What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-04 compared with 2024-02-08 · 131 added, 159 removed, 357 unchanged (45% of the section changed)

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BUSINESS ENVIRONMENT

We are a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide.

PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses 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 in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person payments.

At PayPal, our mission is to revolutionize commerce globally.

Our products are designed to enable digital payments and simplify commerce experiences for consumers and merchants to make selling, shopping, and sending and receiving money simple, personalized, and secure, online or offline, including mobile.

Our two-sided platform serves millions of consumers and merchants worldwide.

Regulatory environment

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.

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 anti-money laundering, countering terrorist financing, privacy, cybersecurity, and consumer protection.

The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, continue to evolve through legislative and regulatory action and judicial interpretation.

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Cybersecurity and information security risks for global payments and technology companies like us have increased significantly in recent years.

Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and enable us to effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we remain subject to these risks and there can be no assurance that our security measures will provide sufficient security or prevent breaches or attacks.

Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and enable us to effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we have experienced and expect to continue to experience cybersecurity incidents and remain subject to these risks.

There can be no assurance that our security measures will provide sufficient protection or security to prevent breaches or attacks.

For additional information regarding our cybersecurity and information security risks, see “Item 1A.

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Cybersecurity.”

MACROECONOMIC ENVIRONMENT

The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts including the Russia and Ukraine conflict, supply chain shortages, a recession globally or in markets in which we operate, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown.

A deterioration in macroeconomic conditions could continue to increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, foreign currency exchange fluctuations, or other business interruption, which may adversely impact our business.

If these conditions continue or worsen, they could adversely impact our future financial and operating results.

OVERVIEW OF RESULTS OF OPERATIONS

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Other income (expense), net 4 383 (471) (99) % 181 %

Income tax expense (benefit) 1,165 947 (70) 23 % **

Income tax expense

1,182 1,165 947 1 % 23 %

Effective tax rate 22 % 22 % 28 % ** **

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Net revenues increased $2.0 billion, or 7%, in 2024 compared to 2023 driven primarily by growth in total payment volume (“TPV”, as defined below under “Key Metrics”) of 10%.

Total operating expenses increased $1.1 billion, or 4%, in 2023 compared to 2022 due primarily to an increase in transaction expense, partially offset by reductions in sales and marketing expense, restructuring and other, and technology and development expense.

Operating income increased $1.2 billion, or 31%, in 2023 compared to 2022 due to net revenues growing more than operating expenses.

Our operating margin was 17% and 14% in 2023 and 2022, respectively, reflecting the positive impact of operating efficiencies in our business and gain on sale of a divested business, partially offset by the negative impact of an increase in transaction expense.

Net income increased by $1.8 billion, or 76%, in 2023 compared to 2022 due to the previously discussed increase in operating income of $1.2 billion and an increase of $854 million in other income (expense), net, driven primarily by net gains on strategic investments in the current period as compared to net losses and impairments on strategic investments in the prior period as well as higher interest income from an increase in interest rates, partially offset by an increase in income tax expense of $218 million primarily related to higher pre-tax income, inclusive of tax expense associated with net gains on strategic investments and the sale of a divested business.

IMPACT OF FOREIGN CURRENCY EXCHANGE RATES

We have significant international operations that are denominated in foreign currencies, primarily the British pound, Euro, Australian dollar, and Canadian dollar, subjecting us to foreign currency exchange risk which may adversely impact our financial results.

Total operating expenses increased $1.7 billion, or 7%, in 2024 compared to 2023 due primarily to an increase in transaction expense, and to a lesser extent, restructuring and other, partially offset by a reduction in transaction and credit losses.

Operating income increased $297 million, or 6%, in 2024 compared to 2023 due to net revenues increasing more than operating expenses.

Our operating margin remained consistent at 17% for both 2024 and 2023.

Net income decreased $99 million, or 2%, in 2024 compared to 2023 due to the previously discussed increase in operating income of $297 million and a decrease of $379 million in other income (expense), net, driven primarily by net losses on strategic investments in the current period as compared to net gains on strategic investments in the prior period.

IMPACT OF FOREIGN EXCHANGE RATES

We have significant international operations that are denominated in foreign currencies, primarily the British pound, Euro, Australian dollar, and Canadian dollar, subjecting us to foreign exchange risk which may adversely impact our financial results.

The strengthening or weakening of the United States (“U.S.”) dollar versus foreign currencies in which we conduct our international operations impacts the translation of our net revenues and expenses generated in these foreign currencies into the U.S.

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Risk Factors.”

We calculate the year-over-year impact of foreign currency exchange movements on our business using prior period foreign currency exchange rates applied to current period transactional currency amounts.

While changes in foreign currency exchange rates affect our reported results, we have a foreign currency exchange exposure management program in which we use foreign currency exchange contracts, designated as cash flow hedges, intended to reduce the impact on earnings from foreign currency exchange rate movements.

Gains and losses from these foreign currency exchange contracts are recognized as a component of transaction revenues or operating expenses (as applicable) in the same period the forecasted transactions impact earnings.

In the years ended December 31, 2023 and 2022, the year-over-year foreign currency exchange rate movements relative to the U.S.

We calculate the year-over-year impact of foreign exchange rate movements on our business using prior period foreign exchange rates applied to current period transactional currency amounts.

While changes in foreign currency exchange rates affect our reported results, we have a foreign currency exposure management program in which we use foreign exchange contracts, designated as cash flow hedges, intended to reduce the impact on earnings from foreign exchange rate movements.

Gains and losses from these foreign exchange contracts are recognized as a component of transaction revenues or operating expenses (as applicable) in the same period the forecasted transactions impact earnings.

In the years ended December 31, 2024 and 2023, the year-over-year foreign exchange rate movements relative to the U.S.

dollar had the following impact on our reported results:

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(In millions)

Favorable (unfavorable) impact to net revenues (exclusive of hedging impact)

$ 128 $ (949)

(Unfavorable) favorable impact to net revenues (exclusive of hedging impact)

Hedging impact 48 111

Favorable (unfavorable) impact to net revenues

(Unfavorable) favorable impact to operating expense

Favorable impact to net revenues

Favorable (Unfavorable) impact to operating expense

Net favorable impact to operating income $ 58 $ 210

While we enter into foreign currency exchange contracts to help reduce the impact on earnings from foreign currency exchange rate movements, it is impossible to predict or eliminate the total effects of this exposure.

We also use foreign currency exchange contracts, designated as net investment hedges, to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries.

While we enter into foreign exchange contracts to help reduce the impact on earnings from foreign exchange rate movements, it is impossible to eliminate the total effects of this exposure.

We also use foreign exchange contracts, designated as net investment hedges, to reduce the foreign exchange risk related to our investment in certain foreign subsidiaries.

Gains and losses associated with these instruments will remain in accumulated other comprehensive income (loss) until the underlying foreign subsidiaries are sold or substantially liquidated.

Given that we also have foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries, we have an additional foreign currency exchange exposure management program in which we use foreign currency exchange contracts to help offset the impact of foreign currency exchange rate movements on our assets and liabilities.

The foreign currency exchange gains and losses on our assets and liabilities are recorded in other income (expense), net, and are offset by the gains and losses on the foreign currency exchange contracts.

These foreign currency exchange contracts reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities.

Additionally, in connection with transactions occurring in multiple currencies on our payments platform, we generally set our foreign currency exchange rates daily and may face financial exposure if we incorrectly set our foreign currency exchange rates or as a result of fluctuations in foreign currency exchange rates between the times that we set our foreign currency exchange rates and when transactions occur.

Given that we also have foreign exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries, we have an additional balance sheet foreign currency exposure management program in which we use foreign exchange contracts to help offset the impact of foreign exchange rate movements on our assets and liabilities.

The foreign exchange gains and losses on our assets and liabilities are recorded in other income (expense), net, and are offset by the gains and losses on the foreign exchange contracts.

These foreign exchange contracts reduce, but do not entirely eliminate, the impact of foreign exchange rate movements on our assets and liabilities.

Additionally, in connection with transactions occurring in multiple currencies on our payments platform, we generally set our foreign exchange rates daily and may face financial exposure if we incorrectly set our foreign exchange rates or as a result of fluctuations in foreign exchange rates between the times that we set our foreign exchange rates and when transactions occur.

While we have processes in place to mitigate these risks, it is impossible to eliminate the total effects of any possible exposure associated with setting foreign exchange rates on our payments platform.

KEY METRICS AND FINANCIAL RESULTS

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• TPV is the value of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

• Number of payment transactions are the total number of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

• Number of payment transactions is the total number of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

• An active account is an account registered directly with PayPal or a platform access partner that has completed a transaction on our platform, not including gateway-exclusive transactions, within the past 12 months.

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Our key metrics are calculated using internal company data based on the activity we measure on our payments platform and compiled from multiple systems, including systems that are internally developed or acquired through business combinations.

While the measurement of our key metrics is based on what we believe to be reasonable methodologies and estimates, there are inherent challenges and limitations in measuring our key metrics globally at our scale.

The methodologies used to calculate our key metrics require significant judgment.

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• Revenues from other value added services:

Net revenues derived primarily from revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services we provide to our merchants and consumers.

Net revenues derived primarily from revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services we provide to our consumers and merchants.

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

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• The geographic region or country in which a transaction occurs;

• The amount of our loans receivable outstanding with merchants and consumers.

• The amount of our loans receivable outstanding with consumers and merchants.

Refer to “Part I, Item 1A, Risk Factors” in this Form 10-K for further discussion on factors that may impact our revenue.

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Transaction revenues

Transaction revenues grew by $1.7 billion, or 7%, in 2023 compared to 2022 driven primarily by growth in TPV and the number of payment transactions from our Braintree products and services, partially offset by a decline in revenues from our core PayPal products and services, including declines in contractual compensation of $190 million from sellers that violated our contractual terms predominantly in international markets.

Transaction revenues for the year ended December 31, 2023 were also impacted unfavorably by lower net gains due to hedging activities as compared to the same period of the prior year.

Transaction revenues grew $2.0 billion, or 7%, in 2024 compared to 2023 driven primarily by an increase in revenues of approximately $1.3 billion, $0.5 billion, and $0.2 billion from our Braintree, core PayPal, and Venmo products and services, respectively, which resulted from growth in TPV and the number of payment transactions.

As a result of ongoing negotiations with merchants, including our stronger focus on profitable growth, we expect lower volume and transaction revenue growth from our Braintree offerings in 2025.

The graphs below present the respective key metrics (in millions) for the years ended December 31, 2024, 2023, and 2022:

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** Not meaningful.

We had active accounts of 426 million and 435 million as of December 31, 2023 and 2022, respectively, a decrease of 2%.

We had active accounts of 434 million and 426 million as of December 31, 2024 and 2023, respectively, an increase of 2%.

Number of payment transactions was 26.3 billion and 25.0 billion for the years ended December 31, 2024 and 2023, respectively, an increase of 5%.

TPV was $1.53 trillion and $1.36 trillion or the years ended December 31, 2023 and 2022, respectively, an increase of 13%.

Transaction revenues growth was lower than the growth in TPV and the number of payment transactions in 2023 due primarily to a decline in revenues from core PayPal products and services, an unfavorable impact from hedging, and declines in foreign currency exchange fees.

TPV was $1.68 trillion and $1.53 trillion for the years ended December 31, 2024 and 2023, respectively, an increase of 10%.

Transaction revenues growth was lower than the growth in TPV in 2024 due primarily to changes in mix from core PayPal products and services with a higher volume from large merchants, which have lower pricing.

Revenues from other value added services

Revenues from other value added services increased by $602 million, or 26%, in 2023 compared to 2022 due primarily to increases in interest earned on certain assets underlying customer account balances resulting from higher interest rates, and to a lesser extent, interest and fee revenue on our loans receivable portfolio driven by consumer interest-bearing installment loans and consumer revolving loans.

These drivers positively impacting revenues from other value added services were partially offset by a decline in revenue earned from our PayPal Honey product and a lower revenue share earned from an independent chartered financial institution (“partner institution”).

Revenues from other value added services increased $41 million, or 1%, in 2024 compared to 2023 due primarily to an approximately $380 million increase in interest earned on certain assets underlying customer account balances resulting from higher interest rates and higher customer balances, partially offset by a decline in the revenue of approximately $160 million earned from an independent chartered financial institution (“partner institution”).

Revenue from the partner institution is earned primarily through our revenue share associated with our U.S.

revolving consumer credit product and PayPal and Venmo branded credit cards.

Revenues from other value added services were also impacted by an approximately $180 million decline from:

lower interest and fee revenue on our PayPal Business Loan (“PPBL”) products, lower revenues from Honey, and lower revenues resulting from the sale of Happy Returns in the forth quarter of 2023.

Consumers that have outstanding loans and interest receivable due to our partner institution may experience hardships that result in losses recognized by the partner institution, which may result in a decrease in our revenue share earned in future periods.

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Macroeconomic environment changes may also result in behavioral shifts in consumer spending patterns affecting the type of funding source they use, which could also impact the funding mix.

Transaction expense increased by $2.2 billion, or 18%, in 2023 compared to 2022 due primarily to an increase in TPV of 13% and unfavorable changes in product mix.

The increase in transaction expense rate in 2023 compared to 2022 was also attributable to unfavorable changes in product mix with a higher proportion of TPV from unbranded card processing volume, which generally has higher expense rates than other products and services, partially offset by favorable changes in regional mix with respect to our core PayPal products and services.

Transaction expense increased $1.3 billion, or 9%, in 2024 compared to 2023 due to Braintree, which has a higher expense rate than our other products and services, representing a larger portion of TPV.

The decrease in transaction expense rate in 2024 compared to 2023 was attributable to favorable changes in regional mix, product mix, and certain third-party pricing incentives within our core PayPal products and services.

For the years ended December 31, 2024, 2023, and 2022, approximately 37%, 36%, and 35% of TPV, respectively, was generated outside of the U.S.

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Transaction losses include the expense associated with our customer protection programs, fraud, and chargebacks.

Credit losses include the current expected credit losses associated with our merchant and consumer loans receivable portfolio.

Credit losses include the current expected credit losses associated with our consumer and merchant loans receivable portfolio.

Our transaction and credit losses fluctuate depending on many factors, including TPV, product mix, current and projected macroeconomic conditions such as unemployment rates, retail e-commerce sales and household disposable income, merchant insolvency events, changes to and usage of our customer protection programs, the impact of regulatory changes, and the credit quality of loans receivable arising from transactions funded with our credit products for consumers and loans and advances to merchants.

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The components of our transaction and credit losses for the years ended December 31, 2024, 2023, and 2022 were as follows (in millions):

Transaction and credit losses increased by $110 million, or 7%, in 2023 compared to 2022.

Transaction losses were approximately $1.2 billion for both 2023 and 2022, reflecting a slight increase of $22 million, or 2%.

Transaction and credit losses decreased $240 million, or 14%, in 2024 compared to 2023.

Transaction losses were approximately $1.1 billion and $1.2 billion for 2024 and 2023, respectively, reflecting a decrease of $78 million, or 7%.

Transaction loss rate (transaction losses divided by TPV) was 0.07%, 0.08%, and 0.09% for the years ended December 31, 2024, 2023, and 2022, respectively.

The increase in transaction losses in 2023 was primarily attributable to lower recoveries compared to 2022 and higher losses related to fraud schemes, partially offset by a $39 million loss related to an ongoing merchant insolvency proceeding in 2022 with no activity of comparable individual magnitude in the current period.

Credit losses increased by $88 million in 2023 compared to 2022.

The decrease in transaction losses and the associated transaction loss rate in 2024 was primarily due to lower losses from our Venmo products and services resulting from enhanced risk mitigation strategies.

Credit losses decreased $162 million in 2024 compared to 2023.

The components of credit losses for the years ended December 31, 2024, 2023, and 2022 were as follows (in millions):

Year Ended December 31,

2024 2023 (3)

Net charge-offs (1)

$ 372 $ 549 $ 267

Reserve build (release) (2)

Reserve (release) build (2)

(44) (59) 135

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(1) Net charge-offs includes principal charge-offs partially offset by recoveries for consumer and merchant receivables.

(2) Reserve build (release) represents change in allowance for principal receivables excluding foreign currency remeasurement.

(2) Reserve (release) build represents change in allowance for principal receivables excluding foreign currency remeasurement.

(3) Includes changes in the allowance due to the reclassification of loans and interest receivable to or from held for sale.

The provision in the years ended December 31, 2023 and 2022 was primarily attributable to loan originations during the respective periods and a deterioration in the credit quality of loans outstanding.

During 2023 and 2022, allowances for our merchant and consumer portfolios included qualitative adjustments that took into account uncertainty with respect to macroeconomic conditions, and around the financial health of our borrowers, including the effectiveness of loan modification programs made available to merchants.

Credit losses in the year ended December 31, 2024 were primarily attributable to loan originations during the period partially offset by improvement in the credit quality of loans outstanding.

Credit losses in the year ended December 31, 2023 were primarily attributable to loan originations during the period and a deterioration in the credit quality of loans outstanding.

Consumer loan portfolio

As of December 31, 2023, loans and interest receivable, held for sale was $563 million.

Loans and interest receivable, held for sale, represents the portion of our installment consumer receivables that we intend to sell.

This portfolio includes the substantial majority of our United Kingdom (“U.K.”) and other European buy now, pay later loan receivables.

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of U.K.

and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivables, including a forward-flow arrangement for the sale of future originations of eligible loans over a 24-month commitment period (collectively, “eligible consumer installment receivables”).

In June 2023, we entered into a multi-year agreement with a global investment firm to sell United Kingdom (“U.K.”) and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivables, including a forward-flow arrangement for the sale of future originations of eligible loans over a 24-month commitment period (collectively, “eligible consumer installment receivables”).

In December 2024, this agreement was amended and restated to extend the commitment period to December 2026 and to increase the maximum balance of loans that can be sold at a time.

For additional information, see “Note 1—Overview and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in this Form 10-K.

The consumer loans and interest receivable balance as of December 31, 2023 and 2022 was $4.8 billion and $5.9 billion, respectively, net of participation interest sold, representing a year-over-year decrease of 19% driven by the sale of eligible consumer installment receivables in the U.K.

and other European countries, as discussed above, partially offset by the expansion of our revolving credit product in the U.K.

and our installment credit products in Japan.

As of December 31, 2024 and 2023, loans and interest receivable, held for sale was $541 million and $563 million, respectively.

The consumer loans and interest receivable balance as of December 31, 2024 and 2023 was $5.4 billion and $4.8 billion, respectively, net of participation interest sold, reflecting an increase of 13%.

The increase was driven primarily by growth of approximately $390 million and $250 million in our installment credit products driven by growth in Japan and the U.S., respectively, as well as growth of approximately $170 million in our revolving credit product in the U.K., partially offset by a decline of approximately $180 million in our installment credit products in Germany due to the forward-flow arrangement with the global investment firm.

The following table provides information regarding the credit quality of our consumer loans and interest receivable balance:

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Net charge-off rate (2)

(1) Amounts as of December 31, 2023 exclude loans and interest receivable, held for sale.

(1) Represents percentage of balances which are 90 days past the billing date or contractual repayment date, as applicable.

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended December 31, 2024, excluding fraud losses, on consumer loans as a percentage of the average daily amount of consumer loans and interest receivable balance during the same period.

The increase in net charge-off rate for consumer loans and interest receivable at December 31, 2023 as compared to December 31, 2022 was primarily due to the sale of eligible consumer installment receivables, as discussed above, and deterioration in the credit quality of the U.S.

interest-bearing installment product.

We continue to evaluate and modify our acceptable risk parameters related to our consumer loan portfolio in response to the changing macroeconomic environment.

In response to declining performance, a number of risk mitigation strategies were implemented in the third quarter of 2023, which resulted in reduced originations for our U.S.

interest-bearing installment product.

The decline in net charge-off rate for consumer receivables at December 31, 2024 as compared to December 31, 2023 was due primarily to the improvement in credit quality of the U.S.

interest-bearing installment products.

In response to changing portfolio performance and macroeconomic environment, we continue to monitor risk and evaluate and modify our acceptable risk parameters.

Changes to such parameters in 2024 resulted in an increase of U.S.

interest-bearing installment loan originations in 2024.

Merchant loan portfolio

We offer access to merchant finance products for certain small and medium-sized businesses, which we refer to as our merchant finance offerings.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of December 31, 2023 and December 31, 2022 was $1.2 billion and $2.1 billion, respectively, reflecting a decline of 44% due primarily to a decrease in originations related to our PayPal Business Loan (“PPBL”) products in the U.S.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of December 31, 2024 and 2023 was $1.5 billion and $1.2 billion, respectively, reflecting an increase of 23%.

The increase was due primarily to growth of approximately $170 million in our PayPal Working Capital (“PPWC”) product portfolio, primarily from the U.S., Germany and the U.K., as well as growth of approximately $110 million in our PPBL product in the U.S.

The following table provides information regarding the credit quality of our merchant loans, advances, and interest and fees receivable balance:

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(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended December 31, 2024, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees receivable balance during the same period.

The decrease in the percent of current merchant receivables, increase in percent of merchant receivables greater than 90 days outstanding, and increase in the net charge-off rate for merchant receivables at December 31, 2023 as compared to December 31, 2022 were primarily due to the expansion of acceptable risk parameters in 2022, which resulted in a decline in the overall credit quality of loans outstanding related to our PPBL product.

The significant decline in the merchant receivable portfolio year-over-year due to repayments and reduced originations also resulted in higher delinquency and charge-off rates as a percentage of outstanding loan balance as of December 31, 2023.

We continue to evaluate and modify our acceptable risk parameters related to our merchant loan portfolio in response to the changing macroeconomic environment.

In response to declining performance, a number of risk mitigation strategies were implemented throughout 2023, which resulted in reduced originations for our PPBL product.

The increase in the percent of current merchant receivables and decrease in percent of merchant receivables greater than 90 days outstanding and the net charge-off rate for merchant receivables at December 31, 2024 as compared to December 31, 2023 was due primarily to the improvement in underwriting and credit quality of the PPBL portfolio.

In response to changing portfolio performance and macroeconomic environment, we continue to monitor risk and evaluate and modify our acceptable risk parameters.

Changes to such parameters resulted in an increase in PPBL originations in 2024.

For additional information, see “Note 11—Loans and Interest Receivable” in the notes to the consolidated financial statements, and “Item 1A.

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Customer support and operations

Customer support and operations includes costs incurred in our global customer operations centers, including costs to provide call support to our customers, costs to support our trust and security programs protecting our merchants and consumers, and other costs incurred related to the delivery of our products, including payment devices, card production, and customer onboarding and compliance costs.

Customer support and operations costs decreased $201 million, or 9%, in 2023 compared to 2022 due primarily to a decline in employee-related costs, contractors and consulting costs, and customer onboarding and compliance costs.

Customer support and operations includes costs incurred in our global customer operations centers, including costs to provide call support to our customers, costs to support our trust and security programs protecting our consumers and merchants, and other costs incurred related to the delivery of our products, including payment devices, card production, and customer onboarding and compliance costs.

Customer support and operations expenses decreased $151 million, or 8%, in 2024 compared to 2023 due primarily to a decline in employee-related costs of approximately $100 million associated with a headcount reduction.

The decline in customer support and operations expenses year-over-year was also impacted by a reduction in other costs incurred related to delivery of our products, including warehouses, shipping, and payment devices and a decrease in contractors and consulting costs, partially offset by an increase in customer onboarding and compliance costs and card issuance costs.

Sales and marketing

Sales and marketing includes costs incurred for customer acquisition, business development, advertising, and marketing programs.

Sales and marketing expenses decreased $448 million, or 20%, in 2023 compared to 2022 due primarily to lower spending on targeted user incentives and marketing campaigns, and to a lesser extent, a decline in amortization of acquired intangibles.

Sales and marketing expenses increased $192 million, or 11%, in 2024 compared to 2023 due primarily to higher spend of approximately $260 million on marketing and brand advertising, including the launch of our PayPal Everywhere advertising campaign, partially offset by a decline in employee-related costs.

Technology and development

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It also includes acquired developed technology and our site operations and other infrastructure costs incurred to support our payments platform.

Technology and development expenses decreased $280 million, or 9%, in 2023 compared to 2022 due primarily to lower intangible amortization and a decline in costs related to contractors and consultants.

Technology and development expenses remained consistent in 2024 compared to 2023 due primarily to a decline in employee-related costs associated with headcount reduction offset by an increase in costs related to contractors and consultants and software maintenance costs.

General and administrative

General and administrative includes costs incurred to provide support to our business, including legal, human resources, finance, risk and compliance, executive, and other support operations.

General and administrative expenses decreased $40 million, or 2%, in 2023 compared to 2022 due primarily to a decline in depreciation expense and facilities costs.

General and administrative expenses increased $88 million, or 4%, in 2024 compared to 2023 due primarily to an increase in professional services expense, a contingency reserve, and indirect tax expense, partially offset by a decline in depreciation expense and facilities costs.

Restructuring and other

Restructuring and other primarily consist of restructuring expenses, asset impairment charges, gain on sale of divested business, and losses on loans and interest receivable, held for sale.

Restructuring and other decreased by $291 million in 2023 compared to 2022 primarily resulting from gain on sale of a divested business, partially offset by restructuring charges, asset impairment charges, and fair value adjustments on loans and interest receivable, held for sale.

In the fourth quarter of 2023, we completed the sale of Happy Returns and recorded a pre-tax gain of $339 million, net of transaction costs.

For additional information on the divestiture, see “Note 4—Business Combinations and Divestitures” in the notes to the consolidated financial statements included in this Form 10-K.

Restructuring and other increased $522 million in 2024 compared to 2023 primarily resulting from restructuring charges and fair value adjustments on loans and interest receivable, held for sale and a gain on sale of a divested business, in which we recorded a pre-tax gain of $339 million in 2023 with no comparable activity in the current period.

During the first quarter of 2024, management initiated a global workforce reduction intended to streamline operations, focus resources on core strategic priorities, and improve our cost structure.

The associated restructuring charges during the year ended December 31, 2024 were $307 million and included employee severance and benefits costs and stock-based compensation expense, which were substantially completed by the fourth quarter of 2024.

The estimated reduction in annualized employee-related costs associated with the impacted workforce is approximately $575 million, including approximately $165 million in stock-based compensation.

We reinvested a portion of the reduction in annual costs associated with the impacted workforce to drive business priorities.

During the first quarter of 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency.

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We primarily incurred employee severance and benefits costs, which were substantially completed in the fourth quarter of 2023.

The estimated reduction in annualized employee-related costs associated with the impacted workforce was approximately $280 million, including approximately $85 million in stock-based compensation.

We expect to reinvest a portion of the reduction in annual costs associated with the impacted workforce to drive business priorities.

During the first quarter of 2022, management initiated a strategic reduction of the existing global workforce intended to streamline and optimize our global operations to enhance operating efficiency.

This effort focused on reducing redundant operations and simplifying our organizational structure.

The associated restructuring charges during the year ended December 31, 2022 were $121 million.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs.

The strategic actions associated with this plan were substantially completed by the fourth quarter of 2022.

For information on the associated restructuring liabilities, see “Note 17—Restructuring and Other” in the notes to the consolidated financial statements included in this Form 10-K.

Additionally, we are continuing to review our real estate and facility capacity requirements due to our new and evolving work models.

We incurred asset impairment charges of $61 million and $81 million in the years ended December 31, 2023 and 2022, respectively, due to exiting certain leased properties, which resulted in a reduction of right-of-use lease assets and related leasehold improvements.

We continue to review our real estate and facility capacity requirements due to our new and evolving work models.

We incurred asset impairment charges of nil and $61 million in the years ended December 31, 2024 and 2023, respectively, due to exiting certain leased properties, which resulted in a reduction of right-of-use lease assets and related leasehold improvements.

In the year ended December 31, 2023, we recognized a gain of $17 million due to the sale of an owned property.

We also incurred a loss of $14 million related to another owned property, which was previously held for sale, in the year ended December 31, 2023.

During the year ended December 31, 2023, approximately $74 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale (inclusive of transaction costs) and fair value adjustments in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

During the years ended December 31, 2024 and 2023, approximately $129 million and $74 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale (inclusive of transaction costs) and fair value adjustments to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

Other income (expense), net

Other income (expense), net of $383 million in 2023 increased $854 million compared to $(471) million in 2022 due primarily to net gains on strategic investments in the current period compared to net losses and impairments in the prior period and higher interest income from an increase in interest rates.

Income tax expense (benefit)

Our effective income tax rate was 22% in 2023 and 28% in 2022.

The decrease in our effective income tax rate in 2023 compared to 2022 was primarily attributable to higher tax expense in the prior year related to the intra-group transfer of intellectual property.

Other income (expense), net of $4 million in 2024 decreased $379 million compared to $383 million in 2023.

This decline in other income (expense), net was due primarily to net losses and impairments on strategic investments in the current period compared to net gains in the prior period, which contributed a decline of approximately $490 million year-over-year, partially offset by an increase in interest income of approximately $180 million resulting from an increase in average cash balances and interest rates year-over-year.

Income tax expense

Our effective income tax rate was 22% in both 2024 and 2023.

Our effective income tax rate in 2024 remained consistent compared to 2023 and was impacted primarily by changes in jurisdictional mix of income, U.S.

income taxed at different rates, discrete tax adjustments, and tax expense in prior period associated with sale of a divested business.

See “Note 16—Income Taxes” to the consolidated financial statements included in this Form 10-K for more information on our effective tax rate.

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will not be taxable from a U.S.

federal tax perspective, but may be subject to state income or foreign withholding tax.

federal tax perspective except for any tax on foreign exchange gains and losses;

however, they may be subject to state income or foreign withholding tax.

A significant aspect of our global cash management activities involves meeting our customers’ requirements to access their cash while simultaneously meeting our regulatory financial ratio commitments in various jurisdictions.

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Effect of exchange rates on cash, cash equivalents, and restricted cash (207) 76 (155)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 2,678 $ 1,127 $ (11)

Net change in cash, cash equivalents, and restricted cash

$ 556 $ 2,678 $ 1,127

Operating activities

Cash flows from operating activities includes net income adjusted for certain non-cash expenses, timing differences between expenses recognized for provision for transaction and credit losses and actual cash transaction losses incurred, and changes in other assets and liabilities.

Significant non-cash expenses for the period include depreciation and amortization and stock-based compensation.

The cash impact from actual transaction losses incurred during a period is reflected as changes in other assets and liabilities.

The expenses recognized during the period for provision for credit losses are estimates of current expected credit losses on our merchant and consumer credit products.

Actual charge-offs of receivables related to our merchants and consumer credit products have no impact on cash from operating activities.

The net cash provided by operating activities of $4.8 billion in 2023 was due primarily to operating income of $5.0 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.7 billion, stock-based compensation of $1.5 billion, and depreciation and amortization of $1.1 billion.

Cash flows from operating activities was also impacted by proceeds from repayments and sales of loans receivable, originally classified as held for sale, of $10.8 billion and changes in other assets of $203 million.

These changes, which favorably impacted cash generated from operations, were offset by originations of loans receivable, held for sale of $11.5 billion, actual cash transaction losses incurred during the period of $1.2 billion, changes in deferred income taxes of $668 million, gain on divestiture of business, excluding transaction costs, of $356 million, net accretion of investments purchased at a discount of $367 million, and changes in liabilities of $222 million.

The net cash provided by operating activities of $5.8 billion in 2022 was due primarily to operating income of $3.8 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.6 billion, depreciation and amortization of $1.3 billion, and stock-based compensation of $1.3 billion.

Cash flows from operating activities was also impacted by net losses on our strategic investments of $304 million, and an increase in other liabilities of $856 million.

These changes, which favorably impacted cash generated from operations, were partially offset by actual cash transaction losses incurred during the period of $1.2 billion and changes in deferred income taxes of $811 million.

Cash paid for income taxes, net in 2023, 2022, and 2021 was $2.1 billion, $878 million, and $474 million, respectively.

Included within cash paid for income taxes for 2023 is $106 million related to the purchase of transferable tax credits as authorized by the Inflation Reduction Act of 2022.

The expenses recognized during the period for provision for credit losses are estimates of current expected credit losses on our consumer and merchant credit products.

Actual charge-offs of receivables related to our consumer and merchant credit products have no impact on cash from operating activities.

Net cash provided by operating activities grew $2.6 billion in 2024 compared to 2023 due primarily to changes in deferred taxes of approximately $900 million, changes in working capital of approximately $760 million, an increase of approximately $530 million in sales and repayments of loans receivable held for sale, net of originations, and an impact of approximately $490 million from losses on strategic investments.

Cash paid for income taxes, net in 2024, 2023, and 2022 was $1.0 billion, $2.1 billion, and $878 million, respectively.

Investing activities

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changes in funds receivable;

and changes in collateral posted related to derivative instruments, net.

The net cash provided by investing activities of $752 million in 2023 was due primarily to proceeds from repayments and sales of loans receivable, originally classified as held for investment, of $26.7 billion, maturities and sales of investments of $24.3 billion, and proceeds from divestiture of business, net of cash divested, of $466 million.

These cash inflows were partially offset by purchases and originations of loans receivable of $25.2 billion, purchases of investments of $22.0 billion, changes in funds receivable from customers of $2.9 billion, and purchases of property and equipment of $623 million.

The net cash used in investing activities of $3.3 billion in 2022 was due primarily to purchases and originations of loans receivable of $28.2 billion, purchases of investments of $20.2 billion, changes in funds receivable from customers of $2.7 billion, and purchases of property and equipment of $706 million.

These cash outflows were partially offset by principal repayment of loans receivable of $24.9 billion and maturities and sales of investments of $23.4 billion.

changes in collateral posted related to derivative instruments, net;

and purchases and maturities of reverse repurchase agreements.

Net cash provided by investing activities increased $837 million in 2024 compared to 2023 due primarily to an increase of $5.9 billion from changes related to funds receivable, partially offset by a decrease of $3.0 billion in sales and repayments of loans receivables, net of purchases and originations, and an increase of $1.6 billion in purchases of investments, net of sales and maturities.

Financing activities

Cash flows from financing activities includes proceeds from issuance of common stock, purchases of treasury stock, tax withholdings related to net share settlements of equity awards, borrowings and repayments under financing arrangements, changes in funds payable and amounts due to customers, and changes in collateral received related to derivative instruments, net.

The net cash used in financing activities of $3.0 billion in 2023 was due primarily to the repurchase of $5.0 billion of our common stock under our stock repurchase programs, repayments of borrowings under financing arrangements of $1.1 billion (including principal repayment of fixed rate debt that matured in June 2023 and repayment of borrowings under our Paidy credit agreement), tax withholdings of $257 million related to net share settlement of equity awards, and a decline in collateral received related to derivative instruments of $197 million.

These cash outflows were partially offset by changes in funds payable and amounts due to customers of $1.9 billion and borrowings under financing arrangements of $1.5 billion (including proceeds from the issuance of fixed rate debt in June 2023, borrowings under our Paidy credit agreement, and short-term overdraft borrowings).

The net cash used in financing activities of $1.2 billion in 2022 was due primarily to the repurchase of $4.2 billion of our common stock under our stock repurchase programs, repayments of borrowings under financing arrangements of $1.7 billion (including the repurchase and redemption of certain fixed rate notes and repayment of borrowings under a prior credit agreement), and tax withholdings of $336 million related to net share settlement of equity awards.

These cash outflows were partially offset by borrowings under financing arrangements of $3.5 billion (including proceeds from the issuance of fixed rate debt in May 2022 and borrowings under our Paidy credit agreements) and changes in funds payable and amounts due to customers of $1.4 billion.

Cash flows from financing activities includes proceeds from issuance of common stock, purchases of treasury stock, tax withholdings related to net share settlements of equity awards, borrowings and repayments under financing arrangements, changes in funds payable and amounts due to customers, changes in collateral received related to derivative instruments, net, and borrowings and repayments under repurchase agreements.

Net cash used in financing activities increased $5.3 billion in 2024 compared to 2023 due primarily to a decrease of $3.8 billion from changes related to funds payable and amounts due to customers, an increase of $1.0 billion in share repurchases of our common stock, and an increase of approximately $590 million in repayments, net of borrowings under financing arrangements.

Effect of exchange rates on cash, cash equivalents, and restricted cash

Foreign currency exchange rates had a positive impact of $76 million and negative impact of $155 million on cash, cash equivalents, and restricted cash during 2023 and 2022, respectively.

The positive impact of foreign currency exchange on cash, cash equivalents, and restricted cash in 2023 was primarily due to favorable fluctuations in the exchange rate of the U.S.

Foreign exchange rates had a negative impact of $207 million and positive impact of $76 million on cash, cash equivalents, and restricted cash during 2024 and 2023, respectively.

The negative impact in 2024 was primarily due to unfavorable fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar and, to a lesser extent, the British pound and Euro.

The positive impact in 2023 was primarily due to favorable fluctuations in the exchange rate of the U.S.

dollar to the British pound.

The negative impact of foreign currency exchange on cash, cash equivalents, and restricted cash in 2022 was primarily attributable to the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar and, to a lesser extent, to the fluctuations in the exchange rate of the U.S.

dollar to the Swedish krona, Japanese yen, Indian rupee, and the Euro.

Available credit and debt

In June 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $5.0 billion, five-year revolving credit facility and terminated the facility entered into in September 2019.

In June 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $5.0 billion, five-year revolving credit facility.

The Credit Agreement includes a $150 million letter of credit sub-facility and a $600 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.

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In the year ended December 31, 2024, ¥90.0 billion (approximately $574 million) was drawn down under the Paidy Credit Agreement.

Accordingly, at December 31, 2023, ¥40.0 billion (approximately $283 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

Accordingly, at December 31, 2024, no borrowing capacity was available under the Paidy Credit Agreement.

We maintain uncommitted credit facilities in various regions throughout the world with a borrowing capacity of approximately $80 million in the aggregate, where we can withdraw and utilize the funds at our discretion for general corporate purposes.

As of December 31, 2023, the majority of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

In June 2023, May 2022, May 2020 and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $12.6 billion (collectively referred to as the “Notes”).

As of December 31, 2024, substantially all of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

In May 2024, June 2023, May 2022, May 2020 and September 2019, we issued fixed rate notes with varying maturity dates (collectively referred to as the “Notes”).

Proceeds from the issuance of these Notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses, assets, or strategic investments.

As of December 31, 2023, we had $10.6 billion in fixed rate debt outstanding with varying maturity dates.

As of December 31, 2024, we had an aggregate principal amount of $10.6 billion in fixed rate debt outstanding with varying maturity dates.

For additional information, see “Note 12—Debt” to our consolidated financial statements included in this Form 10-K.

Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to fund our operating activities, finance acquisitions, make strategic investments, repurchase shares under our stock repurchase programs, or reduce our cost of capital.

We have a cash pooling arrangement with a financial institution for cash management purposes.

The arrangement allows for cash withdrawals from the financial institution based upon our aggregate operating cash balances held within the financial institution (“Aggregate Cash Deposits”).

The arrangement also allows us to withdraw amounts exceeding the Aggregate Cash Deposits up to an agreed-upon limit.

The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest expense or income under the arrangement.

As of December 31, 2023, we had a total of $3.9 billion in cash withdrawals offsetting our $3.9 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

Credit ratings

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Our material cash requirements include funds to support current and potential:

operating activities, credit products, customer protection programs, stock repurchases, strategic investments, acquisitions, other commitments, and capital expenditures and other future obligations.

operating activities, credit products, customer protection programs, stock repurchases, strategic investments, acquisitions, other commitments, capital expenditures, and other future obligations.

Credit products

Growth in our portfolio of loan receivables increases our liquidity needs, and any inability to meet those liquidity needs could adversely affect our business.

Growth in our portfolio of loans receivable increases our liquidity needs, and any inability to meet those liquidity needs could adversely affect our business.

We continue to evaluate partnerships and third-party sources of funding for our credit products.

The Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 50% of European customer balances held in our Luxembourg banking subsidiary to fund European, U.K., and U.S.

The Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) has agreed that PayPal’s management may designate up to 50% of European customer balances held in our Luxembourg banking subsidiary to fund European, U.K., and U.S.

credit activities.

As of December 31, 2023 and 2022, the total amount approved by management to be designated to fund credit activities was $3.0 billion and $3.8 billion, respectively, and represented approximately 39% and 37% of European customer balances made available for our corporate use as of those respective dates, as determined by applying financial regulations maintained by the CSSF.

We may periodically seek to designate additional amounts of European customer balances for our credit activities, as we deem necessary, based on utilization of the approved funds and anticipated credit funding requirements.

As of December 31, 2024 and 2023, the cumulative amount approved by PayPal to be designated to fund credit activities was $2.0 billion and $3.0 billion, respectively, and represented approximately 26% and 39% of European customer balances made available for our corporate use as of those respective dates, as determined by applying financial regulations maintained by the CSSF.

We may periodically seek to change the designation of amounts of European customer balances for our credit activities, as we deem necessary, based on utilization of the approved funds and anticipated credit funding requirements.

Under certain exceptional circumstances, corporate liquidity could be called upon to meet our obligations related to our European customer balances.

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of our eligible consumer installment receivables portfolio.

During the year ended December 31, 2023, we sold $5.5 billion of loans and interest receivable, in connection with this agreement.

In June 2023, we entered into a multi-year agreement with a global investment firm to sell our eligible consumer installment receivables portfolio.

In December 2024, this agreement was amended and restated to extend the commitment period to December 2026 and to increase the maximum balance of loans that can be sold at a time.

During the years ended December 31, 2024 and 2023, we sold $20.8 billion and $5.5 billion, respectively, of loans and interest receivable in connection with this agreement.

For additional information, see “Note 1—Overview and Summary of Significant Accounting Policies” to our consolidated financial statements included in this Form 10-K.

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Stock repurchases

During the year ended December 31, 2023, we repurchased approximately $5.0 billion of our common stock in the open market under our stock repurchase programs authorized in July 2018 and June 2022.

The June 2022 stock repurchase program became effective during the first quarter of 2023 upon completion of the July 2018 stock repurchase program.

During the year ended December 31, 2024, we repurchased approximately $6.0 billion of our common stock in the open market under our stock repurchase program authorized in June 2022.

As of December 31, 2024, a total of approximately $4.9 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

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Future obligations

As of December 31, 2023 and 2022, approximately $6.2 billion and $4.9 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K.

While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all of our PayPal Credit account holders will access their entire available credit at any given point in time.

In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination based on, among other things, account usage and customer creditworthiness.

We have certain fixed contractual obligations and commitments that include future estimated payments for general operating purposes.

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We believe we will be able to fund these obligations through our existing cash and investment portfolio and cash expected to be generated from operations.

Obligations Operating

Leases Transition Tax Long-term Debt Total

Obligations Leases

Transition Tax Long-term Debt Total

Payments Due During the Year Ending December 31, (In millions)

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The significant assumptions used in our determination of amounts presented in the above table are as follows:

• Purchase obligation amounts include minimum purchase commitments for cloud computing services, capital expenditures, advertising, and other goods and services entered into in the ordinary course of business.

• Operating lease amounts include minimum rental payments under our non-cancelable operating leases (including leases not yet commenced) primarily for office and data center facilities.

• Purchase obligation amounts include minimum purchase commitments for cloud computing services, advertising, and other goods and services entered into in the ordinary course of business.

• Lease amounts include primarily minimum rental payments under our non-cancelable operating leases primarily for office and data center facilities.

The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases, unless a substantial change in our headcount needs requires us to expand our occupied space or exit an office facility early.

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Our transaction and credit losses fluctuate depending on many factors, including:

total TPV, product mix, current and projected macroeconomic conditions, merchant insolvency events, changes to and usage of our customer protection programs, the impact of regulatory changes, and the credit quality of loans receivable arising from transactions funded with our credit products, which include revolving and installment credit products offered to consumers at checkout, as well as merchant loans and advances arising from the PayPal Working Capital and PPBL products.

We establish allowances for negative customer balances and estimated transaction losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, purchase protection program claims, account takeovers, and bank returns and reversals.

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The allowances are maintained at a level we deem appropriate to adequately provide for current expected credit losses at the balance sheet date after incorporating the impact of externally sourced macroeconomic forecasts.

As of December 31, 2023, we utilized externally published projections of U.S.

forecasted unemployment rates, forecasted U.S.

retail e-commerce sales, and forecasted U.K.

household disposable income, among others, over the reasonable and supportable forecast period.

As of December 31, 2022, we utilized externally published projections of the U.S.

forecasted unemployment rates, forecasted U.S.

As of December 31, 2024 and 2023, we utilized externally published projections of forecasted U.S.

unemployment rates, forecasted U.S.

retail e-commerce sales, and forecasted U.K.

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A significant change in the forecasted macroeconomic factors could result in a material change in our allowances.

Our allowance as of December 31, 2023 and 2022 took into account uncertainty with respect to macroeconomic conditions, uncertainty around the financial health of our borrowers, and effectiveness of loan modification programs made available to merchants.

An increase of 1% in the principal and interest coverage ratio would increase our allowances by approximately $69 million based on the loans and interest receivable balance outstanding as of December 31, 2024.

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Settlement of any particular position could require the use of cash.

Based on our results for the year ended December 31, 2023, a one-percentage point increase in our effective tax rate would have resulted in an increase in our income tax expense of approximately $54 million.

Based on our results for the year ended December 31, 2024, an increase in our income tax expense of $53 million would have resulted in a one-percentage point increase in our effective tax rate.

LOSS CONTINGENCIES

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Incentives determined to be made to a customer, or payable on behalf of a customer, are recorded as a reduction to gross revenue.

Incentives that are earned by the customer based on performance targets

are recorded when earned, based on management’s estimate of each customer’s future performance.

Incentives that are earned by the customer based on performance targets are recorded when earned, based on management’s estimate of each customer’s future performance.

These accruals are regularly reviewed and estimates of performance are adjusted, as appropriate, based on changes in performance expectations, actual customer performance, amendments to existing contracts, or the execution of new contracts.

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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 7. Management’s Discussion and Analysis