts and circumstances, and reasonable and supportable macroeconomic forecasts, as applicable.

Loss rates are derived using historical loss data for each delinquency bucket using a roll rate model that captures the losses and the likelihood that a negative customer balance will be written-off as the delinquency age of such balance increases.

The loss rates are then applied to the outstanding negative customer balances.

Once the quantitative calculation is performed, we review the adequacy of the allowance and determine if qualitative adjustments need to be considered.

We write-off negative customer balances in the month in which the balance becomes outstanding for 120 days.

Write-offs that are recovered are recorded as a reduction to our allowance for negative customer balances.

Negative customer balances are included in other current assets, net of the allowance on our consolidated balance sheets.

Adjustments to the allowance for negative customer balances are recorded as a component of transaction and loan losses on our consolidated statements of income.

The allowance for negative customer balances was $ 263 million and $ 215 million at December 31, 2019 and 2018 , respectively.

Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our consolidated statements of income.

Derivative instruments

See “Note 10—Derivative Instruments” for information related to the derivative instruments.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair value of financial instruments

3 unchanged sentences

As of December 31, 2020 and 2019, we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3).

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentrations of risk

13 unchanged sentences

No customer accounted for more than 10% of net loans receivable as of December 31, 2020 and 2019.

At December 31, 2019 and 2018 , one partner accounted for our long-term notes receivable balance, which represented 28 % and 53 % , respectively, of other assets.

At December 31, 2020 and 2019, one partner accounted for our long-term notes receivable balance, which represented 28 % of other assets.

During the years ended December 31, 2020, 2019, and 2018, no customer accounted for more than 10% of net revenues.

During the years ended December 31, 2019, 2018, and 2017 , we earned approximately 14 % , 17 % , and 20 % of revenue from customers on eBay’s Marketplaces platform.

During the years ended December 31, 2020, 2019, and 2018, we earned approximately 13 %, 14 %, and 17 % of revenue, respectively, from customers on eBay’s Marketplaces platform.

No other source of revenue represented more than 10% of our revenue.

6 unchanged sentences

Internal use software and website development costs

Direct costs incurred to develop software for internal use and website development costs, including those costs incurred in expanding and enhancing our Payments Platform, are capitalized and amortized generally over an estimated useful life of one to three years and are recorded as depreciation and amortization within the financial statement captions aligned with the internal organizations that are the primary beneficiaries of such assets.

Direct costs incurred to develop software for internal use and website development costs, including those costs incurred in expanding and enhancing our Payments Platform, are capitalized and amortized generally over an estimated useful life of three years and are recorded as depreciation and amortization within the financial statement captions aligned with the internal organizations that are the primary beneficiaries of such assets.

PayPal capitalized $ 347 million and $ 314 million of internally developed software and website development costs for the years ended December 31, 2020 and 2019, respectively.

1 unchanged sentence

Costs related to the maintenance of internal use software and website development costs are expensed as incurred.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Defined contribution savings plans

We have a defined contribution savings plan in the U.S.

which qualifies under Section 401(k) of the Internal Revenue Code (the “Code”).

which qualifies under Section 401(k) of the Internal Revenue Code.

employees are covered by other savings plans.

Expenses related to our defined contribution savings plans are recorded when services are rendered by our employees.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-based compensation

We determine compensation expense associated with restricted stock units and performance based restricted stock units based on the fair value of our common stock on the date of grant.

We determine compensation expense associated with restricted stock units, performance based restricted stock units, and restricted stock awards based on the fair value of our common stock on the date of grant.

We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model.

21 unchanged sentences

Other income (expense), net includes:

(i) interest income which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments, (ii) interest expense which consists of interest expenses, fees, and amortization of debt discount on our long-term debt and credit facilities, (iii) gains (losses) on strategic investments which includes changes in fair value related to our marketable equity securities and observable price changes on our non-marketable equity securities, and (iv) other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, and fair value changes on the derivative contracts not designated as hedging instruments.

(i) interest income, which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments, (ii) interest expense, which consists of interest expenses, fees, and amortization of debt discount on our long-term debt and credit facilities, (iii) realized and unrealized gains (losses) on strategic investments, which includes changes in fair value related to our marketable equity securities and observable price changes on our non-marketable equity securities, and (iv) other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, and fair value changes on the derivative contracts not designated as hedging instruments.

Recent Accounting Guidance

In 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This amended guidance 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 London Interbank Offered Rate (“LIBOR”) is primarily limited to an insignificant portion of our available-for-sale debt securities and, accordingly, we do not expect reference rate reform to have a material impact on our consolidated financial statements.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent Accounting Guidance

In 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the measurement of credit losses on financial instruments.

Credit losses on loans, trade and other receivables, held-to-maturity debt securities, and other instruments will reflect our estimate of the current expected credit losses and generally will result in the earlier recognition of allowances for credit losses.

Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost.

Additional disclosures will be required, including information used to track credit quality indicators by year of origination for most financing receivables for the past five years and to discuss the judgments made and methodologies used when implementing this new lifetime reserve framework.

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 adopted 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 finalizing models, business processes and controls, and model validation testing.

Based on the models developed, which incorporate forecasts of macroeconomic conditions, the overall impact of adoption of the Current Expected Credit Loss framework is estimated to be an increase in the range of approximately 65 % to 85 % in our allowance for loans and interest receivable as compared to the incurred loss framework applied today.

The largest drivers of this increase are the change to a lifetime reserve framework at the time the asset is initially recorded and the inclusion of macro-economic factors within the model.

Although the timing of the recognition of losses may result in an increase in loan losses in a given period, this increased allowance is not expected to result in a change in our economic losses.

At adoption, expected credit loss reserves related to our other financing receivables, available-for-sale debt securities, and other financial instruments will not have a material impact on our consolidated financial statements.

The extent of the actual impact of the adoption of this guidance at the effective date will depend on the amount and asset quality of our financial instruments, current and forecasted economic conditions at the time of adoption, and any further refinements made to our models.

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 are evaluating the impact of and approach to adopting this amended accounting guidance on our 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 on January 1, 2019, using a modified retrospective basis and applied the optional practical expedients related to the transition.

We recorded $ 498 million for the ROU assets and $ 516 million for the lease liabilities associated with our operating leases upon adoption.

The adoption of this guidance did not have a significant impact on our consolidated statements of earnings, stockholders’ equity, and cash flows.

For additional information, see “Note 6—Leases.”

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

In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

This amended guidance simplifies certain aspects of accounting for income taxes.

It is intended to remove certain exceptions to the general principles in GAAP, reduce the cost and complexity in accounting for income taxes, and improve financial statement preparers’ application of income tax-related guidance.

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 consolidated financial statements.

In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

This update provided new guidance on the measurement of credit losses on financial instruments.

Under the new guidance, credit losses on loans, trade and other receivables, held-to-maturity debt securities, and other instruments reflect our current expected credit losses and generally result in the earlier recognition of allowances for credit losses.

Credit losses on available-for-sale debt securities with unrealized losses are recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost.

Additional disclosures are required, including information used to track credit quality by year of origination for most financing receivables.

We were 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 adopted the new guidance effective January 1, 2020.

For additional information, see “Note 11—Loans and Interest Receivable.”

There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable.

We do not believe any of these accounting pronouncements have had, or will have, a material impact on our consolidated financial statements or disclosures.

NOTE 2— REVENUE

1 unchanged sentence

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, transaction revenues and revenues from other value added services.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our revenues are classified into two categories:

transaction revenues and revenues from other value added services.

TRANSACTION REVENUES

3 unchanged sentences

For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund.

We estimate the amount of fee refunds that will be processed during the quarter and record a provision against our net revenues.

We estimate the amount of fee refunds that will be processed each quarter and record a provision against our net revenues.

The volume of activity processed on our Payments Platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).

We define TPV as the value of payments, net of reversals, successfully completed on our Payments Platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

We earn additional fees on transactions where we perform a currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their debit card or bank account, and other miscellaneous fees.

We earn additional fees on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their debit card or bank account, and other miscellaneous fees.

Our contracts with our customers are usually open-ended and can be terminated by either party without a termination penalty after the notice period has lapsed.

Therefore, our contracts are defined at the transaction level and do not extend beyond the service already provided.

Our contracts generally renew automatically without significant material rights.

Our contracts generally renew automatically without any significant material rights.

Some of our contracts include tiered pricing, based primarily on volume.

2 unchanged sentences

We do not have any capitalized contract costs, and do not carry any material contract balances.

Our service comprises a single performance obligation to complete payments on our Payments Platform for our customers.

Our primary service comprises a single performance obligation to complete payments on our Payments Platform for our customers.

Using our risk assessment tools, we perform a transaction risk assessment on individual transactions to determine whether a transaction should be authorized for completion on our Payments Platform.

When we authorize a transaction, we become obligated to our customer to complete the payment transaction.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We recognize fees charged to our customers primarily on a gross basis as transaction revenue when we are the principal in respect of completing a payment transaction.

5 unchanged sentences

We are also responsible for providing customer support.

We provide merchants and consumers with protection programs on most transactions completed on our Payments Platform, except for transactions using our gateway products or where our customer agreements specifically do not provide for protections.

These programs protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

Our buyer protection program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description.

Our seller protection programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that an item was not received by covering the seller for the full amount of the payment on eligible sales.

These protection programs do not provide a separate service to our customers and we estimate and record associated costs in transaction and loan losses during the period the payment transaction is completed.

We provide merchants and consumers with protection programs for certain transactions completed on our Payments Platform.

These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

Our buyer protection program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if the purchased item is not received or does not match the seller’s description.

Our seller protection programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that a purchased item was not received by covering the seller for the full amount of the payment on eligible sales.

These protection programs do not provide a separate service to our customers and we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed.

REVENUES FROM OTHER VALUE ADDED SERVICES

We earn revenues from other value added services, which is comprised primarily of revenue earned through partnerships, subscription fees, gateway fees, and other services that we provide to our merchants and consumers.

We earn revenues from other value added services, which is comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services that we provide to our merchants and consumers.

These contracts typically have one performance obligation which is provided and recognized over the term of the contract.

3 unchanged sentences

We record revenue earned in revenues from other value added services on a net basis when we are considered the agent with respect to processing transactions.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We also earn revenues from interest and fees earned primarily on our credit portfolio of loans receivable and interest earned on certain PayPal customer account balances.

Interest and fees earned on the credit portfolio of loans receivable are computed and recognized based on the effective interest method and are presented net of any required reserves and amortization of deferred origination costs.

We also earn revenues from interest and fees earned primarily on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances.

Interest and fees earned on the portfolio of loans receivable are computed and recognized based on the effective interest method and are presented net of any required reserves and amortization of deferred origination costs.

DISAGGREGATION OF REVENUE

1 unchanged sentence

Our CODM is our Chief Executive Officer, who reviews our operating results on a consolidated basis.

We operate in one segment and have one 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 (i.e., transaction revenues and 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.

We operate as one segment and have one reportable segment.

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.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Year Ended December 31,

2020 2019 2018

(In millions)

3 unchanged sentences

Other countries (1)

8,101 6,483 5,469

Total revenues (2)

$ 21,454 $ 17,772 $ 15,451

Revenue category

Transaction revenues $ 19,918 $ 16,099 $ 13,709

Other value added services

Revenues from other value added services 1,536 1,673 1,742

Total revenues (2)

$ 21,454 $ 17,772 $ 15,451

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

(2) Total revenues include $ 1.1 billion , $ 1.2 billion and $ 1.3 billion for the years ended December 31, 2019, 2018, and 2017 , respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers.

Such revenues relate to interest, fees, and gains earned on loan and interest receivables, net and held for sale portfolio, as well as hedging gains or losses and interest earned on certain PayPal customer balances.

(2) Total revenues include $ 597 million, $ 1.1 billion and $ 1.2 billion for the years ended December 31, 2020, 2019, and 2018, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers.

Such revenues relate to interest, fees, and gains earned on loans and interest receivables, as well as hedging gains or losses and interest earned on certain 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.

Revenues earned from other value added services are typically attributed to the country in which either the customer or partner reside.

NOTE 3— NET INCOME PER SHARE

3 unchanged sentences

The calculation of diluted net income per share excludes all anti-dilutive common shares.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Year Ended December 31,

2020 2019 2018

(In millions, except per share amounts)

Net income $ 4,202 $ 2,459 $ 2,057

Weighted average shares of common stock — basic

1,173 1,174 1,184

Dilutive effect of equity incentive awards 14 14 19

Weighted average shares of common stock — diluted

1,187 1,188 1,203

Net income per share:

Basic $ 3.58 $ 2.09 $ 1.74

Diluted $ 3.54 $ 2.07 $ 1.71

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive 1 2 1

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 4— BUSINESS COMBINATIONS

ACQUISITIONS COMPLETED IN 2020

During the year ended December 31, 2020, we completed one acquisition reflecting 100 % of the equity interests of the acquired company, for a purchase price of $ 3.6 billion.

Honey Science Corporation

We completed our acquisition of Honey Science Corporation (“Honey”) in January 2020 by acquiring all outstanding shares for total consideration of approximately $ 4.0 billion, consisting of approximately $ 3.6 billion in cash and approximately $ 400 million in assumed restricted stock, restricted stock units, and options, subject to vesting conditions.

We believe our acquisition of Honey will enhance our value proposition by allowing us to further simplify and personalize shopping experiences for consumers while driving conversion and increasing consumer engagement and sales for merchants.

The following table summarizes the final allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:

(In millions)

Goodwill $ 2,962

Customer lists and user base 115

Marketing related 30

Developed technology 572

Total intangibles $ 717

Accounts receivable, net 50

Deferred tax liabilities, net ( 58 )

Other net liabilities ( 36 )

Total purchase price $ 3,635

The intangible assets acquired consist primarily of customer contracts, trade name/trademarks, and developed technology with estimated useful lives of three years .

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, and is attributable to the workforce of Honey and the synergies expected to arise from the acquisition through continued customer acquisition, cross selling initiatives, and product enhancements.

Goodwill was not considered deductible for income tax purposes.

In association with the acquisition, we assumed restricted stock, restricted stock units, and options with an approximate grant date fair value of $ 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 have included the financial results of the acquired business in our consolidated financial statements from the date of acquisition.

Revenues and expenses related to the acquisition and pro forma results of operations have not been presented for the year ended December 31, 2020 because the effects of this acquisition were not material to our overall operations.

ACQUISITIONS COMPLETED IN 2019

There were no acquisitions accounted for as business combinations or divestitures completed in 2019.

1 unchanged sentence

During the year ended December 31, 2018, we completed four acquisitions reflecting 100 % of the equity interests of the acquired companies, for an aggregate purchase price of $ 2.7 billion.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We completed the acquisition of HWLT Holdings Inc.

1 unchanged sentence

We acquired Hyperwallet to enhance our payout capabilities and improve our ability to provide an integrated suite of payment solutions to e-commerce platforms and marketplaces around the world.

The allocation of purchase consideration resulted in approximately $ 100 million of customer-related intangible assets, approximately $ 30 million of 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 and customer accounts of $ 412 million , funds payable and amounts due to customers of $ 412 million , net liabilities of approximately $ 32 million , and goodwill of approximately $ 300 million , which is attributable to the workforce of Hyperwallet and the synergies expected to arise from the acquisition.

We do not expect goodwill to be deductible for income tax purposes.

The allocation of purchase consideration resulted in approximately $ 100 million of customer-related intangible assets, approximately $ 30 million of developed technology intangible assets, and approximately $ 2 million of marketing related intangible assets with estimated useful lives ranging from three to seven years , funds receivable and customer accounts of $ 412 million, funds payable and amounts due to customers of $ 412 million, net liabilities of approximately $ 32 million, and goodwill of approximately $ 300 million, which is attributable to the workforce of Hyperwallet and the synergies expected to arise from the acquisition.

Goodwill was not considered deductible for income tax purposes.

We completed 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) and restricted shares of PayPal with a fair value of approximately $ 22 million.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the final allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:

(In millions)

Goodwill $ 1,600

Customer lists and user base 426

6 unchanged sentences

Other net liabilities ( 55 )

Total purchase consideration

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.

Total purchase price $ 2,182

The excess of 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.

Goodwill was not considered deductible for income tax purposes.

We completed the acquisition of Simility, Inc.

1 unchanged sentence

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 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 purchase consideration resulted in approximately $ 18 million of developed technology intangible assets with an estimated useful life of three years , net assets of approximately $ 10 million, and goodwill of approximately $ 79 million, which is attributable to the workforce of Simility and the synergies expected to arise from the acquisition.

Goodwill was not considered deductible for income tax purposes.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Acquisitions

1 unchanged sentence

The total purchase price for this acquisition was $ 16 million, consisting of cash consideration.

The allocation of purchase consideration resulted in approximately $ 13 million of developed technology intangible assets with an estimated useful life of 2 years, net liabilities of $ 1 million , and goodwill of approximately $ 4 million , which is attributable to the workforce of the acquired company and the synergies expected to arise from the acquisition.

We do not expect goodwill to be deductible for income tax purposes.

Acquisitions Completed in 2017

During 2017 , we completed two acquisitions, reflecting 100 % of the equity interests of the acquired companies, for an aggregate purchase price of $ 420 million .

TIO Networks Corp.

We completed the acquisition of TIO Networks Corp.

(“TIO”) in July 2017 by acquiring all the outstanding shares of TIO for $ 2.64 per share in cash.

We acquired TIO to expand our scale of operations, complement our product portfolio, and to help accelerate our entry into bill payments.

The total purchase price of $ 238 million consisted of cash consideration.

The allocation of purchase consideration resulted in approximately $ 66 million of technology and customer-related intangible assets with an estimated useful life of 1 to 5 years, net assets of approximately $ 6 million , and goodwill of approximately $ 166 million , which is attributable to the workforce of TIO and the synergies expected to arise from the acquisition.

We do not expect that all of the goodwill will be deductible for income tax purposes.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In November 2017, we suspended the operations of TIO to protect customer data as part of an ongoing investigation of security vulnerabilities of the TIO platform.

In March 2018, our management decided to wind down TIO’s operations.

Refer to “Note 5 — Goodwill and Intangible Assets” and “Note 13 — Commitments and Contingencies—Litigation and Regulatory Matters” for further details.

Swift Financial Corporation

We completed the acquisition of Swift Financial Corporation (“Swift”) in September 2017 by acquiring all the outstanding shares of Swift for a total purchase price of $ 182 million .

We acquired Swift to enable us to enhance our underwriting capabilities and strengthen our business financing offerings, helping us to deepen relationships with our existing merchants and expand services to new merchants.

The allocation of purchase consideration resulted in approximately $ 44 million of technology and customer-related intangible assets with an estimated useful life of 1 to 3 years, $ 169 million of merchant receivables, net liabilities of approximately $ 129 million , and goodwill of approximately $ 98 million , which is attributable to the workforce of Swift and the synergies expected to arise from the acquisition.

We do not expect goodwill to be deductible for income tax purposes.

The gross contractual merchant receivables acquired were approximately $ 213 million .

Management estimates that the cash collected will approximate the contractual amounts of merchant receivables.

The allocation of purchase consideration resulted in approximately $ 13 million of developed technology intangible assets with an estimated useful life of two years , net liabilities of $ 1 million, and goodwill of approximately $ 4 million, which is attributable to the workforce of the acquired company and the synergies expected to arise from the acquisition.

Goodwill was not considered deductible for income tax purposes.

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

The following table presents goodwill balances and adjustments to those balances for the years ended December 31, 2020 and 2019:

December 31, 2017

December 31, 2018

December 31, 2019

December 31, 2018 Goodwill

Acquired Adjustments December 31, 2019 Goodwill

Acquired Adjustments December 31, 2020

(In millions)

Total goodwill $ 6,284 $ — $ ( 72 ) $ 6,212 $ 2,962 $ ( 39 ) $ 9,135

The adjustments to goodwill during 2019 pertained to foreign currency translation adjustments.

The goodwill acquired during 2018 was associated with the four acquisitions that we completed in 2018 .

The adjustments to goodwill during 2018 pertain to foreign currency translation adjustments and measurement period adjustments related to our acquisition of Swift and TIO completed in the third quarter of 2017.

The goodwill acquired during 2020 was associated with the acquisition of Honey.

The adjustments to goodwill during 2020 and 2019 pertained to foreign currency translation adjustments.

INTANGIBLE ASSETS

The components of identifiable intangible assets are as follows:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Amount Accumulated

Amortization Net

Amount Weighted

(Years) Gross

Amount Accumulated

Amortization Net

Amount Weighted

(In millions, except years)

3 unchanged sentences

Developed technology 999 ( 577 ) 422 3 445 ( 343 ) 102 3

All other 449 ( 275 ) 174 7 436 ( 229 ) 207 7

Intangible assets, net $ 2,975 $ ( 1,927 ) $ 1,048 $ 2,289 $ ( 1,511 ) $ 778

All identifiable intangible assets are subject to amortization and no significant residual value is estimated for the intangible assets.

Amortization expense for intangible assets was $ 451 million, $ 211 million, and $ 149 million for the years ended December 31, 2020, 2019, and 2018, respectively.

We test intangible assets for recoverability when changes in circumstances indicate that the carrying value of an asset group may not be recoverable.

PayPal Holdings, Inc.

3 unchanged sentences

(“GoPay”), a holder of payment business licenses in China.

This transaction was accounted for as an asset acquisition because substantially all of the fair value of the gross assets acquired is concentrated in the form of licenses.

We recorded $ 190 million of other intangible assets with a weighted average useful life of 7 years.

As a result of the suspension of TIO’s operations announced in November 2017, we performed a test for recoverability of the customer-related intangible assets acquired in connection with our acquisition of TIO in July 2017.

The test involved comparing the intangible assets’ carrying values to their future net undiscounted cash flows that we expected would be generated by these intangible assets.

Based on the results of this test, we recorded an impairment charge of approximately $ 30 million in sales and marketing in our consolidated statements of income for 2017, which was measured as the excess of carrying value over the estimated fair value of the assets.

The calculation of the estimated fair value of these customer-related intangible assets is based on the income approach utilizing a discounted cash flow methodology.

Following recognition of the impairment charge, we amortized the adjusted carrying amount of those assets over their remaining useful life.

We also determined that the suspension of TIO’s operations did not indicate that the fair value of the reporting unit to which the TIO goodwill was assigned would be below its carrying amount.

This transaction was accounted for as an asset acquisition because substantially all the fair value of the gross assets acquired is concentrated in the form of licenses.

We recorded $ 190 million of other intangible assets with a weighted average useful life of seven years .

Expected future intangible asset amortization as of December 31, 2020 is as follows:

1 unchanged sentence

(In millions)

Thereafter 28

NOTE 6— LEASES

1 unchanged sentence

We use these properties for executive and administrative offices, data centers, product development offices, and customer service and operations centers.

Our leases have remaining lease terms of less than one year to eleven years .

Many leases include one or more renewal or termination options.

These options are not included in our determination of the lease 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 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 of changes to the relevant index, such changes to these indices are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.

In the event of changes to the relevant index, 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.

2 unchanged sentences

A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of lease expense were as follows:

December 31, 2019

(In millions, except weighted average figures)

Year Ended December 31,

(In millions)

Lease expense

2 unchanged sentences

Total lease expense $ 160 $ 130

Other information:

Supplemental cash flow information related to leases were as follows:

Year Ended December 31,

(In millions)

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ 159 $ 131

Right-of-use assets obtained in exchange for new operating lease liabilities

Operating leases:

Right-of-use assets obtained in exchange for operating lease liabilities (1)

(1) Includes opening balance additions of $ 498 million for operating leases as a result of the adoption of the new lease accounting guidance effective January 1, 2019.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental balance sheet information related to leases was as follows:

As of December 31,

(In millions, except weighted-average figures)

Operating lease right-of-use assets $ 707 $ 479

2 unchanged sentences

Total operating lease liabilities $ 786 $ 507

Weighted-average remaining lease term

Weighted-average discount rate

(1) Includes opening balance additions of $ 498 million for operating leases as a result of the adoption of the new lease accounting guidance effective January 1, 2019.

Weighted-average remaining lease term — operating leases

6.9 years 5.8 years

Weighted-average discount rate — operating leases

Future minimum lease payments for our operating leases as of December 31, 2020 were as follows:

2 unchanged sentences

(In millions)

Thereafter 266

present value discount ( 93 )

Lease liability $ 786

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum lease payments for our operating leases as of December 31, 2018 , prior to the adoption of new lease accounting guidance as described in “Note 1—Overview and Summary of Significant Accounting Policies,” were as follows:

Operating Leases

Fiscal years:

(In millions)

Total minimum lease payments

Operating lease amounts include minimum lease payments under our non-cancelable operating leases primarily for office and data center facilities.

2 unchanged sentences

Rent expense for the years ended December 31, 2020, 2019, and 2018 totaled $ 172 million, $ 130 million, and $ 94 million, respectively.

In the first quarter of 2020, we entered into a sale-leaseback arrangement as the seller-lessee for a data center as the buyer-lessor obtained control of the facility.

We sold the data center and simultaneously entered into an operating lease agreement with the purchaser for the right to use the facility for eight years .

The Company received proceeds of approximately $ 119 million, net of selling costs, which resulted in a de minimis net gain on the sale transaction.

During the year ended December 31, 2020, we incurred asset impairment charges of $ 30 million within restructuring and other charges on our consolidated statements of income.

The impairments included a reduction to our ROU asset in the amount of $ 23 million, which were attributed to certain leased spaces we are no longer utilizing for our core business operations, a portion of which is being sub-leased.

As of December 31, 2020, we also have additional operating leases that have not yet commenced, primarily for real estate and data centers, with minimum lease payments aggregating to $ 51 million.

These operating leases will commence between fiscal years 2020 and 2021 with lease terms of one year to ten years .

These operating leases will commence prior to the end of fiscal year 2021 with lease terms of three to ten years .

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 7— OTHER FINANCIAL STATEMENT DETAILS

10 unchanged sentences

Total property and equipment, gross 7,009 6,416

Accumulated depreciation

Accumulated depreciation and amortization ( 5,202 ) ( 4,723 )

Total property and equipment, net $ 1,807 $ 1,693

Depreciation expense was $ 701 million in 2019 , $ 627 million in 2018 , and $ 649 million in 2017 .

The net change in purchases of property and equipment included in accounts payable was $ 42 million in 2019 , $ 10 million in 2018 , and not material in 2017 .

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Depreciation and amortization expense was $ 738 million in 2020, $ 701 million in 2019, and $ 627 million in 2018.

Non-cash investing activities involving property and equipment included in net changes to accounts payable as reflected in the consolidated statements of cash flows was an increase of $ 17 million in 2020, a decrease of $ 42 million in 2019, and a decrease of $ 10 million in 2018.

Geographical Information

3 unchanged sentences

Long-lived assets:

$ 2,096 $ 1,862

Other countries 418 310

4 unchanged sentences

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2020:

Unrealized Gains (Losses) on Investments

Foreign Currency Translation Adjustment ( “ CTA ”)

Hedges Unrealized Gains on Investments Foreign Currency Translation Adjustment ( “ CTA ”)

Net Investment

Hedge CTA Gain (Loss)

Hedge CTA Gain (Loss) Estimated

Benefit Total

(In millions)

1 unchanged sentence

Other comprehensive income (loss) before reclassifications ( 309 ) 9 ( 48 ) 55 2 ( 291 )

Amount of gain (loss) reclassified from AOCI

Amount of gain reclassified from AOCI 20 — — — — 20

Net current period other comprehensive income (loss) ( 329 ) 9 ( 48 ) 55 2 ( 311 )

Ending balance $ ( 323 ) $ 11 $ ( 198 ) $ 24 $ 2 $ ( 484 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2019:

Unrealized Gains (Losses) on Cash Flow Hedges

Unrealized Gains (Losses) on Investments

Estimated Tax

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments

Net Investment

Hedge CTA Loss Estimated

Benefit Total

(In millions)

4 unchanged sentences

Ending balance $ 6 $ 2 $ ( 150 ) $ ( 31 ) $ — $ ( 173 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2018:

Unrealized Gains (Losses) on Cash Flow Hedges

Unrealized Gains (Losses) on Investments

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Losses on Investments

Estimated Tax

Benefit Total

(In millions)

1 unchanged sentence

Other comprehensive income (loss) before reclassifications 263 ( 1 ) ( 68 ) ( 4 ) 190

Amount of gain (loss) reclassified from AOCI

Amount of loss reclassified from AOCI ( 30 ) — — — ( 30 )

Net current period other comprehensive income (loss) 293 ( 1 ) ( 68 ) ( 4 ) 220

Ending balance $ 182 $ ( 13 ) $ ( 93 ) $ 2 $ 78

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides details about reclassifications out of AOCI for the periods presented below:

Details about AOCI Components

Amount of Gains (Losses) Reclassified from AOCI

Details about AOCI Components Amount of Gains (Losses) Reclassified from AOCI

Affected Line Item in the Statements of Income

Year Ended December 31,

2020 2019 2018

(In millions)

Gains (losses) on cash flow hedges — foreign exchange contracts

Unrealized losses on investments

Other income (expense), net

$ 20 $ 238 $ ( 30 ) Net revenues

Unrealized losses on investments — ( 1 ) — Other income (expense), net

$ 20 $ 237 $ ( 30 ) Income before income taxes

— — — Income tax expense

Total reclassifications for the period

Total reclassifications for the period $ 20 $ 237 $ ( 30 ) Net income

OTHER INCOME (EXPENSE), NET

1 unchanged sentence

Year Ended December 31,

2020 2019 2018

(In millions)

1 unchanged sentence

Interest expense ( 209 ) ( 115 ) ( 77 )

Gains (losses) on strategic investments, net

Net gains on strategic investments 1,914 208 87

Other ( 17 ) ( 11 ) 4

Other income (expense), net $ 1,776 $ 279 $ 182

4 unchanged sentences

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of December 31, 2020 and 2019:

2020 December 31,

(In millions)

11 unchanged sentences

Long-term investments:

Time deposits $ 31 $ —

Available-for-sale debt securities 2,819 1,025

10 unchanged sentences

Short-term investments:

government and agency securities 1,510 — — 1,510

Foreign government and agency securities 277 — — 277

4 unchanged sentences

Corporate debt securities 1,255 4 — 1,259

Asset-backed securities 228 — — 228

Total available-for-sale debt securities (2)

$ 21,584 $ 12 $ ( 1 ) $ 21,595

(1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position.

(2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option.

9 unchanged sentences

Short-term investments:

Foreign government and agency securities 533 — — 533

Corporate debt securities 1,955 — — 1,955

Long-term investments:

government and agency securities 140 — — 140

Foreign government and agency securities 207 — — 207

Corporate debt securities 636 2 — 638

Asset-backed securities 40 — — 40

Total available-for-sale debt securities (2)

$ 12,011 $ 2 $ — $ 12,013

(1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position.

(2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option.

Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.”

As of December 31, 2019 and 2018, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments by length of time those individual securities have been in a continuous loss position was as follows:

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 42 million and $ 54 million at December 31, 2020 and December 31, 2019, respectively, and were included in other current assets on our consolidated balance sheets.

As of December 31, 2020 and 2019, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses has not been deemed necessary in the current period, aggregated by length of time those individual securities have been in a continuous loss position was as follows:

December 31, 2020 (1)

Less than 12 months

12 months or longer

Less than 12 months 12 months or longer Total

Fair Value Gross

Losses Fair Value Gross

(In millions)

4 unchanged sentences

Short-term investments:

government and agency securities 270 — — — 270 —

Foreign government and agency securities 72 — — — 72 —

4 unchanged sentences

Corporate debt securities 97 — — — 97 —

Asset-backed securities 15 — — — 15 —

Total available-for-sale debt securities $ 2,585 $ ( 1 ) $ — $ — $ 2,585 $ ( 1 )

3 unchanged sentences

December 31, 2019 (1)

Less than 12 months

12 months or longer

Less than 12 months 12 months or longer Total

Fair Value Gross

Losses Fair Value Gross

(In millions)

4 unchanged sentences

Short-term investments:

Foreign government and agency securities 115 — — — 115 —

Corporate debt securities 424 — — — 424 —

Long-term investments:

government and agency securities 100 — — — 100 —

Foreign government and agency securities 75 — — — 75 —

Corporate debt securities 1 — 40 — 41 —

Asset-backed securities 26 — 4 — 30 —

Total available-for-sale debt securities $ 4,581 $ — $ 74 $ — $ 4,655 $ —

(1) — Denotes gross unrealized loss or fair value of less than $1 million in a given position.

We believe the decline in value is due to temporary market conditions and expect to recover the entire amortized cost basis of the available-for-sale debt securities.

We neither intend nor anticipate the need to sell the securities before recovery.

We will continue to monitor the performance of the investment portfolio and assess market and interest rate risk when evaluating whether an other-than-temporary impairment exists.

Unrealized losses have not been recognized into income as we neither intend to sell nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery.

The decline in fair value is due primarily to changes in market conditions, rather than credit losses.

We will continue to monitor the performance of the investment portfolio and assess whether impairment due to expected credit losses has occurred.

Amounts reclassified to earnings from unrealized gains and losses were not material for the year ended December 31, 2020 and 2019.

1 unchanged sentence

December 31, 2020

Amortized Cost

Amortized Cost Fair Value

(In millions)

1 unchanged sentence

After one year through five years 4,168 4,174

After five years through ten years

Total $ 21,584 $ 21,595

STRATEGIC INVESTMENTS

Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are investments in privately held companies.

Our marketable equity securities have readily determinable fair values and are recorded as long-term investments on our consolidated balance sheets at fair value with changes in fair value recorded in other income (expense), net.

Marketable equity securities totaled $ 1.3 billion as of December 31, 2019 .

We had no such securities as of December 31, 2018 .

Non-marketable equity securities are recorded in long-term investments on our consolidated balance sheets.

As of December 31, 2019 , we had $ 27 million of non-marketable equity securities where we have the ability to exercise significant influence, but not control, over the investee and account for these equity securities using the equity method of accounting.

The remaining non-marketable equity securities do not have a readily determinable fair value and we measure these equity investments using the Measurement Alternative.

Marketable equity securities totaled $ 2.4 billion and $ 1.3 billion as of December 31, 2020 and 2019, respectively, including the impact of the sale of securities during the year ended December 31, 2020.

Our non-marketable equity securities are recorded in long-term investments on our consolidated balance sheets.

As of December 31, 2020 and 2019, we had non-marketable equity securities of $ 10 million and $ 27 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee and account for these equity securities using the equity method of accounting.

The remaining non-marketable equity securities do not have a readily determinable fair value and we measure these equity investments at cost minus impairment, if any, and adjust for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer.

All gains and losses on these investments, realized and unrealized, and our share of earnings or losses from investments accounted for using the equity method are recognized in other income (expense), net on our consolidated statements of income.

3 unchanged sentences

Measurement Alternative Adjustments

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the year ended December 31, 2019 and 2018 were as follows:

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the years ended December 31, 2020 and 2019 were as follows:

Year Ended December 31,

6 unchanged sentences

Carrying amount, end of period $ 779 $ 497

(1) Net additions includes additions from purchases and reductions due to sales of securities and reclassifications when Measurement Alternative no longer applies.

Cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative held at December 31, 2019 were approximately $ 230 million and $ 5 million , respectively.

Cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative held at December 31, 2018 were approximately $ 91 million and $ 5 million , respectively.

Gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method

Net unrealized gains recognized in the year ended December 31, 2019 and 2018 related to marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at December 31, 2019 and 2018 were approximately $ 203 million and $ 86 million , respectively.

(1) Net additions include additions from purchases, reductions due to sales of securities, and reclassifications when Measurement Alternative is subsequently elected or no longer applies.

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative for investments held at December 31, 2020 and 2019:

2020 December 31,

(In millions)

Cumulative gross unrealized gains $ 378 $ 230

Cumulative gross unrealized losses and impairment $ ( 27 ) $ ( 5 )

Unrealized gains (losses) on strategic investments, excluding those accounted for using the equity method

The following table summarizes the net unrealized gain (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at December 31, 2020 and 2019:

Year Ended December 31,

(In millions)

Net unrealized gains $ 1,610 $ 203

PayPal Holdings, Inc.

3 unchanged sentences

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019:

December 31, 2019

Quoted Prices in

December 31, 2020 Quoted Prices in

Active Markets for

Identical Assets

Significant Other

Observable Inputs

Significant Other Observable Inputs (Level 2)

(In millions)

Cash and cash equivalents (1)

$ 867 $ — $ 867

Short-term investments (2) :

government and agency securities 1,510 — 1,510

Foreign government and agency securities 277 — 277

7 unchanged sentences

Total funds receivable and customer accounts 16,771 — 16,771

Derivatives 42 — 42

Long-term investments (2), (4) :

2 unchanged sentences

Corporate debt securities 1,259 — 1,259

Asset-backed securities 228 — 228

Marketable equity securities 2,443 2,443 —

1 unchanged sentence

Total financial assets $ 29,631 $ 2,443 $ 27,188

Derivatives $ 410 $ — $ 410

(1) Excludes cash of $ 3.9 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $ 64 million and time deposits of $ 614 million not measured and recorded at fair value.

(2) Excludes restricted cash of $ 88 million and time deposits of $ 1.6 billion not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $ 16.6 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2018

Significant Other

Observable Inputs

December 31, 2019 Quoted Prices in

Active Markets for

Identical Assets

Significant Other Observable Inputs (Level 2)

(In millions)

Cash and cash equivalents (1)

$ 2,835 $ — $ 2,835

Short-term investments (2) :

8 unchanged sentences

Total funds receivable and customer accounts 10,873 — 10,873

Derivatives 135 — 135

Long-term investments (4) :

government and agency securities 140 — 140

Foreign government and agency securities 207 — 207

Corporate debt securities 638 — 638

Asset-backed securities 40 — 40

Marketable equity securities 1,314 1,314 —

Total long-term investments 2,339 1,314 1,025

Total financial assets $ 18,916 $ 1,314 $ 17,602

Derivatives $ 122 $ — $ 122

(1) Excludes cash of $ 4.5 billion not measured and recorded at fair value.

1 unchanged sentence

(3) Excludes cash, time deposits, and funds receivable of $ 11.7 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity investments of $ 293 million measured using the Measurement Alternative.

(4) Excludes non-marketable equity securities of $ 524 million measured using the Measurement Alternative or equity method accounting.

Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1).

3 unchanged sentences

Certain foreign currency contracts designated as cash flow hedges may have a duration of up to 18 months.

We did not have any transfers of financial instruments between valuation levels during the years ended December 31, 2019 and 2018 .

As of December 31, 2019 , we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3).

PayPal Holdings, Inc.

2 unchanged sentences

Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the consolidated statements of income to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities.

The following table summarizes the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments and long-term investments under the fair value option as of December 31, 2019 and 2018 :

December 31, 2019

December 31, 2018

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of December 31, 2020 and 2019:

December 31, 2020 December 31, 2019

(In millions)

1 unchanged sentence

Short-term investments $ — $ 246

Long-term investments

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments under the fair value option for the years ended December 31, 2019 and 2018 :

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the years ended December 31, 2020 and 2019 :

Year Ended December 31,

3 unchanged sentences

FINANCIAL ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

The following tables summarizes our financial assets and liabilities held as of December 31, 2019 and 2018 for which a non-recurring fair value measurement was recorded during the year ended December 31, 2019 and 2018 :

Year Ended December 31, 2019

Significant Other

Observable Inputs

The following tables summarize our financial assets and liabilities held as of December 31, 2020 and 2019 for which a non-recurring fair value measurement was recorded during the year ended December 31, 2020 and 2019, respectively:

December 31, 2020 Significant Other Observable Inputs (Level 2)

(In millions)

Non-marketable equity investments measured using the Measurement Alternative (1)

Other assets (2)

Total $ 379 $ 379

(1) Excludes non-marketable equity investments of $ 444 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2020.

Year Ended December 31, 2018

Significant Other

Observable Inputs

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges recorded in 2020.

See “Note 6—Leases” for additional information.

December 31, 2019 Significant Other Observable Inputs (Level 2)

(In millions)

1 unchanged sentence

(1) Excludes non-marketable equity investments of $ 194 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2019.

We measured these non-marketable equity investments accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or a similar investment in the same issuer.

We measure the non-marketable equity investments accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer.

Impairment losses on ROU lease assets related to office operating leases are calculated initially using estimated rental income per square foot derived from observable market data.

PayPal Holdings, Inc.

1 unchanged sentence

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, notes receivable, and short-term debt are carried at amortized cost, which approximates their fair value.

Our long-term debt carried at amortized cost had a carrying value and fair value of approximately $ 5.0 billion as of December 31, 2019 .

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, and notes receivable are carried at amortized cost, which approximates their fair value.

Our fixed rate debt had a carrying value of approximately $ 8.9 billion and fair value of approximately $ 9.7 billion as of December 31, 2020.

Our fixed rate debt had a carrying value and fair value of approximately $ 5.0 billion as of December 31, 2019.

If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1;

restricted cash, time deposits, certain customer accounts, short-term debt, and long-term debt would be classified as Level 2;

restricted cash, time deposits, certain customer accounts, and long-term debt would be classified as Level 2;

and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy.

7 unchanged sentences

Cash Flow Hedges

We transact business in various foreign currencies and have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency risk.

We have a foreign currency exposure management program whereby we designate certain foreign currency exchange contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies.

We have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency risk.

We have a foreign currency exposure management program in which we designate certain foreign currency exchange contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies.

The objective of the foreign currency exchange contracts is to help mitigate the risk that the U.S.

7 unchanged sentences

Accordingly, the cash flows associated with derivatives designated as cash flow hedges are classified in cash flows from operating activities on our consolidated statements of cash flows.

As of December 31, 2019 , we estimate that $ 18 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

As of December 31, 2020, we estimate that $ 287 million of net derivative losses related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the years ended December 31, 2020, 2019, and 2018, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

2 unchanged sentences

Net Investment Hedge

We use a forward foreign currency exchange contract to reduce the foreign currency risk related to our investment in a foreign subsidiary.

This derivative is designated as a net investment hedge and accordingly, the derivative's gain and loss is recorded in AOCI as part of foreign currency translation.

We used a forward foreign currency exchange contract to reduce the foreign currency exchange risk related to our investment in a foreign subsidiary.

This derivative was designated as a net investment hedge and accordingly, the derivative’s gain and loss was recorded in AOCI as part of foreign currency translation.

During the second quarter of 2020, this derivative matured.

The accumulated gains and losses associated with this instrument will remain in AOCI until the foreign subsidiary is sold or substantially liquidated, at which point they will be reclassified into earnings.

We did not exclude any component of the changes in fair value of the derivative instrument from the assessment of hedge effectiveness.

The cash flow associated with the derivative designated as a net investment hedge is classified in cash flows from investing activities on our consolidated statements of cash flows.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2019 , we recognized $ 31 million in unrealized loss on our foreign currency exchange contract designated as a net investment hedge within the foreign currency translation section of other comprehensive income.

During the year ended December 31, 2018 , we did no t have a net investment hedge.

Additionally, we have no t reclassified any gains or losses from AOCI into earnings during any of the periods presented.

During the year ended December 31, 2020 and 2019, we recognized $ 55 million in unrealized gain and $ 31 million in unrealized loss, respectively, on the foreign currency exchange contract designated as a net investment hedge within the foreign currency translation section of other comprehensive income.

We have no t reclassified any gains or losses from AOCI into earnings during any of the periods presented.

Foreign Currency Exchange Contracts Not Designated As Hedging Instruments

We have a foreign currency exposure management program whereby 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 gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which is offset by the gains and losses on these foreign exchange contracts.

We have a foreign currency exposure management program 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 foreign currency exchange rate movements on our assets and liabilities.

The gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which are offset by the gains and losses on these foreign currency exchange contracts.

The cash flows associated with our non-designated derivatives that hedge foreign currency denominated monetary assets and liabilities are classified in cash flows from operating activities on our consolidated statements of cash flows.

1 unchanged sentence

The fair value of our outstanding derivative instruments as of December 31, 2020 and 2019 was as follows:

Balance Sheet Location

As of December 31,

Balance Sheet Location As of December 31,

Derivative Assets:

(In millions)

Foreign currency exchange contracts designated as hedging instruments

Other current assets

Foreign currency exchange contracts designated as hedging instruments

Other assets (non-current)

Foreign currency exchange contracts not designated as hedging instruments

Other current assets

Foreign currency exchange contracts designated as hedging instruments Other current assets $ — $ 45

Foreign currency exchange contracts designated as hedging instruments Other assets (non-current) — 1

Foreign currency exchange contracts not designated as hedging instruments Other current assets 42 89

Total derivative assets $ 42 $ 135

Derivative Liabilities:

Foreign currency exchange contracts designated as hedging instruments

Other current liabilities

Foreign currency exchange contracts designated as hedging instruments

Other long-term liabilities

Foreign currency exchange contracts not designated as hedging instruments

Other current liabilities

Foreign currency exchange contracts designated as hedging instruments Other current liabilities $ 287 $ 58

Foreign currency exchange contracts designated as hedging instruments Other long-term liabilities 35 13

Foreign currency exchange contracts not designated as hedging instruments Other current liabilities 88 51

Total derivative liabilities $ 410 $ 122

4 unchanged sentences

We have entered into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds.

We posted $ 12 million in cash collateral related to our derivative liabilities as of December 31, 2019 and no cash collateral as of December 31, 2018 , which is recognized in other current assets on our consolidated balance sheets, and is related to the right to reclaim cash collateral.

We received $ 39 million and $ 195 million in counterparty cash collateral related to our derivative assets as of December 31, 2019 and 2018 , respectively, which is recognized in other current liabilities on our consolidated balance sheets and is related to the obligation to return cash collateral.

We received no counterparty non-cash collateral as of December 31, 2019 and $ 6 million as of December 31, 2018 in the form of debt securities.

The following table provides the collateral exchanged:

2020 December 31,

(In millions)

Cash collateral posted (1)

Cash collateral received (2)

(1) Right to reclaim cash collateral related to our derivative liabilities recognized in other current assets on our consolidated balance sheets.

(2) Obligation to return counterparty cash collateral related to our derivative assets recognized in other current liabilities on our consolidated balance sheets.

PayPal Holdings, Inc.

3 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions)

3 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions)

Gains (losses) on foreign exchange contracts recognized in other income (expense), net

Gains (losses) on foreign exchange contracts recognized in net revenues

Total gains (losses) recognized from foreign exchange contracts not designated as hedging instruments

(Losses) gains on foreign exchange contracts recognized in other income (expense), net $ ( 110 ) $ 24 $ 38

Gains on foreign exchange contracts recognized in net revenues — — 7

Losses on equity derivative contracts recognized in other income (expense), net (1)

Total (losses) gains recognized from contracts not designated as hedging instruments $ ( 174 ) $ 24 $ 45

(1) During the year ended December 31, 2020, equity derivative contracts were entered into and matured which related to the sale of a portion of a strategic investment.

The cash flows associated with the equity derivative contracts are classified in cash flows from investing activities on our consolidated statements of cash flows.

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

7 unchanged sentences

Foreign exchange contracts not designated as hedging instruments 16,098 17,131

Total $ 21,433 $ 21,681

PayPal Holdings, Inc.

2 unchanged sentences

We offer credit products to consumers and certain small and medium-sized merchants.

We work with independent chartered financial institutions that extend credit to the consumer or merchant using our credit products in the U.S.

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

Prior to July 2018, we purchased receivables related to credit extended to U.S.

consumers by independent chartered financial institutions and were responsible for servicing functions related to that portfolio.

Following the completion of the sale of our U.S.

consumer credit receivables portfolio to Synchrony in July 2018, we no longer purchased receivables related to the U.S.

consumer loans, but remained responsible for the servicing functions related to the sold portfolio through a transition period which ended in the second quarter of 2019.

We purchase receivables related to credit extended to U.S.

1 unchanged sentence

During the year ended December 31, 2020 and 2019, we purchased approximately $ 1.8 billion and $ 4.7 billion in credit receivables, respectively.

The credit receivables purchased during the year ended December 31, 2018 included purchases associated with our U.S.

consumer credit receivables portfolio, which was designated as held for sale in November 2017 until the completion of the sale to Synchrony in July 2018.

In November 2017, we reached an agreement to sell our U.S.

consumer credit receivables portfolio to Synchrony.

Historically, this portfolio was reported as outstanding principal balances, net of any participation interest sold and pro rata allowances, including unamortized deferred origination costs and estimated collectible interest and fees.

Upon approval by our Board of Directors to sell these receivables, the portfolio was reclassified as held for sale and recorded at the lower of cost or fair value, determined on an aggregate basis.

For the year ended December 31, 2017 , due to the designation as held for sale, the associated allowance for this portfolio was reversed, resulting in an increase of approximately $ 39 million in revenue from other value added services and a decrease of approximately $ 283 million in transaction and loan losses on our consolidated statements of income.

In July 2018, we completed the sale of this portfolio to Synchrony, approximately at par, for total consideration of $ 6.9 billion , which includes cash consideration of $ 6.5 billion and a long-term note receivable in the amount of $ 426 million , which was recorded at its present value at the time of the completion of the sale in the amount of $ 261 million in other assets on our consolidated balance sheets.

This amount is subject to accretion over the term of the arrangement, and is not reflected as a cash item on our consolidated statements of cash flows.

The purchase price was subject to post-closing true-up and certain other adjustments under the terms of the purchase agreement.

During the year ended December 31, 2018 , additional expenses incurred due to this transaction resulted in a net loss of approximately $ 40 million recorded in restructuring and other expenses on our consolidated statements of income, and during the year ended December 31, 2019 , we recorded a gain of $ 7 million representing an adjustment to the consideration exchanged in the sale.

PayPal also earns a revenue share on the portfolio of consumer receivables owned by Synchrony, which includes both the sold and newly generated receivables.

The transaction was accounted for as a true sale based on our determination that it met all the necessary criteria for such accounting, including legal isolation for transferred assets, ability of the transferee to pledge or exchange the transferred assets without constraint, and the transfer of control.

We also concluded that our continuing involvement in the revenue share arrangement does not invalidate this determination.

CONSUMER RECEIVABLES

We offer credit products to consumers who choose PayPal Credit at checkout.

As of December 31, 2019 and 2018 , the outstanding balance of consumer receivables, which primarily consisted of loans and interest receivable due from international consumer accounts, was $ 1.3 billion and $ 704 million , respectively.

We closely monitor credit quality for our consumer receivables to manage and evaluate our related exposure to credit risk.

We offer revolving and installment credit products to consumers at checkout.

The majority of these installment loans allow consumers to pay for a product over periods of 12 months or less.

As of December 31, 2020 and 2019, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 2.2 billion and $ 1.3 billion, respectively.

We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk.

Credit risk management begins with initial underwriting and continues through to full repayment of a loan.

To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal historical experience, including the consumer’s prior repayment history with PayPal Credit products as well as other measures.

We use delinquency status and trends to assist in making new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in our determination of our allowance for consumer loans and interest receivable.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We use delinquency status and trends to assist in making new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable.

Consumer Receivables Delinquency and Allowance

The following tables present the delinquency status of the principal amount of consumer loans and interest receivable.

The amounts shown below are based on the number of days past the billing date to the consumer.

Current represents balances that are within 30 days of the billing date.

December 31, 2019

(In millions)

The following table presents the delinquency status of consumer loans and interest receivable at December 31, 2020 and 2019.

Since our consumer loans are primarily revolving in nature, they are disclosed in the aggregate and not by year of origination.

The amounts are based on the number of days past the billing date.

The “current” category represents balances that are within 29 days of the billing date.

December 31, 2020 December 31, 2019

Amortized Cost Basis Revolving Percent Amortized Cost Basis

Revolving Percent

(In millions, except percentages)

Current $ 2,124 97.9 % $ 1,279 96.7 %

30-59 days 15 0.7 % 15 1.1 %

Total Past 30 days

December 31, 2018

(In millions)

60-89 days 11 0.5 % 9 0.7 %

Total Past 30 days

We charge off consumer loan receivable balances in the month in which a customer’s balance becomes 180 days past the payment due date.

Bankrupt accounts are charged off within 90 days after receipt of notification of bankruptcy.

Loans receivable past the payment due date continue to accrue interest until they are charged off.

We record an allowance for loss against the interest receivable.

90-179 days 19 0.9 % 19 1.5 %

Total consumer loans and interest receivable (1), (2), (3)

$ 2,169 100.0 % $ 1,322 100.0 %

(1) Excludes receivables from other consumer credit products of $ 56 million and $ 92 million at December 31, 2020 and December 31, 2019, respectively.

(2) Includes installment loans of $ 556 million and $ 80 million at December 31, 2020 and December 31, 2019, respectively, substantially all of which were current and originated within the past 12 months.

(3) Balances at December 31, 2020 include the impact of payment holidays provided primarily in the second quarter of 2020 by the Company to some consumers as a part of our COVID-19 payment relief initiatives.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the years ended December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

Consumer Loans Receivable

Interest Receivable

Total Allowance

Consumer Loans Receivable

Interest Receivable

Total Allowance (1)

December 31, 2020 December 31, 2019

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 245 50 295 34 11 45

Charge-offs ( 69 ) ( 12 ) ( 81 ) ( 44 ) ( 6 ) ( 50 )

Recoveries (2)

27 — 27 31 — 31

23 3 26 1 — 1

Ending Balance $ 299 $ 53 $ 352 $ 49 $ 8 $ 57

(1) Beginning balance includes approximately $ 50 million of U.S.

consumer credit receivables that were fully reserved and have been charged off as of December 31, 2018 .

(1) Excludes allowances from other consumer credit products of $ 3 million and $ 10 million at December 31, 2020 and December 31, 2019, respectively.

(2) The recoveries were primarily related to fully charged-off U.S.

consumer receivables not subject to the sale to Synchrony.

The tables above exclude receivables from other consumer credit products of $ 92 million and $ 96 million at December 31, 2019 and 2018 , respectively, and allowances of $ 10 million and $ 12 million at December 31, 2019 and 2018 , respectively.

The provision for loan losses relating to our consumer loans receivable portfolio is recognized in transaction and loan losses.

The provision for interest receivable due to interest earned on our consumer loans receivable portfolio is recognized in net revenues from other value added services as a reduction to revenue.

consumer credit receivables not subject to the sale to Synchrony.

(3) Includes amounts related to foreign currency remeasurement.

Provisions for the year ended December 31, 2020 were primarily attributable to changes in current and projected macroeconomic conditions, including the impact of qualitative adjustments primarily related to the impact of payment holidays provided as part of our COVID-19 payment relief initiatives, and the overall growth in our portfolio.

The increase in charge-offs for the year ended December 31, 2020 was primarily attributable to the overall growth in our portfolio.

The provision for current expected credit losses relating to our consumer loans receivable portfolio is recognized in transaction and credit losses on our consolidated statements of income.

The provision for interest receivable due to interest earned on our consumer loans receivable portfolio is recognized in revenues from other value added services as a reduction to revenue.

Loans receivable past the payment due date continue to accrue interest until they are charged off.

We charge off consumer receivable balances in the month in which a customer’s balance becomes 180 days past the billing date.

Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy.

Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

MERCHANT RECEIVABLES

We offer business financing solutions to certain small and medium-sized merchants through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products.

We offer access to credit products for certain small and medium-sized merchants through our PPWC and PPBL products, which we collectively refer to as our merchant lending offerings.

As of December 31, 2020 and 2019, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.4 billion and $ 2.8 billion, respectively, net of the participation interest sold to an independent chartered financial institution of $ 59 million and $ 124 million, respectively.

See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information on this participation arrangement.

Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant.

Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes.

Through our PPBL product, we provide merchants with access to short-term business financing for a fixed fee based on an evaluation of the applying business as well as the business owner.

PPBL repayments are collected through periodic payments until the balance has been satisfied.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Through our PPWC product, a merchant can borrow a certain percentage of their annual payment volume processed by PayPal and is charged a fixed fee for the loan or advance, which targets an annual percentage rate based on the overall credit assessment of the merchant.

Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes.

Through our PPBL product, we provide merchants with access to short-term business financing for a fixed fee based on an evaluation of both the applying business as well as the business owner.

PPBL repayments are collected by periodic payments until the balance has been satisfied.

The interest or fee is fixed at the time the loan or advance is extended and recognized as deferred revenues included in accrued expenses and other current liabilities on our consolidated balance sheets.

The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenues included in accrued expenses and other current liabilities on our consolidated balance sheets.

The fixed interest or fee is amortized to revenues from other value added services based on the amount repaid over the repayment period.

We estimate the repayment period based on the merchant’s payment processing history with PayPal, where available.

We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal, where available.

For PPWC, there is a general requirement that at least 10 % of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days.

3 unchanged sentences

For PPBL, we receive fixed periodic payments over the contractual term of the loan which generally ranges from 3 to 12 months.

We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period.

We closely monitor credit quality for our merchant loans and advances that we extend or purchase so that we can evaluate, quantify, and manage our credit risk exposure.

To assess a merchant seeking a business financing loan or advance, we use, among other indicators, risk models developed internally which utilize information obtained from multiple data sources, both external and internal data to predict the likelihood of timely and satisfactory repayment by the merchant of the loan or advance amount, and the related interest or fee.

Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, and prior repayment history with the PayPal products where available, elements sourced from consumer credit bureau and business credit bureau reports, and other information obtained during the application process.

We use delinquency status and trends to assist in making ongoing credit decisions, to adjust our internal models, to plan our collection practices and strategies, and in our determination of our allowance for these loans and advances.

We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period, as well as the credit quality of our merchant loans and advances that we extend or purchase so that we can evaluate, quantify, and manage our credit risk exposure.

To assess a merchant seeking a business financing loan or advance, we use, among other indicators, risk models developed internally which utilize information obtained from multiple internal and external data sources to predict the likelihood of timely and satisfactory repayment by the merchant of the loan or advance amount and the related interest or fee.

Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, and prior repayment history with PayPal’s credit products where available, information sourced from consumer and business credit bureau reports, and other information obtained during the application process.

We use delinquency status and trends to assist in making (or, in the U.S., to assist the independent chartered financial institution in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans and advances.

Merchant Receivables Delinquency and Allowance

The following tables present our estimate of the principal amount of merchant loans, advances, and interest and fees receivable past their original expected or contractual repayment period.

The following table presents the delinquency status of the principal amount of merchant loans, advances, and interest and fees receivable by year of origination.

The amounts are based on the number of days past the expected or contractual repayment date for amounts outstanding.

The “current” category represents balances that are within 29 days of the contractual repayment dates, or within 29 days of the expected repayment date.

December 31, 2020

(In millions)

Within Original Expected Repayment Period

30 - 59 Days Greater

60 - 89 Days Greater

90 - 180 Days Greater

Total Past Original Expected Repayment Period

(In millions, except percentages)

2020 2019 2018 2017 2016 Total Percent

Current $ 884 $ 154 $ 4 $ — $ — $ 1,042 75.4 %

30 - 59 Days 56 46 3 — — 105 7.6 %

60 - 89 Days 29 30 3 — — 62 4.5 %

90 - 179 Days 58 77 7 — — 142 10.3 %

180+ Days 6 20 5 — — 31 2.2 %

$ 1,033 $ 327 $ 22 $ — $ — $ 1,382 100 %

(1) Balances include the impact of payment holidays provided primarily during the second quarter of 2020 and modification programs offered by the Company as a part of our COVID-19 payment relief initiatives (as discussed further below).

The following table presents our estimate of the principal amount of merchant loans, advances, and interest and fees receivable past their original expected or contractual repayment period as of December 31, 2019, prior to the adoption of the new credit losses accounting guidance as described in “Note 1—Overview and Summary of Significant Accounting Policies.”

December 31, 2019

(In millions)

Within Original Expected Repayment Period

30 - 59 Days Greater

60 - 89 Days Greater

90 - 180 Days Greater

Total Past Original Expected Repayment Period

(1) Excludes $ 30 million of loan receivables related to iZettle merchant receivables.

(In millions, except percentages)

Within Original Expected or Contractual Repayment Period 30 - 59 Days Greater 60 - 89 Days Greater 90 - 179 Days Greater 180+ Days Total Past Original Expected or Contractual Repayment Period Total

$ 2,523 $ 115 $ 61 $ 100 $ 17 $ 293 $ 2,816

89.6 % 4.1 % 2.1 % 3.6 % 0.6 % 10.4 % 100 %

PayPal Holdings, Inc.

1 unchanged sentence

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable, for the years ended December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

Merchant Loans and Advances

Interest & Fees Receivable

Total Allowance

Merchant Loans and Advances

Interest & Fees Receivable

Total Allowance

December 31, 2020 December 31, 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 358 33 391 240 26 266

Charge-offs ( 274 ) ( 27 ) ( 301 ) ( 201 ) ( 21 ) ( 222 )

Recoveries 20 — 20 17 — 17

Ending Balance $ 440 $ 43 $ 483 $ 171 $ 20 $ 191

For merchant loans and advances, the determination of delinquency, from current to 180 days past due, is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period.

We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past due.

Provisions for the year ended December 31, 2020 were primarily attributable to changes in current and projected macroeconomic conditions as well as originations occurring primarily in the first quarter of 2020.

The provisions associated with changes in current and projected macroeconomic conditions included the impact of qualitative adjustments to account for limitations in our current expected credit loss models that have arisen due to the extreme fluctuations in both the actual and projected macroeconomic conditions during the period and to incorporate varying degrees of merchant performance in the current environment and expected performance in future periods.

The increase in charge-offs for the year ended December 31, 2020 was primarily attributable to a significant expansion of the portfolio in 2019.

For merchant loans and advances, the determination of delinquency is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period.

We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date.

We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment within the last 60 days.

Bankrupt accounts are charged off within 60 days of receiving notification of bankruptcy.

The provision for loan losses is recognized in transaction and loan losses, and the provision for interest and fees receivable is recognized as a reduction of deferred revenues included in accrued expenses and other current liabilities on our consolidated balance sheets.

The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses, and the provision for interest and fees receivable is recognized as a reduction of deferred revenues included in accrued expenses and other current liabilities on our consolidated balance sheets.

Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

Troubled Debt Restructurings

In instances where a merchant is able to demonstrate that they are experiencing financial difficulty, there may be a modification of the loans or advances and the related interest receivable for which it is probable that without modification we will be unable to collect all amounts due.

These modifications are intended to provide merchants with financial relief, and to help enable us to mitigate losses.

These modifications include an increase in term by 1 to 5.5 years while moving the delinquency status to current.

The fee on some of these loans or advances remains unchanged over the extended term.

Alternatively, certain loans and advances have been modified to replace the initial fixed fee structure at the time the loan or advance was extended with a fixed annual percentage rate applied over the amended remaining term, which will continue to accrue interest at the fixed rate until the earlier of maturity or charge-off.

These modifications had a de minimis impact on our consolidated statements of income in the year ended December 31, 2020.

Allowances for TDRs are assessed separately from other loans within our portfolio and are determined by estimating current expected credit losses utilizing the modified term and interest rate assumptions.

Historical loss estimates are utilized in addition to macroeconomic assumptions to determine expected credit loss rates.

Further, we include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table shows the merchant loans and interest receivables which have been modified as TDRs in the year ended December 31, 2020:

Number of Accounts

(in thousands) Outstanding Balances (1)

(in millions)

Weighted Average Payment Term Extensions

Loans and interest receivable 13 $ 354 37

(1) Balances are as of modification date.

A merchant is considered in payment default after a modification when the merchant’s payment becomes 60 days past their expected or contractual repayment date.

For loans that have defaulted after being modified, the increased estimate of current expected credit loss is factored into overall expected credit losses.

As of December 31, 2020, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments were de minimis.

NOTE 12— DEBT

Long-term Debt

On September 26, 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion (collectively referred to as the “Notes”).

The Notes are senior unsecured obligations.

Interest is payable in arrears semiannually (payable March 26 and September 26 for the Notes due in 2022 and payable April 1 and October 1 for the remaining Notes).

We may redeem the Notes in whole at any time or in part from time to time, prior to maturity, at the redemption price.

Upon the occurrence of both a change of control and a downgrade of the Notes below an investment grade rating, we will be required to offer to repurchase each series of Notes at a price equal to 101 % of the then outstanding principal amount, plus accrued and unpaid interest.

FIXED RATE NOTES

On May 18, 2020, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 4.0 billion.

Interest on these notes is payable on June 1 and December 1 of each year, beginning on December 1, 2020.

On September 26, 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion.

Interest on these notes is payable in arrears semiannually (payable March 26 and September 26 for the notes due in 2022 and payable April 1 and October 1 for the remaining notes).

The notes issued from the May 2020 and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” We may redeem these Notes in whole, at any time, or in part, from time to time, prior to maturity, at their redemption prices.

Upon the occurrence of both a change of control of the Company and a downgrade of the Notes below an investment grade rating, we will be required to offer to repurchase each series of Notes at a price equal to 101 % of the then outstanding principal amounts, plus accrued and unpaid interest.

The Notes are subject to covenants including limitations on our ability to create liens on our assets, enter into sale and leaseback transactions, and merge or consolidate with another entity, in each case subject to certain exceptions, limitations, and qualifications.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2019 , we had an outstanding aggregate principal amount of $ 5.0 billion related to the Notes.

As of December 31, 2020 and 2019, we had an outstanding aggregate principal amount of $ 9.0 billion and $ 5.0 billion, respectively, related to the Notes.

The following table summarizes the Notes:

Balance at December 31, 2019

Effective Interest Rate

As of December 31,

Maturities Effective Interest Rate 2020 2019

(in millions)

September 2019 debt issuance of $ 5.0 billion:

Fixed-rate 2.200 % notes

9/26/2022 2.39 % $ 1,000 $ 1,000

Fixed-rate 2.400 % notes

10/1/2024 2.52 % 1,250 1,250

Fixed-rate 2.650 % notes

10/1/2026 2.78 % 1,250 1,250

Fixed-rate 2.850 % notes

10/1/2029 2.96 % 1,500 1,500

May 2020 debt issuance of $ 4 billion:

Fixed-rate 1.350 % notes

6/1/2023 1.55 % $ 1,000 $ —

Fixed-rate 1.650 % notes

6/1/2025 1.78 % 1,000 —

Fixed-rate 2.300 % notes

6/1/2030 2.39 % 1,000 —

Fixed-rate 3.250 % notes

6/1/2050 3.33 % 1,000 —

Total term debt 9,000 5,000

2 unchanged sentences

The effective interest rates for the Notes include interest on the Notes, amortization of debt issuance costs, and amortization of the debt discount.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 35 million for the year ended December 31, 2019 .

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 190 million and $ 35 million for the year ended December 31, 2020 and 2019, respectively.

CREDIT FACILITIES

Five-Year Revolving Credit Facility

On September 11, 2019, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $ 5.0 billion , five -year revolving credit facility that includes a $ 150 million letter of credit sub-facility and a $ 500 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time.

In September 2019, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $ 5.0 billion, five-year revolving credit facility that includes a $ 150 million letter of credit sub-facility and a $ 500 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time.

Loans borrowed under the Credit Agreement are available in U.S.

2 unchanged sentences

Subject to specific conditions, we may designate one or more of our subsidiaries as additional borrowers under the Credit Agreement, provided PayPal Holdings, Inc.

guarantees all borrowings and other obligations of any such subsidiaries under the Credit Agreement.

As of December 31, 2019 , no subsidiaries were designated as additional borrowers.

guarantees the portion of borrowings made available and other obligations of any such subsidiaries under the Credit Agreement.

As of December 31, 2020, certain subsidiaries were designated as additional borrowers.

Funds borrowed under the Credit Agreement may be used for working capital, capital expenditures, acquisitions, and other purposes not in contravention with the Credit Agreement.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We are obligated to pay interest on loans under the Credit Agreement and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee based on our debt rating.

Loans under the Credit Agreement bear interest at either (i) the applicable eurocurrency rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent , (ii) the applicable overnight rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent , or (iii) a formula based on the prime rate, the federal funds effective rate, or London Interbank Offered Rate (“LIBOR”) plus a margin (based on our public debt ratings) ranging from zero percent to 0.375 percent .

Loans under the Credit Agreement bear interest at either (i) the applicable eurocurrency rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, (ii) the applicable overnight rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, or (iii) a formula based on the prime rate, the federal funds effective rate, or LIBOR plus a margin (based on our public debt ratings) ranging from zero to 0.375 percent.

The Credit Agreement will terminate and all amounts owed thereunder will be due and payable in September 2024, unless the commitments are terminated earlier.

2 unchanged sentences

The financial covenant requires us to meet a quarterly financial test with respect to a maximum consolidated leverage ratio.

In March 2020, we drew down $ 3.0 billion under the Credit Agreement.

In May 2020, we repaid the $ 3.0 billion using proceeds from the May 2020 debt issuance.

As of December 31, 2020, no borrowings or letters of credit were outstanding under the Credit Agreement.

Accordingly, at December 31, 2020, $ 5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

Upon our entry into the Credit Agreement, the credit agreement that we entered into in the third quarter of 2015 providing for an unsecured $ 2.0 billion , five -year revolving credit facility was terminated.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The total interest expense and fees we recorded related to the Credit Agreement was approximately $ 16 million for the year ended December 31, 2020.

364 -Day Revolving Credit Facility

On September 11, 2019, we entered into a 364 -Day credit agreement (“ 364 -Day Credit Agreement”) that provides for an unsecured $ 1.0 billion 364 -Day revolving credit facility.

Subject to specific conditions, we may designate one or more of our subsidiaries as additional borrowers under the 364 -Day Credit Agreement, provided that PayPal Holdings, Inc.

guarantees all borrowings and other obligations of any such subsidiaries under the 364 -Day Credit Agreement.

As of December 31, 2019 , no subsidiaries were designated as additional borrowers.

Funds borrowed under the 364 -Day Credit Agreement may be used for working capital, capital expenditures, acquisitions, and other purposes not in contravention with the 364 -Credit Agreement.

We are obligated to pay interest on loans under the 364 -Day Credit Agreement and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee based on our debt rating.

Loans under the 364 -Day Credit Agreement bear interest at either (i) LIBOR plus a margin (based on our debt ratings) ranging from 0.875 percent to 1.375 percent or (ii) a formula based on the agent bank’s prime rate, the New York Federal Reserve Bank rate (the greater of the federal funds effective rate and the overnight bank funding rate), or LIBOR plus a margin (based on our public debt ratings) ranging from zero percent to 0.375 percent .

The 364 -Day Credit Agreement will terminate and all amounts owed thereunder will be due and payable in September 2020, unless the commitments are terminated earlier.

The 364 -Day Credit Agreement contains customary representations, warranties, affirmative and negative covenants (including a financial covenant), events of default, and indemnification provisions in favor of the lenders.

The negative covenants include restrictions regarding the incurrence of liens and the incurrence of subsidiary indebtedness, in each case subject to certain exceptions.

The financial covenant requires us to meet a quarterly financial test with respect to a maximum consolidated leverage ratio.

As of December 31, 2019 , no borrowings were outstanding under the 364 -Day Credit Agreement.

Accordingly, at December 31, 2019 , $ 1.0 billion of borrowing capacity was available for the purposes permitted by the 364 -Day Credit Agreement, subject to customary conditions to borrowing.

In September 2019, we entered into a 364 -Day credit agreement that provided for an unsecured $ 1.0 billion 364 -Day revolving credit facility, which terminated in September 2020.

Amended Credit Agreement

1 unchanged sentence

The Amended Credit Agreement provided for an unsecured $ 5.0 billion, 364 -day delayed-draw term loan credit facility, which was available in up to four separate borrowings until April 6, 2019.

We were obligated to pay interest on loans under the Amended Credit Agreement and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee based on our debt rating.

Borrowings and other amounts payable under the Amended Credit Agreement were guaranteed by PayPal, Inc.

Funds borrowed under the Amended Credit Agreement were available to be used to repurchase equity securities from shareholders, to repay intercompany debt, and for other general corporate purposes of the Company and our subsidiaries.

As of December 31, 2018, $ 2.0 billion was outstanding under the Amended Credit Agreement.

The borrowings outstanding as of December 31, 2018 bore interest at one-month LIBOR plus a margin of 1.125 % resulting in a weighted average interest rate of 3.34 % .

On April 5, 2019, the Company drew down an additional $ 500 million under the Amended Credit Agreement.

2 unchanged sentences

Other Available Facilities

We also maintain committed and uncommitted credit facilities in various regions throughout the world, with borrowing capacity of approximately $ 230 million in the aggregate.

This available credit, a portion of which is guaranteed by PayPal Holdings, Inc., includes facilities where we can withdraw and utilize the funds at our discretion for general corporate purposes, capital expenditures, and acquisitions.

Interest rate terms for these facilities vary by region and reflect prevailing market rates for companies with strong credit ratings.

As of December 31, 2019 , substantially all of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We also maintain an uncommitted credit facility with a borrowing capacity of approximately $ 30 million, where we can withdraw and utilize the funds at our discretion for general corporate purposes.

The interest rate term for this facility reflects prevailing market rates for companies with strong credit ratings.

As of December 31, 2020, the majority of the borrowing capacity under this credit facility was available, subject to customary conditions to borrowing.

FUTURE PRINCIPAL PAYMENTS

As of December 31, 2020, the future principal payments associated with our long term debt were as follows (in millions):

Thereafter 4,750

Total $ 9,000

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 13— COMMITMENTS AND CONTINGENCIES

As of December 31, 2020 and 2019, approximately $ 3.0 billion and $ 3.1 billion, respectively, of unused credit was available to PayPal Credit account holders.

Substantially all of the PayPal Credit account holders with unused credit are in the U.K.

While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all our PayPal Credit account holders will access their entire available credit at any given point in time.

3 unchanged sentences

Many of these proceedings are in early stages and may seek an indeterminate amount of damages.

If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements.

If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements at that time.

If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome;

4 unchanged sentences

With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable were not material for the year ended December 31, 2019 .

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material for the year ended December 31, 2020.

Except as otherwise noted for the proceedings described in this Note 13, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material.

However, legal and regulatory proceedings are inherently unpredictable and subject to significant uncertainties.

If one or more matters were resolved against us in a reporting period for amounts in excess of management’s expectations, the impact on our operating results or financial condition for that reporting period could be material.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Determining legal reserves or possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes.

We may be exposed to losses in excess of the amount recorded, and such amounts could be material.

If any of our estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our business, financial position, results of operations, or cash flows.

Regulatory Proceedings

2 unchanged sentences

Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).

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.

Subsequently, we have self-reported additional transactions that were inadvertently processed but subsequently identified 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.

On March 28, 2016, we received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (“FTC”) as part of its investigation to determine whether we, through our Venmo service, have been or are engaged in deceptive or unfair practices in violation of the Federal Trade Commission Act.

The CID requested the production of documents and answers to written questions related to our Venmo service.

We have cooperated with the FTC in connection with the CID.

On February 27, 2018, we entered into a Consent Order with the FTC in which we settled potential allegations arising from our Venmo services between 2013 and 2017.

The Consent Order does not contain a monetary penalty, but requires PayPal to make various changes to Venmo’s disclosures and business practices.

The FTC approved the final Consent Order on May 24, 2018.

As required by the Consent Order, we are working with the FTC making changes necessary to comply with the Consent Order.

Any failure to comply with the Consent Order may increase the possibility of additional adverse consequences, including litigation, additional regulatory actions, injunctions, or monetary penalties, or require further changes to our business practices, significant management time, or the diversion of significant operational resources, all of which could result in a material loss or otherwise harm our business.

As previously disclosed, 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 (“AML/CTF Act”).

On September 23, 2019, PPAU received a notice from AUSTRAC requiring that PPAU appoint an external auditor (a partner of a firm which is not our independent auditor) to review certain aspects of PPAU’s compliance with its obligations under the AML/CTF Act.

The external auditor was appointed on November 1, 2019, and PPAU is continuing to cooperate with AUSTRAC and the appointed external auditor in this matter.

As required by AUSTRAC’s notice, PPAU issued an interim report to AUSTRAC on December 31, 2019.

The external auditor is currently due to issue a final report at the end of February 2020, subject to any approved changes.

We cannot estimate the potential impact, if any, on our business or financial statements at this time.

An adverse outcome arising from the external auditor’s review and any associated proceeding or matter initiated by AUSTRAC, however, could result in 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.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 (“AML/CTF Act”).

The external auditor was appointed on November 1, 2019.

As required under the terms of AUSTRAC’s notice, as amended, PPAU issued to AUSTRAC the external auditor’s interim reports on December 31, 2019, March 13, 2020, May 6, 2020 and July 7, 2020 and a final report on August 31, 2020.

AUSTRAC has notified PPAU that its enforcement team is investigating the matters reported upon by the external auditor in its August 31, 2020 final report.

PPAU is continuing to cooperate with AUSTRAC in all respects, including remediation activities, ongoing regular engagement with AUSTRAC, responding to requests for information and documents, and reporting to AUSTRAC of international funds transfer instructions based on the operation of the AML/CTF Act.

We cannot estimate the potential impact, if any, on our business or financial statements at this time.

In the event an adverse outcome arises from any associated enforcement, proceeding, or other further matter initiated by AUSTRAC, this could result in enforceable undertakings, 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.

On January 21, 2021, we received a Civil Investigative Demand (“CID”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related matters.

The CID requests the production of documents and answers to written questions.

We are cooperating with the CFPB in connection with this CID.

Legal Proceedings

In November 2017, we announced that we had suspended the operations of TIO Networks (“TIO”) as part of an ongoing investigation of security vulnerabilities of the TIO platform.

On December 1, 2017, we announced that we had identified evidence of unauthorized access to TIO’s network, including locations that stored personal information of some of TIO’s customers and customers of TIO billers and the potential compromise of personally identifiable information for approximately 1.6 million customers.

We have received a number of governmental inquiries, including from state attorneys general, and we may be subject to additional governmental inquiries and investigations in the future.

In addition, on December 6, 2017, a putative class action lawsuit captioned Sgarlata v.

PayPal Holdings, Inc., et al.

3:17-cv-06956-EMC was filed in the U.S.

District Court for the Northern District of California (the “Court”) against the Company, its Chief Executive Officer, its Chief Financial Officer, and Hamed Shahbazi, the former chief executive officer of TIO, (the “Defendants”) alleging violations of federal securities laws.

The initial compliant alleged that Defendants made false or misleading statements or failed to disclose that TIO’s data security program was inadequate to safeguard the personally identifiable information of its users, those vulnerabilities threatened continued operation of TIO’s platform, the Company’s revenues derived from TIO services were thus unsustainable, and consequently, the Company overstated the benefits of the TIO acquisition, and, as a result, the Company’s public statements were materially false and misleading at all relevant times.

The plaintiff who initiated the lawsuit sought to represent a class of shareholders who acquired shares of the Company’s common stock between February 14, 2017 through December 1, 2017 and sought damages and attorneys’ fees, among other relief.

On March 16, 2018, the Court appointed two new plaintiffs, not the original plaintiff who filed the case, as interim co-lead plaintiffs in the case and appointed two law firms as interim co-lead counsel.

On June 13, 2018, the interim co-lead plaintiffs filed a first amended complaint, which named TIO Networks ULC, TIO Networks USA, Inc., and John Kunze (the Company’s Vice President, Global Consumer Products and Xoom) as additional defendants.

The first amended complaint was purportedly brought on behalf of all persons other than the Defendants who acquired the Company’s securities between November 10, 2017 and December 1, 2017.

The amended complaint alleged that the Company’s and TIO’s November 10, 2017 announcement of the suspension of TIO’s operations was false and misleading because the announcement only disclosed security vulnerabilities on TIO’s platform, rather than an actual security breach that Defendants were allegedly aware of at the time of the announcement.

Defendants’ filed their motion to dismiss the first amended complaint on July 13, 2018 and the Court granted the motion, without prejudice, on December 13, 2018.

Plaintiffs filed a second amended complaint on January 14, 2019.

The second amended complaint alleges substantially the same theory of liability as the first amended complaint, but no longer names Hamed Shabazi as a defendant.

The remaining Defendants filed their motion to dismiss the second amended complaint on March 15, 2019, and a hearing was held on July 16, 2019.

The court granted Defendant’s motion to dismiss with prejudice on September 18, 2019;

plaintiffs have filed a notice of appeal.

On December 1, 2017, we announced that we had identified evidence of unauthorized access to TIO’s network and the potential compromise of personally identifiable information for approximately 1.6 million TIO customers.

We have received a number of governmental inquiries, and we may be subject to additional inquiries in the future.

In addition, on December 6, 2017, a putative class action lawsuit was filed in the U.S.

District Court for the Northern District of California (the “Court”) against the Company, its Chief Executive Officer, its Chief Financial Officer and Hamed Shahbazi, the former chief executive officer of TIO alleging violations of federal securities laws.

The plaintiffs filed their operative, second amended complaint (the “SAC”) on July 13, 2018.

The SAC names TIO Networks ULC, TIO Networks USA, Inc., and John Kunze (at that time, the Company’s Vice President, Global Consumer Products and Xoom) as additional defendants, but no longer names Hamed Shabazi as a defendant.

The SAC is purportedly brought on behalf of all persons other than the defendants who acquired the Company’s securities between November 10, 2017 and December 1, 2017, and alleges that the Company’s November 2017 announcement was false and misleading because it only disclosed security vulnerabilities on TIO’s platform, rather than an actual security breach affecting millions of TIO users that defendants were allegedly aware of at the time of the announcement.

Defendants filed their motion to dismiss the SAC on March 15, 2019, and the Court granted the defendants’ motion with prejudice on September 18, 2019.

Plaintiffs appealed the dismissal to the U.S.

Court of Appeals for the Ninth Circuit, and on December 17, 2020, the Ninth Circuit issued a memorandum decision affirming the dismissal.

We may be subject to additional litigation relating to TIO’s data security platform or the suspension of TIO’s operations in the future.

See “Note 4—Business Combinations” and “Note 5—Goodwill and Intangible Assets” to our consolidated financial statements for additional disclosure relating to the suspension of operations of TIO.

General Matters

7 unchanged sentences

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable law, or that we have acted unfairly and/or not acted in conformity with such prices, rules, policies, or agreements.

In addition to these types of disputes and regulatory inquiries, our operations are also subject to regulatory and/or legal review and/or challenges that tend to reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on our business and customers and may lead to increased costs and decreased transaction volume and revenue.

Further, the number and significance of these disputes and inquiries are increasing as we have grown larger, our business has expanded in scope (both in terms of the range of products and services that we offer and our geographical operations), and our products and services have increased in complexity.

In addition to these types of disputes and regulatory inquiries, our operations are also subject to regulatory and/or legal review and/or challenges that may reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on our business and customers and may lead to increased costs and decreased transaction volume and revenue.

Further, the number and significance of these disputes and inquiries are increasing as our business has grown and expanded in scale and scope, including the number of active accounts and payments transactions on our platforms, the range and increasing complexity of the products and services that we offer, and our geographical operations.

Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, settlement payments, damage awards (including statutory damages for certain causes of action in certain jurisdictions), fines, penalties, injunctive relief, or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources, or otherwise harm our business.

INDEMNIFICATION PROVISIONS

In 2015, PayPal became an independent publicly traded company through the pro rata distribution by eBay Inc.

(“eBay”) of 100 % of the outstanding common stock of PayPal to eBay stockholders (which we refer to as the “separation” or the “distribution”).

We entered into a separation and distribution agreement, a tax matters agreement, an operating agreement, and various other agreements with eBay to govern the separation of the two companies in 2015 and the relationship of the two companies going forward.

These agreements provide for specific indemnity and liability obligations for both eBay and us.

Our agreements with eBay governing our separation from eBay provide for specific indemnity and liability obligations for both eBay and us.

Disputes between eBay and us have arisen and others may arise in the future, and an adverse outcome in such matters could materially and adversely impact our business, results of operations, and financial condition.

2 unchanged sentences

Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by any third party with respect to our domain names, trademarks, logos, and other branding elements to the extent that such marks are related to the subject agreement.

We have provided an indemnity for other types of third-party claims, which are indemnities mainly related to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims.

We have provided an indemnity for other types of third-party claims, which are indemnities related primarily to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims.

We have also provided an indemnity to our payments processors in the event of card association fines against the processor arising out of conduct by us or our customers.

It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation.

PayPal has participated in the U.S.

Government’s Paycheck Protection Program administered by the U.S.

Small Business Administration.

Loans made under this program are funded by an independent chartered financial institution that we partner with.

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, under certain circumstances, to indemnify the chartered financial institution in connection with the services provided for loans made under this program.

To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions.

1 unchanged sentence

As of December 31, 2020 and 2019, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

PROTECTION PROGRAMS

These programs protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

We provide merchants and consumers with protection programs for certain transactions completed on our Payments Platform.

These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

These protection programs are considered assurance-type warranties for which we estimate and record associated costs in transaction and loan losses during the period the payment transaction is completed.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The maximum potential exposure under our protection programs is estimated to be the portion of total eligible transaction volume (TPV) for which buyer or seller protection claims may be raised under our existing user agreements.

Since eligible transactions are typically completed in a period significantly shorter than the period under which disputes may be opened, and based on our historical losses to date, we do not believe that the maximum potential exposure is representative of our actual potential exposure.

The actual amount of potential exposure cannot be quantified as we are unable to determine total eligible transactions where performance by a merchant or consumer is incomplete or completed transactions that may result in a claim under our protection programs.

We record a liability with respect to losses under these protection programs when they are probable and the amount can be reasonably estimated.

These protection programs are considered assurance-type warranties for which we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed.

At December 31, 2020 and 2019, the allowance for transaction losses totaled $ 144 million and $ 136 million, respectively.

The allowance for negative customer balances was $ 270 million and $ 263 million at December 31, 2020 and 2019, respectively.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the year end December 31, 2020 and 2019:

2 unchanged sentences

Beginning balance $ 399 $ 344

Provisions, net of recoveries

Provision 1,135 1,092

Realized losses ( 1,208 ) ( 1,098 )

Recoveries 88 61

Ending balance $ 414 $ 399

NOTE 14— STOCK REPURCHASE PROGRAMS

In January 2016, our Board of Directors authorized a stock repurchase program that provided for the repurchase of up to $ 2 billion of our common stock, with no expiration from the date of authorization.

In April 2017, our Board of Directors authorized an additional stock repurchase program that provided for the repurchase of up to $ 5 billion of our common stock, with no expiration from the date of authorization.

This program became effective upon completion of the January 2016 stock repurchase program in December 2017.

In April 2017, our Board of Directors authorized a stock repurchase program that provided 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 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.

This program became effective in the first quarter of 2020 upon completion of the April 2017 stock repurchase program.

Our stock repurchase programs are 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.

2 unchanged sentences

We may terminate our stock repurchase programs at any time without prior notice.

During the year ended December 31, 2020, we repurchased approximately 12 million shares of our common stock for approximately $ 1.6 billion at an average cost of $ 136.19 .

These shares were purchased in the open market under our stock repurchase programs authorized in April 2017 and July 2018.

As of December 31, 2020, a total of approximately $ 8.4 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

During the year ended December 31, 2019, we repurchased approximately 14 million shares of our common stock for approximately $ 1.4 billion, including approximately $ 656 million in the open market and approximately $ 750 million pursuant to an Accelerated Share Repurchase (“ASR”) agreement under our April 2017 stock repurchase program.

In February 2019, we entered into an ASR agreement with an unrelated third party financial institution to repurchase shares of our common stock.

Under the terms of the ASR agreement, we made an upfront payment of approximately $ 750 million to the third party financial institution and received approximately 7.7 million shares of our common stock, at an average price of $ 96.91 per share of common stock during the term of the transaction, which ended in March 2019.

The total number of shares of our common stock repurchased was based on the volume-weighted average share price of our common stock during the term of the transaction, less a discount and subject to adjustments pursuant to the terms of the ASR agreement.

We recorded the initial payment of $ 750 million as a reduction to stockholders’ equity on our consolidated balance sheets.

All common stock received under the ASR agreement was recorded as treasury stock and the forward contract indexed to our own common stock met all applicable criteria for equity classification.

As of December 31, 2019 , a total of approximately $ 68 million and $ 10 billion remained available for future repurchases of our common stock under our April 2017 and July 2018 stock repurchase programs, respectively.

During the year ended December 31, 2018, we repurchased approximately 44 million shares of our common stock for approximately $ 3.5 billion, including approximately $ 2.5 billion in the open market and approximately $ 1.0 billion pursuant to an ASR agreement under our April 2017 stock repurchase program.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2017 , we repurchased approximately 20 million shares of our common stock for approximately $ 1.0 billion in the open market under our January 2016 and April 2017 stock repurchase programs.

Shares of common stock repurchased for the periods presented were recorded as treasury stock for the purposes of calculating earnings per share and were accounted for under the cost method.

4 unchanged sentences

2015 Equity Incentive Award Plan (the “Plan”), equity awards, including stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance based restricted stock units (“PBRSUs”), deferred stock units (“DSUs”), and stock payments, may be granted to our directors, officers, and employees.

In May 2018, our stockholders approved increasing the number of shares reserved for issuance under the Plan by an additional 37 million shares.

At December 31, 2019 , there were 81 million shares authorized under the Plan and 60 million shares were available for future grant.

At December 31, 2020, 70 million shares were authorized under the Plan and 49 million shares were available for future grant.

Shares issued as a result of stock option exercises and the release of stock awards were funded primarily with the issuance of new shares of common stock.

5 unchanged sentences

The cost of RSUs granted is determined using the fair market value of PayPal’s common stock on the date of grant.

Certain of our executives and non-executives are eligible to receive PBRSUs, which are equity awards that may be earned based on an initial target number with the final number of PBRSUs that may be vested and settled determined based on the Company’s performance against pre-established performance metrics over a predefined performance period.

Certain of our executives and non-executives are eligible to receive PBRSUs, which are equity awards that may be earned based on an initial target number.

The final number of PBRSUs may vest and settle depending on the Company’s performance against pre-established performance metrics over a predefined performance period.

PBRSUs granted under the Plan generally have one to three-year performance periods with cliff vesting following the completion of the performance period, subject to the Compensation Committee’s approval of the level of achievement against the pre-established performance targets.

2 unchanged sentences

EMPLOYEE STOCK PURCHASE PLAN

In May 2018, our stockholders approved increasing the number of shares reserved for issuance under the Amended and Restated PayPal Holdings, Inc.

Employee Stock Purchase Plan (“ESPP”) by an additional 50 million shares.

Under the terms of the ESPP, shares of our common stock may be purchased over an offering period with a maximum duration of two years at 85 % of the lower of the fair market value on the first day of the applicable offering period or on the last business day of each six -month purchase period within the offering period.

Under the terms of the Employee Stock Purchase Plan (“ESPP”), shares of our common stock may be purchased over an offering period with a maximum duration of two years at 85 % of the lower of the fair market value on the first day of the applicable offering period or on the last business day of each six-month purchase period within the offering period.

Employees may contribute between 2 % and 10 % of their gross compensation during an offering period to purchase shares, but not more than the statutory limitation of $25,000 per year.

6 unchanged sentences

The following table summarizes stock option activity of our employees under the Plan for the year ended December 31, 2020:

Shares Weighted

Price Weighted

Term (Years) Aggregate

Intrinsic Value

1 unchanged sentence

Outstanding at January 1, 2020 476 $ 25.18

Assumed 574 $ 1.88

Exercised ( 441 ) $ 10.23

Forfeited/expired/canceled ( 18 ) $ 3.51

2 unchanged sentences

Options exercisable 329 $ 22.25 3.26 $ 68,780

The weighted average grant date fair value of options assumed from acquisitions during the year ended December 31, 2020 and 2018 was $ 108.61 and $ 72.02 , respectively.

No options were granted or assumed in 2019.

The weighted average grant date fair value of options assumed from acquisitions during the years ended December 31, 2018 and 2017 was $ 72.02 , and $ 49.47 , respectively.

The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying options and the quoted price of our common stock at December 31, 2020.

3 unchanged sentences

The following table summarizes the RSUs, PBRSUs, and restricted stock activity under the Plan as of December 31, 2020 and changes during the year ended December 31, 2020:

Weighted Average

Units Weighted Average Grant-Date

(In thousands, except per share amounts)

Outstanding at January 1, 2020 23,009 $ 83.61

Awarded and assumed (1), (2)

16,592 $ 113.63

( 14,170 ) $ 77.50

Forfeited ( 2,267 ) $ 101.44

Outstanding at December 31, 2020 23,164 $ 107.13

Expected to vest 20,767

(1) Includes approximately 1.4 million additional PBRSUs issued in respect of company performance in connection with the Company’s 2018 annual incentive plan.

During the years ended December 31, 2019, 2018, and 2017 , the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 1.6 billion , $ 1.4 billion , and $ 519 million , respectively.

In the year ended December 31, 2019 , the Company granted 1.5 million PBRSUs with a one -year performance period (fiscal 2019) and cliff vesting following the completion of the performance period in February 2020 ( one year from the annual incentive award cycle grant date), and 0.9 million PBRSUs with a three -year performance period.

In the year ended December 31, 2018 , the Company granted 1.6 million PBRSUs with a one -year performance period (fiscal 2018) and cliff vesting following the completion of the performance period in February 2019 ( one year from the annual incentive award cycle grant date), and 0.8 million PBRSUs with a three-year performance period.

Additionally, in the year ended December 31, 2018 , the Company granted 0.4 million PBRSUs with a five-year performance period based on market conditions;

the number of PBRSUs that may be issued under this award is fixed.

(1) Includes approximately 1.4 million of additional PBRSUs issued during 2020 due to the achievement of company performance metrics on awards granted in previous years.

(2) Includes approximately 0.6 million in RSUs assumed from our Honey acquisition in 2020.

During the years ended December 31, 2020, 2019, and 2018, the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 1.7 billion, $ 1.6 billion, and $ 1.4 billion, respectively.

In the year ended December 31, 2020, the Company granted 1.4 million PBRSUs with a one-year performance period (fiscal 2020), which will become fully vested following the completion of the performance period in February 2021 ( one year from the annual incentive award cycle grant date), and 0.7 million PBRSUs with a three-year performance period.

In the year ended December 31, 2019, the Company granted 1.5 million PBRSUs with a one-year performance period (fiscal 2019), which became fully vested following the completion of the performance period in February 2020 ( one year from the annual incentive award cycle grant date), and 0.9 million PBRSUs with a three-year performance period.

PayPal Holdings, Inc.

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions)

9 unchanged sentences

Future unearned stock-based compensation will increase to the extent we grant additional equity awards, change the mix of equity awards we grant, or assume unvested equity awards in connection with acquisitions.

Employee Saving Plan

EMPLOYEE SAVINGS PLANS

Under the terms of the PayPal Holdings, Inc.

1 unchanged sentence

employees may contribute up to 50 % of their eligible compensation, but not more than statutory limits.

In the years ended December 31, 2019, 2018, and 2017 , under the PayPal plan, eligible employees received one dollar for each dollar contributed, up to 4 % of each employee’s eligible salary, subject to a maximum employer contribution of $ 11,200 , $ 11,200 , and $ 10,800 , respectively, per employee.

Under the PayPal plan, eligible employees received one dollar for each dollar contributed, up to 4 % of each employee’s eligible salary, subject to a maximum employer contribution per employee of $ 11,600 in 2020 and $ 11,200 in both 2019 and 2018.

employees are covered by other savings plans.

2 unchanged sentences

NOTE 16— INCOME TAXES

In December 2017, the U.S.

government enacted the Tax Cuts and Jobs Act (the “Tax Act”).

The Tax Act included significant changes to the U.S.

corporate income tax system including:

a federal corporate rate reduction from 35% to 21%;

limitations on the deductibility of interest expense and executive compensation;

creation of the base erosion anti-abuse tax (“BEAT”), a new minimum tax;

and the transition of U.S.

international taxation from a worldwide tax system to a modified territorial tax system.

The change to a modified territorial tax system resulted in a one-time U.S.

tax liability on those earnings which had not previously been repatriated to the U.S.

(the “Transition Tax”), with future distributions not subject to U.S.

federal income tax when repatriated.

During the year ended December 31, 2018 , we completed our accounting for the income tax effects of the Tax Act.

In the year ended December 31, 2018 , we recognized $ 20 million of tax expense in addition to the $ 180 million of provisional tax expense recorded at December 31, 2017 for the enactment-date effects of the Tax Act, for a total of $ 200 million of net tax expense, which consists of $ 1.5 billion of net federal and state Transition Tax, the majority of which is payable in installments over eight years, $ 1.3 billion net benefit for the decrease in our deferred tax liability on unremitted foreign earnings, and $ 5 million net expense for remeasurement of our deferred tax assets/liabilities for the corporate rate reduction and changes in our valuation allowance.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In June 2019, the U.S.

Court of Appeals for the Ninth Circuit reversed the July 2015 decision of the U.S.

Tax Court in Altera Corp.

Commissioner .

In the June 2019 decision, the U.S.

Court of Appeals held that a Treasury Regulation requiring stock-based compensation to be included in a qualified intercompany cost sharing arrangement was valid.

We have reviewed this case and determined no adjustment is required to PayPal’s consolidated financial statements as a result of this ruling.

In connection with the distribution, eBay and PayPal entered into various agreements that govern the relationship between the parties going forward, including a tax matters agreement.

The tax matters agreement was entered into on the distribution date.

Under the tax matters agreement, eBay is generally responsible for all additional taxes (and will be entitled to all related refunds of taxes) imposed on eBay and its subsidiaries (including subsidiaries that were transferred to PayPal pursuant to the separation) arising after the distribution date with respect to the taxable periods (or portions thereof) ended on or prior to July 17, 2015, except for those taxes for which PayPal has reflected an unrecognized tax benefit in its financial statements on the distribution date.

The components of income (loss) before income taxes are as follows:

Year Ended December 31,

2020 2019 2018

(In millions)

2 unchanged sentences

Income before income taxes $ 5,065 $ 2,998 $ 2,376

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The income tax expense is composed of the following:

Year Ended December 31,

2020 2019 2018

(In millions)

Federal $ 310 $ 132 $ 180

State and local 143 47 32

Foreign 245 629 278

Total current portion of income tax expense $ 698 $ 808 $ 490

Federal $ 259 $ ( 107 ) $ ( 115 )

State and local ( 32 ) ( 39 ) ( 35 )

Foreign ( 62 ) ( 123 ) ( 21 )

Total deferred portion of income tax expense 165 ( 269 ) ( 171 )

2 unchanged sentences

Year Ended December 31,

2020 2019 2018

Federal statutory rate 21.0 % 21.0 % 21.0 %

2 unchanged sentences

Stock-based compensation expense ( 1.2 ) % ( 3.9 ) % ( 4.1 ) %

Tax credits ( 2.0 ) % ( 2.4 ) % ( 2.1 ) %

Change in valuation allowances 0.1 % 0.1 % — %

tax reform (the Tax Act)

Intra-group transfer of intellectual property 4.1 % 7.6 % 0.7 %

Other 0.2 % 0.3 % 1.9 %

Effective income tax rate 17.0 % 18.0 % 13.4 %

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the year ended December 31, 2020, the difference between the effective income tax rate and the U.S.

federal statutory rate of 21% to income before income taxes is primarily the result of foreign income taxed at different rates and stock based compensation deductions, partially offset by tax expense related to the intra-group transfer of intellectual property.

federal statutory rate of 21% to income before income taxes is primarily the result of foreign income taxed at different rates, partially offset by tax expense related to the intra-group transfer of intellectual property.

For the year ended December 31, 2019, the difference between the effective income tax rate and the federal statutory rate of 21% to income before income taxes is primarily the result of foreign income taxed at different rates and stock-based compensation deductions, partially offset by tax expense related to the intra-group transfer of intellectual property.

For the year ended December 31, 2018, the difference between the effective income tax rate and the federal statutory rate of 21% to income before income taxes is primarily the result of foreign income taxed at different rates and stock-based compensation deductions.

For the year ended December 31, 2017 , the difference between the effective income tax rate and the federal statutory rate of 35% to income before income taxes is primarily the result of foreign income taxed at different rates, partially offset by the effects of the Tax Act discussed above.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse.

15 unchanged sentences

Unremitted foreign earnings $ ( 21 ) $ ( 17 )

Fixed assets and other intangibles

Acquired intangibles ( 153 ) ( 103 )

Lease asset ( 172 ) ( 116 )

Net unrealized gains ( 440 ) ( 71 )

3 unchanged sentences

As of December 31,

Balance Sheet Location

(In millions)

Total deferred tax assets (non-current)

Total deferred tax liabilities (non-current)

Deferred tax liability and other long-term liabilities

Balance Sheet Location (In millions)

Total deferred tax assets (non-current) Other assets $ 142 $ 396

Total deferred tax liabilities (non-current) Deferred tax liability and other long-term liabilities ( 75 ) ( 89 )

Total net deferred tax assets $ 67 $ 307

2 unchanged sentences

If not utilized, the federal net operating loss carryforwards will begin to expire in 2022, and the state net operating loss carryforwards will begin to expire in 2021.

Approximately $ 14 million of the foreign net operating loss carryforwards will begin to expire in 2021, $ 56 million will begin to expire in 2034, and $ 203 million has no expiration date and may be carried forward indefinitely.

Approximately $ 4 million of the foreign net operating loss carryforwards will begin to expire in 2021, $ 46 million will begin to expire in 2024, $ 70 million will begin to expire in 2034, and $ 196 million has no expiration date and may be carried forward indefinitely.

As of December 31, 2020, our federal and state tax credit carryforwards for income tax purposes were approximately $ 16 million and $ 244 million, respectively.

The federal tax credits will begin to expire in 2028.

Most of the state tax credits may be carried forward indefinitely.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

If not utilized, the federal tax credits will begin to expire in 2029.

Approximately $ 13 million of the state tax credits will begin to expire in 2021, $ 22 million will begin to expire in 2028, $ 8 million will begin to expire in 2035, and $ 201 million may be carried forward indefinitely.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.

We have elected the tax law ordering approach to assess the realizability of our net operating losses.

During the years ended December 31, 2019, 2018, and 2017 , we increased our valuation allowance by $ 52 million , $ 39 million , and $ 50 million , respectively.

During the year ended December 31, 2020, we decreased our valuation allowance by $ 18 million and during the years ended December 31, 2019 and 2018, we increased our valuation allowance by $ 52 million and $ 39 million, respectively.

At December 31, 2020, 2019, and 2018, we maintained a valuation allowance with respect to certain of our deferred tax assets relating to operating losses in certain states and foreign jurisdictions and tax credits in certain states that we believe are not likely to be realized.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2020, none of our unremitted foreign earnings of approximately $ 7.2 billion are considered to be indefinitely reinvested.

1 unchanged sentence

state and foreign withholding taxes on the $ 7.2 billion of undistributed foreign earnings.

We benefit from tax rulings concluded in several different jurisdictions, most significantly Singapore and Luxembourg.

These rulings result in significantly lower rates of taxation on certain classes of income and require various thresholds of investment and employment in those jurisdictions.

We review our compliance on an annual basis to ensure we continue to meet our obligations under these tax rulings.

These rulings resulted in tax savings of approximately $ 472 million , $ 465 million and $ 443 million in 2019 , 2018 , and 2017 , respectively.

The benefit of these tax rulings on our net income per share (diluted) was approximately $ 0.40 , $ 0.39 , and $ 0.36 in 2019 , 2018 , and 2017 , respectively.

In December 2019, a new tax ruling was concluded in Singapore.

The new ruling takes effect after the current ruling expires at the end of 2020 and will be in effect from 2021 through 2030.

In December 2019, the Luxembourg government passed legislation confirming that tax rulings granted before January 1, 2015 will no longer be binding after December 31, 2019.

We benefit from agreements concluded in certain jurisdictions, most significantly Singapore and, through 2019, Luxembourg.

In December 2019, a new agreement was concluded in Singapore.

The new agreement took effect January 1, 2021 and will be in effect from 2021 through 2030.

In December 2019, the Luxembourg government passed legislation confirming that tax agreements granted before January 1, 2015 will no longer be binding after December 31, 2019.

These agreements result in significantly lower rates of taxation on certain classes of income and require various thresholds of investment and employment in those jurisdictions.

We review our compliance on an annual basis to ensure we continue to meet our obligations under these agreements.

These agreements resulted in tax savings of approximately $ 596 million, $ 472 million, and $ 465 million in 2020, 2019, and 2018, respectively.

The benefit of these agreements on our net income per share (diluted) was approximately $ 0.50 , $ 0.40 , and $ 0.39 in 2020, 2019, and 2018, respectively.

The following table reflects changes in unrecognized tax benefits for the periods presented below:

Year Ended December 31,

2020 2019 2018

(In millions)

3 unchanged sentences

Increases related to current period tax positions 360 336 287

Settlements ( 34 ) ( 63 ) ( 20 )

Statute of limitation expirations ( 2 ) ( 1 ) ( 5 )

Gross amounts of unrecognized tax benefits as of the end of the period $ 1,479 $ 1,141 $ 800

If the remaining balance of unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $ 991 million .

During the year ended December 31, 2018, we increased our unrecognized tax benefits by $ 194 million due to uncertainties related to the impacts of the Tax Act.

If the remaining balance of unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $ 1.1 billion.

In December 31, 2020, 2019, and 2018, we recognized net interest and penalties of $ 40 million, $ 63 million, and $ 57 million, respectively, related to uncertain tax positions in income tax expense.

4 unchanged sentences

The material jurisdictions in which we are subject to examination by tax authorities for tax years after 2007 primarily include the U.S.

(Federal and California), France, Germany, India, Israel, and Singapore.

During 2019, we settled various audits, including certain U.S.

Federal and California audits.

(Federal and California), Germany, India, Israel, and Singapore.

During 2020, we settled income tax audits in various jurisdictions including France, Germany, and California.

We believe that adequate amounts have been reserved for any adjustments that may ultimately result from our open examinations.

1 unchanged sentence

However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

In June 2019, the U.S.

Court of Appeals for the Ninth Circuit reversed a lower court decision in Altera Corp.

Commissioner and held that a Treasury Regulation requiring stock-based compensation to be included in a qualified intercompany cost sharing arrangement was valid.

In June 2020, the U.S.

Supreme Court denied Altera’s petition for certiorari.

We have reviewed this decision and determined that no adjustment to our consolidated financial statements is required as a result of this development.

In connection with our separation from eBay in 2015, we entered into various agreements that govern the relationship between the parties going forward, including a tax matters agreement.

Under the tax matters agreement, eBay is generally responsible for all additional taxes (and will be entitled to all related refunds of taxes) imposed on eBay and its subsidiaries (including subsidiaries that were transferred to PayPal pursuant to the separation) arising after the separation date with respect to the taxable periods (or portions thereof) ended on or prior to July 17, 2015, except for those taxes for which PayPal has reflected an unrecognized tax benefit in its financial statements on the separation date.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 17— Restructuring

In the first quarters of 2019, 2018, and 2017, management approved strategic reductions of the existing global workforce, which resulted in restructuring charges of $ 78 million , $ 25 million , and $ 40 million , respectively.

The approved strategic reductions for 2019 were intended to better align our teams to support key business priorities, and included the transfer of certain operational functions between geographies, as well as the impact of the transition servicing activities provided to Synchrony, which ended in the second quarter of 2019.

NOTE 17— RESTRUCTURING AND OTHER CHARGES

In the first quarter of the years ended December 31, 2020, 2019, and 2018, management approved strategic reductions of the existing global workforce, which resulted in restructuring charges of $ 109 million, $ 78 million, and $ 25 million, respectively.

The approved strategic reduction in 2020 is part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs under the 2020 strategic reduction.

We experienced delays, primarily as a result of COVID-19, in the execution of these restructuring actions, which are now expected to be completed by the end of the first quarter of 2021.

The following table summarizes the restructuring reserve activity during the year ended December 31, 2020:

Employee Severance and Benefits

Employee Severance and Benefits and Other Associated Costs

(In millions)

Accrued liability as of January 1, 2020 $ 9

Payments ( 63 )

Accrued liability as of December 31, 2020 $ 55

Additionally, in 2020, we incurred asset impairment charges of $ 30 million due to the write-off of certain ROU lease assets and related leasehold improvements in conjunction with exiting certain leased properties.

See “Note 6—Leases” for additional information.

The approved strategic reductions for 2019 were intended to better align our teams to support key business priorities and included the transfer of certain operational functions between geographies, as well as the impact of the transition servicing activities provided to Synchrony, which ended in the second quarter of 2019.

We primarily incurred employee severance and benefits expenses under the 2019 strategic reductions, which were substantially completed by the end of the first quarter of 2020.

The strategic reduction approved in the first quarter of 2018 included restructuring charges related to the decision to wind down TIO’s operations.

We incurred employee and severance benefits expenses under both the 2018 and 2017 strategic reductions, which were substantially completed by the end of 2018 and 2017, respectively.

Note 18— Subsequent Events

On January 3, 2020, we completed our acquisition of Honey Science Corporation (“Honey”) by acquiring all outstanding shares for total consideration of approximately $ 4.0 billion , consisting of approximately $ 3.6 billion in cash and approximately $ 400 million in restricted stock, subject to vesting conditions.

The acquisition will be accounted for as a business combination.

We incurred employee and severance benefits expenses under the 2018 strategic reductions, which were substantially completed by the end of 2018.

PayPal Holdings, Inc.

2 unchanged sentences

2020 Quarter Ended

March 31 June 30 September 30 December 31

(Unaudited, in millions, except per share amounts)

Net revenues $ 4,618 $ 5,261 $ 5,459 $ 6,116

Net income $ 84 $ 1,530 $ 1,021 $ 1,567

Net income per share - basic $ 0.07 $ 1.30 $ 0.87 $ 1.34

1 unchanged sentence

Weighted average shares:

Basic 1,173 1,173 1,172 1,172

Diluted 1,185 1,184 1,190 1,191

2019 Quarter Ended

March 31 June 30 September 30 December 31

(Unaudited, in millions, except per share amounts)

Net revenues $ 4,128 $ 4,305 $ 4,378 $ 4,961

Net income $ 667 $ 823 $ 462 $ 507

Net income per share - basic $ 0.57 $ 0.70 $ 0.39 $ 0.43

1 unchanged sentence

Weighted average shares:

Basic 1,171 1,175 1,175 1,174

Diluted 1,188 1,187 1,188 1,187

PayPal Holdings, Inc.

1 unchanged sentence

The Financial Statement Schedule II—VALUATION AND QUALIFYING ACCOUNTS is filed as part of this Annual Report on Form 10-K.

Period Charged/

(Credited) to

Net Income Charged to Other Accounts (1)

(Write-offs) Balance at

End of Period

8 unchanged sentences

Year Ended December 31, 2020 $ 258 $ 689 $ 210 $ ( 319 ) $ 838

FORM 10-K SUMMARY

(1) The amount is related to the impact of the adjustment recorded for adoption of the credit losses accounting standard.

PayPal Holdings, Inc.

Exhibit Index

Incorporated by Reference

Exhibit Description

Filed with this Form 10-K

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Separation and Distribution Agreement by and between eBay Inc.

and PayPal Holdings, Inc.

10-12B/A 6/26/2015

Purchase and Sale Agreement, dated as of November 10, 2017, by and between Synchrony Bank and Bill Me Later, Inc.

8-K 11/16/2017

Purchase and Sale Agreement, dated as of November 10, 2017, by and between Synchrony Bank and PayPal (Europe) S.à r.l.

8-K 11/16/2017

Amendment No.

1 to the Purchase and Sale Agreement, dated as of April 12, 2018, by and between Synchrony Bank and Bill Me Later, Inc.

10-Q 7/26/2018

Amendment No.

1 to the Purchase and Sale Agreement, dated as of April 12, 2018, by and between Synchrony Bank and PayPal (Europe) S.à r.l.

10-Q 7/26/2018

PayPal Holdings, Inc.

Restated Certificate of Incorporation

Restated Certificate of Incorporation 10-Q 7/27/2017

PayPal Holdings, Inc.

Amended and Restated Bylaws effective January 17, 2019.

Description of Securities

Amended and Restated Bylaws effective January 17, 2019 8-K 1/18/2019

Description of Securities 10-K 2/6/2020

Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc.

and Wells Fargo Bank, National Association, as Trustee.

and Wells Fargo Bank, National Association, as Trustee 8-K 9/26/2019

Officer’s Certificate, dated as of September 26, 2019, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc.

and Wells Fargo Bank, National Association, as Trustee 8-K 9/26/2019

Form of 2022 Note (included in Exhibit 4.03) 8-K 9/26/2019

Form of 2024 Note (included in Exhibit 4.03) 8-K 9/26/2019

Form of 2026 Note (included in Exhibit 4.03) 8-K 9/26/2019

Form of 2029 Note (included in Exhibit 4.03) 8-K 9/26/2019

Officer’s Certificate, dated as of May 18, 2020, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc.

and Wells Fargo Bank, National Association, as Trustee 8-K 5/18/2020

Form of 2023 Note (included in Exhibit 4.08) 8-K 5/18/2020

Form of 2025 Note (included in Exhibit 4.08) 8-K 5/18/2020

Form of 2030 Note (included in Exhibit 4.08) 8-K 5/18/2020

Form of 2050 Note (included in Exhibit 4.08) 8-K 5/18/2020

Operating Agreement by and among eBay Inc., eBay International AG, PayPal Holdings, Inc., PayPal, Inc., PayPal Pte.

and PayPal Payments Pte.

Holdings S.C.S., dated July 17, 2015.

Holdings S.C.S., dated July 17, 2015 8-K 7/20/2015

Amendment, dated June 30, 2016, to the Operating Agreement by and among eBay Inc., eBay International AG, PayPal Holdings, Inc., PayPal, Inc., PayPal Pte.

and PayPal Payments Pte.

Holdings S.C.S, dated July 17, 2015.

Holdings S.C.S, dated July 17, 2015 10-Q 7/26/2016

Tax Matters Agreement by and between eBay Inc.

and PayPal Holdings, Inc., dated July 17, 2015.

and PayPal Holdings, Inc., dated July 17, 2015 8-K 7/20/2015

Employee Matters Agreement by and between eBay Inc.

and PayPal Holdings, Inc., dated July 17, 2015.

and PayPal Holdings, Inc., dated July 17, 2015 8-K 7/20/2015

PayPal Holdings, Inc.

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Intellectual Property Matters Agreement by and among eBay Inc., eBay International AG, PayPal Holdings, Inc., PayPal, Inc., PayPal Pte.

and PayPal Payments Pte.

Holdings S.C.S., dated July 17, 2015.

Holdings S.C.S., dated July 17, 2015 8-K 7/20/2015

Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P.

Morgan Europe Limited, as the Administrative Agents

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

Morgan Europe Limited, as the Administrative Agents 8-K 9/12/2019

364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent 8-K 9/12/2019

PayPal Employee Incentive Plan, as amended and restated.

PayPal Holdings, Inc.

Amended and Restated 2015 Equity Incentive Award Plan

PayPal Holdings, Inc.

Amended and Restated Deferred Compensation Plan effective November 6, 2018

Incorporated by Reference

Exhibit Description

Filed with this Form 10-K

DEF 14A 4/14/2016

PayPal Holdings, Inc.

Change in Control Severance Plan for Key Employees, dated June 16, 2015.

Amended and Restated 2015 Equity Incentive Award Plan 8-K 5/25/2018

PayPal Holdings, Inc.

SVP and Above Standard Severance Plan, dated June 16, 2015.

Amended and Restated Deferred Compensation Plan effective November 6, 2018 10-K 2/7/2019

PayPal Holdings, Inc.

Executive Change in Control and Severance Plan

Executive Change in Control and Severance Plan 8-K 12/30/2019

Form of Indemnity Agreement between PayPal Holdings, Inc.

and individual directors and officers.

and individual directors and officers 10-12B/A 5/14/2015

Form of Global Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the PayPal Holdings, Inc.

2015 Equity Incentive Award Plan.

Form of Global Performance Based Restricted Stock Unit Award Grant Notice and Performance Based Restricted Stock Unite Award Agreement under the PayPal Holdings, Inc.

2015 Equity Incentive Award Plan, as amended and restated.

2015 Equity Incentive Award Plan 10-12B/A 5/14/2015

Form of Global Performance Based Restricted Stock Unit Award Grant Notice and Performance Based Restricted Stock Unit Award Agreement under the PayPal Holdings, Inc.

2015 Equity Incentive Award Plan, as amended and restated 10-Q 4/27/2017

Form of Global Notice of Grant of Stock Option and Stock Option Agreement under the PayPal Holdings, Inc.

2015 Equity Incentive Award Plan.

2015 Equity Incentive Award Plan 10-12B/A 5/14/2015

Form of Director Annual Award Agreement under the PayPal Holdings, Inc.

2015 Equity Incentive Award Plan.

2015 Equity Incentive Award Plan 10-12B/A 5/14/2015

Form of Electing Director Quarterly Award Agreement under the PayPal Holdings, Inc.

2015 Equity Incentive Award Plan.

2015 Equity Incentive Award Plan 10-12B/A 5/14/2015

PayPal Holdings, Inc.

Amended and Restated Employee Stock Purchase Plan

Amended and Restated Employee Stock Purchase Plan 8-K 5/25/2018

Offer Letter dated September 29, 2014 between eBay Inc.

and Daniel Schulman.

and Daniel Schulman 10-12B/A 5/14/2015

Amendment dated December 31, 2014 to Offer Letter between eBay Inc.

and Daniel Schulman.

and Daniel Schulman 10-12B/A 5/14/2015

Letter dated April 7, 2015 from eBay Inc.

to Louise Pentland.

to Louise Pentland 10-K 2/11/2016

Letter dated April 13, 2015 from eBay Inc.

to Jonathan Auerbach.

Letter dated May 19, 2015 from eBay Inc.

to William Ready.

Separation Agreement dated June 17, 2019 between William Ready and PayPal Holdings, Inc.

to Jonathan Auerbach 10-K 2/11/2016

Letter Agreement dated July 29, 2015 between John Rainey and PayPal Holdings, Inc.

10-Q 10/29/2015

Letter Agreement, dated April 17, 2016, between Aaron Karczmer and PayPal Holdings, Inc.

10-Q 4/27/2017

Letter Agreement effective February 20, 2019 between Mark Britto and PayPal Holdings, Inc.

10-Q 4/25/2019

Letter Agreement dated December 22, 2018 between Allison Johnson and PayPal Holdings, Inc.

Independent Director Compensation Policy

List of Subsidiaries.

PricewaterhouseCoopers LLP consent.

Power of Attorney (see signature page).

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

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

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

10-Q 4/25/2019

Independent Director Compensation Policy X

PayPal Holdings, Inc.

Incorporated by Reference

Exhibit Description

Filed with this Form 10-K

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

Number Exhibit Description Filed with this Form 10-K Form Date Filed

First Amendment, dated as of March 23, 2020, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P.

Morgan Europe Limited, as the Administrative Agents 10-Q 5/7/2020

First Amendment, dated as of March 23, 2020, to the 364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent 10-Q 5/7/2020

Joinder Agreement, dated as of March 25, 2020, among PayPal International Treasury Centre S.à r.l., PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

Morgan Europe Limited, and JPMorgan Chase Bank, N.A., Toronto Branch, as the Administrative Agents, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and the Administrative Agents 10-Q 5/7/2020

Joinder Agreement, dated as of March 25, 2020, among PayPal (Europe) S.à r.l.

et Cie, S.C.A., PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

Joinder Agreement, dated as of March 27, 2020, among PayPal Pte.

Ltd., PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

Joinder Agreement, dated as of March 31, 2020, among PayPal Australia Pty Limited, PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

List of Subsidiaries X

PricewaterhouseCoopers LLP consent X

Power of Attorney (see signature page) X

Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X

Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X

Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

PayPal Holdings, Inc.

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

101 The following financial information related to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language):

(i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows;

and (vi) the related Notes to Consolidated Financial Statements.

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

and (vi) the related Notes to Consolidated Financial Statements X

104 Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101 X

+ Indicates a 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.

FORM 10-K SUMMARY

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 4, 2021.

6 unchanged sentences

Louise Pentland, Brian Y.

Yamasaki and Aaron A.

Anderson, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Yamasaki and Jeffrey W.

Karbowski, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 4, 2021.

2 unchanged sentences

/s/ Daniel H.

President, Chief Executive Officer and Director

Chief Financial Officer and Executive Vice President, Global Customer Operations

Schulman John D.

President, Chief Executive Officer and Director Chief Financial Officer and Executive Vice President, Global Customer Operations

Principal Accounting Officer:

/s/ Jeffrey W.

Vice President, Chief Accounting Officer

1 unchanged sentence

/s/ Rodney C.

/s/ Wences Casares

Wences Casares

/s/ Jonathan Christodoro

Jonathan Christodoro

/s/ Belinda Johnson

Belinda Johnson

Adkins Jonathan Christodoro

Director Director

Donahoe David W.

Director Director

/s/ Belinda Johnson By:

Belinda Johnson Gail J.

Director Director

/s/ Deborah M.

Messemer David M.

Director Director

Sarnoff Frank D.

Director Director

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-K

Item 9A. Controls and Procedures