PayPal Holdings (PYPL) 10-K risk factor changes: FY2020 vs FY2019

[removed: You] [added: *You] should carefully review [removed: all of these sections] [added: this section] in addition to the other information appearing in this [removed: Annual Report on] Form 10-K, including our consolidated financial statements and related notes, for important information regarding risks and uncertainties that affect us.

[removed: *We] [added: We] face substantial and increasingly intense competition worldwide in the global payments [removed: industry.*][added: industry.]

The global payments industry is highly competitive, [removed: rapidly] [added: continuously] changing, highly innovative, and increasingly subject to regulatory scrutiny and oversight.

Many [removed: of the] areas in which we compete evolve rapidly with [removed: changing] [added: innovative] and disruptive technologies, shifting user [added: preferences and] needs, [added: price sensitivity of merchants] and [added: consumers, and] frequent introductions of new products and services.

Competition also may intensify as [added: new competitors emerge,] businesses enter into business combinations and partnerships, and established companies in other segments expand to become competitive with [removed: different] [added: various] aspects of our business.

We often partner with many of these businesses and we consider the ability to continue establishing these partnerships [removed: as] [added: to be] important to our business.

Some of our current and potential competitors [added: are larger operationally and/or financially than we are,] have larger customer bases, [added: greater brand recognition, longer operating histories, a dominant or more secure position,] broader geographic scope, volume, scale, resources, and market share than we do, [added: or offer products and services that we do not offer,] which may provide them significant competitive advantages.

[removed: They] [added: These competitors] may devote greater resources to the development, promotion, and sale of products and services, [removed: and] [added: and/or] offer lower prices or more effectively offer their own innovative programs, products, and services.

[removed: *Global] [added: Global] and regional economic conditions could harm our [removed: business.*][added: business.]

[removed: *If] [added: If] we cannot keep pace with rapid technological developments to provide new and innovative products and services, the use of our products and services and, consequently, our [removed: revenues] [added: revenues,] could [removed: decline.*][added: decline.]

[removed: As a result, we] [added: We] expect new services and technologies to continue to emerge and evolve, and we cannot predict the effects of technological changes on our business.

[removed: In addition to our own initiatives and innovations, we] [added: We] rely in part on third parties, including some of our competitors, for the development of and access to new or evolving technologies.

[removed: In addition, we] [added: We] may not be able to accurately predict which technological developments or innovations will become widely adopted and how those technologies may be regulated.

Developing and incorporating new technologies into our products and services may require [removed: substantial expenditures,] [added: significant investment,] take considerable time, and ultimately may not be successful.

[removed: In addition, our] [added: Our] ability to adopt new products and services and to develop new technologies may be [removed: inhibited] [added: limited or restricted] by industry-wide standards, platform providers, payments networks, changes to laws and regulations, [removed: the extent of] changing expectations of consumers or merchants, third-party intellectual property rights, [removed: or] [added: and] other factors.

Our success will depend on our ability to develop and incorporate new technologies and adapt to technological changes and evolving industry [removed: standards; if we are unable to do so in a timely or cost-effective manner, our business could be harmed.][added: standards.]

[removed: *Cyberattacks] [added: Cyberattacks] and security vulnerabilities could result in serious harm to our reputation, business, and financial [removed: condition.*][added: condition.]

The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers’ personal data), disable or degrade service, or sabotage systems are constantly [removed: evolving and have become increasingly complex and sophisticated, may be difficult to detect quickly,] [added: evolving,] and often are not recognized or detected until after they have been launched against a target.

Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems or facilities through various means, including, but not limited to, hacking into our systems or facilities or those of our customers, partners, or vendors, and attempting to fraudulently induce users of our systems (including employees and [removed: our] customers) into disclosing user names, passwords, payment card information, or other sensitive [removed: information, which may in turn be used to access our information technology systems.][added: information.]

Numerous and evolving cybersecurity threats, including advanced and persisting cyberattacks, cyberextortion, spear phishing and social engineering schemes, the introduction of computer viruses or other malware, and the physical destruction of all or portions of our information technology and infrastructure [added: and those of third parties with whom we partner] could compromise the confidentiality, availability, and integrity of the data in our systems.

We believe that PayPal is a particularly attractive target [removed: for such breaches and attacks] due to our name and brand recognition and the widespread adoption and use of our products and services.

[removed: Our] [added: This] information [removed: technology and infrastructure] may [removed: be vulnerable to cyberattacks or security breaches, and third parties may] [added: in turn] be [removed: able] [added: used] to access our customers’ personal or proprietary information and payment card data that are stored on or accessible through [added: our information technology systems and] those [removed: systems.][added: of third parties with whom we partner.]

[removed: | • |] [added: The novel coronavirus (“COVID-19”) pandemic could materially and] adversely affect our [removed: business] [added: business, financial condition,] and results of [removed: operations. |][added: operations.]

[removed: In addition, any] [added: Any] cyberattacks or data security breaches affecting the information technology or infrastructure of companies we acquire or of our customers, partners, or vendors (including data center and cloud computing providers) could have similar negative effects.

[removed: In addition, under] [added: Under] payment card [added: network] rules and our contracts with our [removed: card] [added: payment] processors, if there is a breach of payment card information that we store, or that is stored by our direct payment card processing vendors, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses.

While we maintain insurance policies, [removed: they] [added: our coverage] may [removed: not] be [removed: adequate] [added: insufficient] to [removed: reimburse] [added: compensate] us for [added: all] losses caused by security breaches.

[removed: *Systems failures and resulting] [added: Business] interruptions [removed: in] [added: or systems failures may impair] the availability of our websites, applications, [removed: products,] [added: products] or [removed: services could] [added: services, or otherwise] harm our [removed: business.*][added: business.]

Our systems and [added: operations and] those of our service providers and partners have experienced from time to time, and may experience in the future [removed: service] [added: business] interruptions or degradation because of [removed: hardware and software defects or malfunctions,] distributed denial-of-service and other cyberattacks, insider threats, [added: hardware and software defects or malfunctions,] human error, earthquakes, hurricanes, floods, fires, and other natural disasters, [added: public health crises (including pandemics),] power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events.

[removed: Some] [added: Additionally, some] of our systems, including [removed: systems] [added: those] of companies we have acquired, are not fully redundant, and our disaster recovery planning may not be sufficient for all possible outcomes or events.

[removed: In addition, as] [added: As] a provider of payments solutions, we are subject to heightened scrutiny by regulators that may require specific business continuity, resiliency and disaster recovery plans, and [removed: more] rigorous testing of such plans, which may be costly and time-consuming to implement, and may divert our resources from other business priorities.

We have [removed: experienced] [added: experienced,] and expect to continue to experience system failures, denial-of-service attacks, and other events or conditions from time to time that interrupt the availability, or reduce or adversely affect the speed or functionality, of our products and services.

These events have resulted and likely will [added: continue to] result in loss of revenue.

Moreover, if any system failure or similar event results in damages to our customers or their business partners, these customers or partners could seek significant compensation or contractual penalties from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address, and could have other consequences described in this “Risk Factors” section under the caption “*Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business, and financial [removed: condition.*”][added: condition*.”]

We have undertaken and continue to undertake certain system upgrades and re-platforming efforts designed to improve our [removed: reliability] [added: reliability, resiliency,] and speed.

These efforts are costly and time-consuming, involve significant technical [removed: risk] [added: risk,] and may divert our resources from new features and products, and there can be no guarantee that these efforts will succeed.

[removed: Because we are a regulated financial institution in certain jurisdictions, frequent] [added: Frequent] or persistent site interruptions could lead to regulatory scrutiny, significant fines and penalties, and mandatory and costly changes to our business practices, and ultimately could cause us to lose existing licenses that we need to operate or prevent or delay us from obtaining additional licenses that may be required for our business.

[removed: Additionally, if] [added: If] these third parties experience operational interference or [removed: disruptions,] [added: disruptions (including a cybersecurity incident),] breach their agreements with us, [added: or] fail to perform their obligations and meet our expectations, [removed: or experience a cybersecurity incident,] our operations could be disrupted or otherwise negatively affected, which could result in customer dissatisfaction, regulatory scrutiny, and damage to our reputation and brands, and materially and adversely affect our business.

While we maintain business interruption insurance, [removed: our coverage] [added: it] may [added: not] be [removed: insufficient] [added: sufficient] to [removed: compensate] [added: reimburse] us for [removed: all] losses [removed: that may result from] [added: caused by] interruptions in our service as a result of systems failures and similar events.

[removed: If we fail] [added: In addition, any failure] to [removed: timely and] successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and [removed: technologies, or if such systems and] technologies [removed: do not operate as intended, this] [added: in a timely manner] could have an adverse impact on our business, internal controls (including internal controls over financial reporting), results of operations, and financial condition.

[removed: *Changes] [added: Changes] to payment card networks or bank fees, rules, or practices could harm our [removed: business.*][added: business.]

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CORONAVIRUS PANDEMIC RISKS

There are no comparable recent events that provide guidance as to the effect that the spread of COVID-19 as a global pandemic may have.

The ultimate extent to which the COVID-19 pandemic impacts our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict, and subject to change, including, but not limited to, the duration, scope, severity, and geographic spread of the outbreak, its impact on the global economy, actions taken to contain or limit the impact of COVID-19, such as the availability of an effective vaccine or treatment, geographic variation in how countries and states are handling the pandemic, and how quickly and to what extent normal economic and operating conditions may potentially resume.

The COVID-19 pandemic has adversely impacted and is likely to further adversely impact the operations of our customers, suppliers, vendors and other business partners, and may adversely impact our results of operations in the future.

Cross-border and domestic commerce may be adversely impacted by measures taken by government authorities and businesses globally to contain and limit the outbreak’s spread, including travel restrictions, border closures, quarantines, shelter in place and lock down orders, mask and social distancing requirements, and business limitations and shutdowns.

To the extent that such mitigation measures remain in place or are reinstated for significant periods of time, they may adversely affect our business, financial condition, and results of operations.

Actions that we have taken or may take in the future intended to assist customers impacted by COVID-19 may negatively impact our results of operations.

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

- Merchants selling goods or services in advance of the date of their delivery (e.g., travel and events verticals) or experiencing bankruptcy, insolvency, business failure, or other business interruption, which could result in our becoming liable to the buyers of such goods or services through our buyer protection program or through chargebacks on payment cards used by customers to fund their payments;

- Merchants who utilize PayPal branded merchant credit products such as PayPal Working Capital and PayPal Business Loan products or consumers who utilize PayPal branded consumer credit products defaulting on their payment obligations;

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

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

- An increased volume of customer requests for support and regulatory requests for information and support or additional regulatory requirements, which could require additional resources and costs to address.

Additionally, COVID-19 has negatively impacted the financial viability and operations of merchants in certain verticals (such as travel and events) and, as a result, allowances for transaction and credit losses may not accurately reflect the amount of losses that PayPal may be exposed to by these merchants.

Further, we may not have the ability to accurately forecast the magnitude of such losses or any additional merchant segments that could be adversely impacted by COVID-19.

Our business has benefited from the shift from in-store shopping and traditional payment methods towards e-commerce and digital payments, including a significant increase in net new active accounts and payments volume.

To the extent that customer preferences revert to pre-COVID-19 behaviors as mitigation measures to limit the spread of COVID-19 are lifted or relaxed and an effective vaccine or treatments for COVID-19 becomes available, our business, financial condition, and results of operations could be adversely impacted.

The significant increase in the number of our employees who are working remotely as a result of the pandemic, and an extended period of remote work arrangements and subsequent reintroduction into the workplace could introduce operational risk, increase cybersecurity risk, strain our business continuity plans, negatively impact productivity, and give rise to claims by employees or otherwise adversely affect our business.

Additionally, COVID-19 could require new or modified processes, procedures, and controls to respond to changes in our business environment.

We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners.

There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19 or will otherwise be satisfactory to government authorities.

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CYBERSECURITY AND TECHNOLOGY RISKS

For example, in November 2017, we suspended the operations of TIO Networks (“TIO*”*) (acquired in July 2017) as part of an investigation of security vulnerabilities of the TIO platform.

In December 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.

This incident resulted in governmental inquiries and civil claims against us and may lead to additional inquiries and claims in the future.

Cybersecurity breaches and security vulnerabilities could subject us to significant costs and liabilities, result in improper disclosure of data and violations of applicable privacy and other laws, require us to change our business practices, cause us to incur significant remediation costs, lead to loss of customer confidence in, or decreased use of, our products and services, damage our reputation and brands, divert the attention of management from the operation of our business, or result in significant compensation or contractual penalties from us to our customers and their business partners as a result of losses to or claims by them.

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|  | | | | | | | | | 15 | | |

Frequent or persistent interruptions in our services could permanently harm our relationship with our customers and partners and our reputation.

From time to time, such third parties have ceased to provide us with such facilities and services.

Rapid, significant, and disruptive technological changes impact the industries in which we operate, for example, payment technologies (including real-time payments, payment card tokenization, virtual currencies, distributed ledger and blockchain technologies, and proximity payment technology such as NFC and other contactless payments); internet browser technologies, that enable users to easily store their payment card information for use on any retail or e-commerce website; artificial intelligence and machine learning; developments in technologies supporting our regulatory and compliance obligations; and in-store, digital, mobile, and social commerce.

If we are unable to do so in a timely or cost-effective manner, our business could be harmed.

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*The following discussion is divided into three sections.

The first section, which begins immediately following this paragraph, discusses some of the risks that may adversely affect our business, results of operations, and financial condition.

The second section, captioned “Risks Related to Our Separation from eBay” discusses some of the risks relating to our separation from eBay in July 2015 into an independent publicly traded company.

The third section, captioned “Risks Related to Our Common Stock,” discusses some of the risks relating to an investment in our Common Stock.

Risk Factors That May Affect Our Business, Results of Operations, and Financial Condition

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

We compete primarily on the basis of the following:

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

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

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

| • | simplicity and transparency of our fee structure; |

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

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

| • | customer service experience; |

| • | brand recognition and preference; |

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

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

| • | system reliability and data security; |

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

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

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

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

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

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

| • | payment networks which facilitate payments for credit card users; |

| • | providers of “digital wallets” which offer customers the ability to pay online and/or in-store through a variety of payment methods, including with mobile applications, through contactless payments, and with a variety of payment cards; |

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

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

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

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

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

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

| • | providers of virtual currencies and distributed ledger technologies. |

We also face competition and potential competition from:

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

| • | issuers of stored value products targeted at online payments; |

| • | other online and mobile payment-services providers globally; |

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

*This [removed: Annual Report on] Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans, or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, [added: mergers] or [added: acquisitions, or] management strategies).

Risk Factors” of this [removed: Annual Report on] Form 10-K, as well as in our consolidated financial statements, related notes, and the other information appearing [removed: elsewhere] in this report and our other filings with the Securities and Exchange Commission (“SEC”).

You should read the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the audited consolidated financial statements and the related notes that appear [removed: elsewhere] in this report.

Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the [removed: Company”] [added: Company,”] and “PayPal” refer to PayPal [removed: Holdings] [added: Holdings, Inc.] and its consolidated subsidiaries.*

This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on discussion of [removed: 2019] [added: 2020] results as compared to [removed: 2018] [added: 2019] results.

[removed: For discussion of 2018 results as compared to 2017 results, see “Exhibit 99.1—Revised] Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations and Consolidated Financial Statements] [added: Operations” within our Form 10-K] for the [removed: years] [added: year] ended December 31, [removed: 2018, 2017 and 2016—Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Form 8-K] [added: 2019] filed [added: with the SEC] on [removed: September 16, 2019.][added: February 6, 2020.]

We are a leading technology platform and digital payments company that enables digital and mobile payments on behalf of [removed: consumers and] merchants [added: and consumers] worldwide.

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

We also facilitate person-to-person (“P2P”) payments through our PayPal, Venmo, and Xoom [removed: products.][added: products and services and simplify and personalize shopping experiences for our consumers through our Honey Platform.]

Our combined payment solutions, including our [added: core] PayPal, PayPal Credit, Braintree, Venmo, Xoom, [added: iZettle,] and [removed: iZettle products,] [added: Hyperwallet products and services,] comprise our proprietary Payments Platform.

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

[removed: Some of the laws and regulations to which we are subject were enacted recently, and the] [added: 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 [removed: way laws and regulations are interpreted] [added: changes to their interpretation] and [removed: implemented,] [added: 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.

[removed: Therefore, we] [added: We] monitor these areas closely [removed: to design] [added: and are focused on designing] compliant solutions for our [removed: customers who depend on us.][added: customers.]

Information security risks for global payments and technology companies like us have [removed: significantly] increased [added: significantly] in recent years.

Risk [removed: Factors—*The] [added: Factors—*Brexit: The] United Kingdom’s departure from the EU could [removed: adversely affect us*.”][added: harm our business, financial condition, and results of operations*.”]

Brexit [removed: could adversely affect U.K., regional (including European), and worldwide economic and market conditions, and could] [added: may] contribute to instability in [removed: global financial] [added: financial, stock,] and foreign currency exchange markets, including volatility in the value of the British Pound and Euro.

In [added: 2020,] 2019, [removed: 2018,] and [removed: 2017,] [added: 2018,] net revenues generated from our U.K. operations constituted 11% of total net revenues.

In [added: 2020,] 2019, [removed: 2018,] and [removed: 2017,] [added: 2018,] net revenues generated from the EU (excluding the U.K.) constituted less than 20% of total net revenues.

Approximately [removed: 37%] [added: 50%] and [removed: 31%] [added: 37%] of our gross loans and interest receivables as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] respectively, were [removed: generated] [added: due] from [removed: our] [added: customers in the] U.K. [removed: operations.][added: Approximately 14% and 6% of our gross loans and interest receivables as of December 31, 2020 and 2019, respectively, were due from customers in the EU (excluding the U.K.).]

Approximately [removed: 6%] [added: 77%] and [removed: 7%] [added: 94%] of our [removed: gross] [added: consumer] loans [removed: and interest] receivables [added: outstanding] as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] respectively, were [removed: generated] [added: due] from [removed: the EU (excluding] [added: consumers in] the [removed: U.K.).][added: U.K.]

The following table provides a summary of our consolidated financial results for the years ended December 31, [added: 2020,] 2019, [removed: 2018,] and [removed: 2017:][added: 2018:]

| | [added: | |] Year Ended December 31, | | | | | | | | | | | | [added: | | | | | |] Percent Increase/(Decrease) | | | | | [added: | | | |]

| | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | | | [removed: 2017] | | [added: 2020] | | [removed: 2019] | | | [removed: 2018] | [added: 2019] | [added: | |]

| | [added: | |] (In millions, except percentages and per share amounts) | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Net revenues | [added: | |] $ | [removed: 17,772] [added: 21,454] | | | [added: | |] $ | [removed: 15,451] [added: 17,772] | | | [added: | |] $ | [removed: 13,094] [added: 15,451] | | | [removed: 15] | [added: | 21 | |] % | | [removed: 18] | [added: | 15 | |] % |

| Operating expenses | [added: | | 18,165 | | | | | |] 15,053 | | | | [removed: 13,257] | | [added: 13,257] | | [removed: 10,967] | | | | [removed: 14] [added: 21] | [added: |] % | | [removed: 21] | [added: | 14 | |] % |

| Operating income | [added: | | 3,289 | | | | | |] 2,719 | | | | [removed: 2,194] | | [added: 2,194] | | [removed: 2,127] | | | | [removed: 24] [added: 21] | [added: |] % | | [removed: 3] | [added: | 24 | |] % |

| Operating margin | [added: | |] 15 | | % | | [removed: 14] | | [added: 15 | |] % | | [removed: 16] | | [added: 14 | |] % | | [added: | |] | | | [added: | | |] | | [added: |]

| Other income (expense), net | [added: | | 1,776 | | | | | |] 279 | | | | [removed: 182] | | [added: 182] | | [removed: 73] | | | | [removed: 53] [added: 537] | [added: |] % | | [removed: 149] | [added: | 53 | |] % |

| Income tax expense | [added: | | 863 | | | | | |] 539 | | | | [removed: 319] | | [added: 319] | | [removed: 405] | | | | [removed: 69] [added: 60] | [added: |] % | | [removed: (21] | [removed: )%] | [added: 69 | | % |]

| Effective tax rate | [removed: 18] | | [added: 17 | |] % | | [removed: 13] | | [added: 18 | |] % | | [removed: 18] | | [added: 13 | |] % | | [added: | |] | | | [added: | | |] | | [added: |]

| Net income | [added: | |] $ | [removed: 2,459] [added: 4,202] | | | [added: | |] $ | [removed: 2,057] [added: 2,459] | | | [added: | |] $ | [removed: 1,795] [added: 2,057] | | | [removed: 20] | [added: | 71 | |] % | | [removed: 15] | [added: | 20 | |] % |

| Net income per diluted share | [added: | |] $ | [removed: 2.07] [added: 3.54] | | | [added: | |] $ | [removed: 1.71] [added: 2.07] | | | [added: | |] $ | [removed: 1.47] [added: 1.71] | | | [removed: 21] | [added: | 71 | |] % | | [removed: 16] | [added: | 21 | |] % |

| Net cash provided by operating [removed: activities] [added: activities(1)] | [added: | |] $ | [removed: 4,561] [added: 5,854] | | | [added: | |] $ | [removed: 5,483] [added: 4,071] | | | [added: | |] $ | [removed: 2,531] [added: 5,480] | | | [removed: (17] | [removed: )%] | [added: 44] | [removed: 117] | % | [added: | | | (26) | | % |]

Net revenues increased [removed: $2.3] [added: $3.7] billion, or [removed: 15%,] [added: 21%,] in [removed: 2019] [added: 2020] as compared to [removed: 2018,] [added: 2019] driven primarily by growth in [removed: TPV (as] [added: total payment volume (“TPV”, as] defined below under “Net Revenues”) of [removed: 23%.][added: 31%.]

[removed: Net revenues from our acquisitions completed in 2018] [added: Our acquisition of Honey Science Corporation (“Honey”)] contributed approximately one percentage point to the growth rate in [removed: 2019.][added: 2020.]

Total operating expenses increased [removed: $1.8] [added: $3.1] billion, or [removed: 14%,] [added: 21%,] in [removed: 2019] [added: 2020] as compared to [removed: 2018,] [added: 2019] due primarily to an increase in transaction expense, and to a lesser extent, [added: increases in] technology and [removed: development, customer support] [added: development expenses, sales] and [removed: operations,] [added: marketing expenses, transaction] and [added: credit losses, and] general and administrative [removed: expenses, partially offset by a decline in restructuring and other charges.][added: expenses.]

[removed: Operating expenses related to our] [added: Our] acquisitions [removed: completed in 2018] [added: of Honey and GoPay collectively] contributed approximately [removed: three] [added: 20] percentage points to the growth rate [removed: in total operating] [added: of sales and marketing] expenses in [removed: 2019.][added: 2020.]

Our operating margin was 15% [removed: and 14%] in [removed: 2019] [added: both 2020] and [removed: 2018, respectively.][added: 2019.]

Additionally, our forward-looking statements include expectations related to anticipated impacts of the outbreak of the novel coronavirus.

For discussion of 2019 results as compared to 2018 results, see “Item 7.

THE COMPANY

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

Regulatory Environment

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Information Security

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

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic.

The outbreak has resulted in government authorities and businesses throughout the world implementing numerous measures intended to contain and limit the spread of COVID-19, including travel restrictions, border closures, quarantines, shelter-in-place and lock-down orders, mask and social distancing requirements, and business limitations and shutdowns.

These measures have negatively impacted consumer and business spending and payments activity generally, and have significantly contributed to deteriorating macroeconomic conditions and higher unemployment in some countries, including those in which we have significant operations.

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

We will continue to actively monitor the situation and may take further actions that may alter our business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, or business partners.

While the current macroeconomic environment as a result of the COVID-19 pandemic has adversely impacted general consumer and merchant spending with a more pronounced impact on travel and events verticals, the spread of COVID-19 has also accelerated the shift from in-store shopping and traditional in-store payment methods (e.g. cash) towards e-commerce and digital payments and resulted in increased customer demand for safer payment and delivery solutions (e.g. contactless payment methods, buy online and pick up in store) and a significant increase in online spending in certain verticals that have historically had a strong in-store presence.

On balance, our business has benefited from these behavioral shifts, including a significant increase in net new active accounts and payments volume.

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

The rapidly changing global market and economic conditions as a result of COVID-19 have impacted, and are expected to continue to impact, our operations and business.

The broader implications of the COVID-19 pandemic on our business, financial condition, and results of operations remain uncertain.

For additional information on how COVID-19 has impacted and could continue to negatively impact our business, see below for specific discussion in the respective areas, and also refer to “Part I, Item 1A, Risk Factors” in this Form 10-K.

BREXIT

The United Kingdom (“U.K.”) formally exited the European Union (“EU”) and the European Economic Area (“EEA”) on January 31, 2020 (commonly referred to as “Brexit”) with the expiration of a transition period on December 31, 2020.

PayPal (Europe) S.à.r.l.

et Cie, SCA (“PayPal (Europe)”) operates in the U.K. within the scope of its passport permissions (as they stood at the end of the transition period) under the Temporary Permissions Regime pending the grant of new U.K. authorizations by the U.K. financial regulators.

We are currently unable to determine the longer-term impact that Brexit will have on our business, which will depend, in part, on the implications of new tariff, trade and regulatory frameworks that now govern the provision of cross-border goods and services between the U.K. and the EEA, as well as the financial and operational consequences of the requirement for PayPal (Europe) to obtain new U.K. authorizations to operate its business longer-term within the U.K. market.

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The increase in the percentage of gross loans and interest receivable outstanding in the U.K. and EU as of December 31, 2020 as compared to 2019 was driven by an increase in the balances in those regions as we continue to originate consumer loans in our international markets, combined with a decline in our gross total loans and interest receivable outstanding due to minimal originations in our merchant credit portfolio as compared to 2019.

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Our acquisitions of Honey and a 70% equity interest in Guofubao Information Technology Co. (GoPay), Ltd. (“GoPay”) collectively contributed approximately five percentage points to the growth rate in total operating expenses in 2020.

Operating income increased $570 million, or 21%, in 2020 as compared to 2019 due to growth in net revenues, partially offset by an increase in operating expenses.

Our acquisitions of Honey and GoPay collectively had a negative impact of approximately three percentage points to our operating margin, which was offset by operating efficiencies.

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Risk Factors.”

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| | | | 2020 | | | | | | 2019 | | |

PayPal is committed to democratizing financial services and empowering people and businesses to join and thrive in the global economy.

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.

We are not immune to these risks and there can be no assurance that we will not suffer such losses in the future.

The United Kingdom (“U.K.”) held a referendum in June 2016 in which a majority of voters approved an exit from the European Union (“EU”), commonly referred to as “Brexit.” The U.K. formally exited the EU on January 31, 2020 and a transition period is in place until December 31, 2020 during which time the U.K. will remain in both the EU customs union and single market and follow EU rules.

There is a significant lack of clarity over the terms of the U.K.’s future relationship with the EU after that date.

We are currently unable to determine the impact that Brexit will have on our business, as any impact will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations.

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As a result, certain amounts may not recalculate using the rounded amounts provided.

These increases were partially offset by a decrease in interest and fee income due to the sale of our U.S. consumer credit receivables portfolio to Synchrony Bank (“Synchrony”) in July 2018, which resulted in a negative impact of approximately four percentage points to the net revenues growth rate in 2019.

Operating income increased $525 million, or 24%, in 2019 as compared to 2018.

Acquisitions completed in 2018 had a negative impact of approximately five percentage points to the 2019 growth rate in operating income.

Operating margin in 2019 was positively impacted by a reduction in restructuring and other charges driven primarily by the completion of the sale of our U.S. consumer credit receivables portfolio in July 2018, subsequent to which we no longer record adjustments to the cost basis of loans and interest receivables held for sale, offset by a negative impact of growth in our transaction expense, which increased 22% in 2019, compared to a 15% increase in net revenues in the same period.

Acquisitions completed in 2018 had a negative impact of approximately one percentage point in our operating margin for the year ended December 31, 2019.

Risk Factors—*Risk Factors That May Affect Our Business, Results of Operations, and Financial Condition*.”

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| Transaction revenues | $ | 16,099 | | | $ | 13,709 | | | $ | 11,501 | | | 17 | % | | 19 | % |

Fees charged to facilitate instant transfer of funds for our customers contributed approximately two percentage points and acquisitions completed in 2018 contributed approximately one percentage point to the growth rate of transaction revenues in 2019.

Net gains from our foreign currency exchange contracts recognized as a component of transaction revenues in 2019 were $238 million, compared to net losses of $23 million in 2018.

| Active accounts(1) | 305 | | | | 267 | | | | 229 | | | | 14 | % | | 17 | % |

| Number of payment transactions(2) | 12,361 | | | | 9,871 | | | | 7,769 | | | | 25 | % | | 27 | % |

| Payment transactions per active account(3) | 40.6 | | | | 36.9 | | | | 34.0 | | | | 10 | % | | 9 | % |

| TPV(4) | $ | 711,925 | | | $ | 578,419 | | | $ | 456,179 | | | 23 | % | | 27 | % |

All amounts in tables are rounded to the nearest million except as otherwise noted.

*Other value added services*

Net revenues from other value added services decreased by $69 million, or 4%, in 2019 compared to 2018 due primarily to lower interest and fee income earned on our consumer loans receivable driven by the sale of our U.S. consumer credit receivables portfolio in July 2018.

The decline was partially offset by an increase in revenue share with Synchrony (discussed below), an increase in interest and fee income earned on our merchant loans and advances receivable, and an increase in interest earned resulting from growth in customer balances.

Acquisitions completed in 2018 contributed approximately four percentage points to the growth rate of other value added services revenues in 2019.

The year-over-year increase of 56% in 2019 compared to 2018, was driven by an increase in both our merchant loans and international consumer loan portfolios.

The year-over-year decrease of 66% in 2018 compared to 2017, was driven by the completion of the sale of U.S. consumer credit receivables portfolio.

In November 2017, we reached an agreement to sell our U.S. consumer credit receivables portfolio to Synchrony to free up balance sheet capacity and cash flow for other uses and mitigate balance sheet risk.

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., and we no longer hold an ownership interest in the receivables generated through the program.

Subsequent to the sale, we earn a revenue share on the portfolio of consumer receivables owned by Synchrony, which is recorded in net revenues from other value added services.

Beginning with the first quarter of 2019, we reclassified certain operating expenses within our consolidated statements of income.

Prior period amounts were 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.

Growth rates presented below are calculated based upon the reclassified prior period amounts.

[removed: *Interest Rate Risk*][added: INTEREST RATE RISK]

As of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] approximately [removed: 63%] [added: 30%] and [removed: 78%,] [added: 63%,] respectively, of our total cash, cash equivalents, and investment portfolio (excluding restricted cash and strategic investments) was held in cash and cash equivalents.

The assets underlying the customer balances [added: which] we hold on our consolidated balance sheets as customer accounts are maintained in interest and non-interest bearing bank deposits, time deposits, U.S. and foreign government and agency securities, [removed: and] corporate debt [added: securities, and asset-backed] securities.

We have [removed: $5.0] [added: $9.0] billion in fixed rate debt with varying maturity dates.

We are obligated to pay interest on [removed: loans] [added: borrowings] under [removed: these facilities] [added: this facility] as well as other customary fees, including an upfront fee and an unused commitment fee based on our debt rating.

Borrowings under [removed: these facilities,] [added: this facility,] if any, bear interest at floating rates.

As of December 31, [added: 2020 and] 2019, we had no amounts outstanding under [removed: these] [added: this] credit [removed: facilities.][added: facility.]

For additional information, see “Note 12—Debt” in the notes to the consolidated financial statements included [removed: elsewhere] in this [removed: Annual Report on] Form [removed: 10-K][added: 10-K.]

Higher interest rates often lead to [removed: higher] [added: larger] payment obligations by customers of our credit products to us, or to lenders under mortgage, credit card, and other consumer and merchant loans, which may reduce our customers’ ability to remain current on their obligations to us and therefore lead to increased delinquencies, charge-offs, and allowances for loans and interest receivable, which could have an adverse effect on our net income.

[removed: *Foreign Currency Exchange Rate Risk*][added: FOREIGN CURRENCY EXCHANGE RATE RISK]

We have a foreign currency exchange exposure management program designed to identify material foreign currency exposures, manage these exposures, and reduce the potential effects of currency fluctuations on our [removed: reported] consolidated cash flows and results of operations through the execution of foreign currency exchange contracts.

For additional details related to our foreign currency exchange contracts, please see “Note 10—Derivative Instruments” to the consolidated financial statements included [removed: elsewhere] in this [removed: Annual Report on] Form 10-K.

If the U.S. dollar weakened by 20% at December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately [removed: $900 million] [added: $1.1 billion] and [removed: $707] [added: $900] million lower, respectively.

If the U.S. dollar strengthened by 20% at December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately [removed: $900 million] [added: $1.1 billion] and [removed: $707] [added: $900] million higher, respectively.

We have an additional foreign currency exchange management program [removed: whereby] [added: 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.

Adverse changes in exchange rates of 20% for all currencies would have resulted in an adverse impact on income before income taxes of approximately [removed: $147] [added: $353] million and [removed: $295] [added: $147] million at December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] respectively, without considering the offsetting effect of [removed: hedging.][added: foreign currency exchange contracts.]

Foreign currency exchange contracts in place as of December 31, [removed: 2018] [added: 2020] would have positively impacted income before income taxes by approximately [removed: $308] [added: $369] million, resulting in a net positive impact of approximately [removed: $13] [added: $16] million.

[removed: *Equity Investment Risk*][added: EQUITY INVESTMENT RISK]

As of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] our strategic investments totaled [removed: $1.8] [added: $3.2] billion and [removed: $293 million,] [added: $1.8 billion,] respectively, which represented approximately [removed: 13%] [added: 17%] and [removed: 3%] [added: 13%] of our total cash, cash equivalents, and investment portfolio at [added: each of] those respective dates.

We are required to record all adjustments to the [removed: carrying] value of these strategic investments through our consolidated statements of income.

A hypothetical adverse change [added: of 10%] in the carrying value of our strategic [removed: investments of 10%,] [added: investments,] which could be experienced in the near term, would [removed: result] [added: have resulted] in a decrease of approximately [removed: $184] [added: $323] million to the carrying value of the [removed: portfolio.][added: portfolio as of December 31, 2020.]

If interest rates increased by 100 basis points, the fair value of our available-for-sale debt securities investment portfolio would decrease by approximately $173 million and $68 million at December 31, 2020 and 2019, respectively.

We also have a committed revolving credit facility of $5.0 billion available to us.

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|  | | | | | | | | | 53 | | |

We also have various committed credit facilities available to us aggregating to approximately $6.1 billion.

As of December 31, 2018, we had $2.0 billion of borrowings outstanding at a weighted average interest rate of 3.34%.

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

PayPal Holdings, Inc. 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 [removed: consumers and] merchants [added: and consumers] worldwide.

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

Our combined payment solutions, including our [added: core] PayPal, PayPal Credit, Braintree, Venmo, Xoom, [added: iZettle,] and [removed: iZettle] [added: Hyperwallet] products and services, comprise our proprietary Payments Platform.

We operate a global, two-sided network at scale that connects merchants and consumers with [removed: 305] [added: 377] million active accounts (consisting of [removed: 281] [added: 348] million consumer active accounts and [removed: 24] [added: 29] million merchant active accounts) across more than 200 markets.

We offer our customers the flexibility to use their accounts to purchase and receive [removed: payment] [added: payments] for goods and services, as well as the ability to transfer and withdraw funds.

We enable consumers to exchange funds more safely with merchants using a variety of funding sources, which may include a bank account, a PayPal [added: Cash or Cash Plus] account balance, a Venmo account balance, [removed: a PayPal Credit account,] [added: our credit products,] a credit [removed: or] [added: card,] debit card, or other stored value products such as coupons, gift cards, and eligible credit card rewards.

[removed: Generally we] [added: We generally] do not charge consumers to fund or draw from their accounts; however, we generate revenue from consumers on fees charged for foreign currency [removed: exchange,] [added: conversion] and instant transfers from their PayPal or Venmo account to their debit card or bank account, as well as from interest and fees from our [removed: PayPal Credit product.][added: credit products.]

We also earn revenue by providing other value added services, which comprise revenue earned through partnerships, our [removed: PayPal] merchant and consumer credit products, [added: referral fees,] subscription fees, gateway services, and other services that we provide to our merchants and consumers.

[removed: | • |] [added: -] *Growing our core business*: through expanding our global capabilities, customer base and scale, increasing our customers’ use of our products and services by better addressing their everyday needs related to accessing, managing, and moving money, and expanding the adoption of our solutions by merchants and consumers; [removed: |]

[removed: | • |] [added: -] *Expanding our value proposition for merchants and consumers*: by being technology and platform agnostic, partnering with our merchants to grow and expand their business online and [removed: in-store;] [added: in-store,] and providing consumers with simple, secure, and flexible ways to manage and move money across different markets, merchants, and platforms; [removed: |]

[removed: | • |] [added: -] *Forming strategic partnerships*: by building new strategic partnerships to provide better experiences for our customers, offering greater choice and flexibility, acquiring new customers, and reinforcing our role in the [added: payments] ecosystem; and [removed: |]

[removed: | • |] [added: -] *Seeking new areas of growth*: organically and through acquisitions and strategic investments in our existing and new international markets around the world and focusing on innovation both in the digital and physical world. [removed: |]

[removed: ][added: |  | | | | | | | | | 4 | | |]

We measure the relevance of our products and services to our [removed: customers,] [added: customers] and [removed: therefore] the [added: performance and] success of our [removed: business,] [added: business] through active accounts, payment transactions, and total payment volume:

[removed: *Active Accounts*:] An [removed: active account] [added: *Active Account*] is an account registered directly with PayPal or a platform access partner that has completed a transaction on our Payments [added: Platform or through our Honey] Platform, not including gateway-exclusive transactions, within the past 12 months.

A platform access partner is a [removed: third-party] [added: third party] whose customers are provided access to PayPal’s Payments Platform through such third-party’s login credentials.

*Number of Payment [removed: Transactions*: Number of payment transactions is] [added: 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.

*Total Payment Volume [removed: (“TPV”)*: TPV] [added: (“TPV”)*] is the value of payments, net of [added: payment] reversals, successfully completed on our Payments Platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

[removed: | • |] [added: -] *Two-sided [removed: Platform—*our platform] [added: network—*our Payments Platform] connecting merchants and consumers enables PayPal to offer unique end-to-end product experiences while gaining valuable insights into customer [removed: behavior through our data. Our platform provides for digital, mobile, and in-store transactions while being both technology and platform agnostic. |][added: behavior.]

[removed: | • | *Scale—*our global scale allows us to drive organic growth.] As of December 31, [removed: 2019,] [added: 2020,] we had [removed: 305] [added: 377] million active accounts, consisting of [removed: 281] [added: 348] million consumer active accounts and [removed: 24] [added: 29] million merchant active accounts in more than 200 markets around the world. [removed: In 2019, we processed $712 billion of TPV. |]

[removed: | • | *Brands—*we have built well-recognized and trusted brands.] Our marketing efforts across multiple demographic groups play an important role in building brand visibility, usage, and overall preference among customers. [removed: |]

[removed: | • |] [added: -] *Risk [removed: Management—*our] [added: and Compliance Management—*our enterprise] risk [added: and compliance] management [removed: system] [added: program] and use of tokenization are designed to help keep customer information secure, and to help ensure we process legitimate transactions around the world, while identifying and minimizing illegal, high-risk, or fraudulent transactions. [removed: |]

[removed: | • | *Regulatory—*we] [added: - *Regulatory—*we] believe that our regulatory licenses, which enable us to operate in markets around the world, are a distinct advantage and help support business growth. [removed: |]

Consumers who use our Payments Platform can send payments in more than 200 markets around the world and in more than 100 currencies, withdraw funds to their bank accounts in 56 [removed: currencies] [added: currencies,] and hold balances in their PayPal accounts in 25 currencies.

We have developed intuitive user interfaces, customer tools, transaction completion database, and network applications on our Payments Platform [removed: that help] [added: designed to enable] our customers [added: to] utilize our suite of products and services.

Our Payments Platform, open application programming interfaces, and developer tools are designed to enable developers to innovate with ease and offer robust applications to our global ecosystem of merchants and consumers, while at the same time maintaining the security of our customers’ [removed: financial] information.

The technology infrastructure supporting our Payments Platform simplifies the storage and processing of large amounts of data and facilitates the deployment and operation of large-scale global products and services in both our own data centers and [added: when hosted by third party] cloud [removed: computing.][added: service providers.]

Our technology infrastructure is designed around industry best practices intended to reduce downtime [added: and help ensure the resiliency of our Payments Platform] in the event of outages or catastrophic occurrences.

Our Payments Platform incorporates multiple layers of protection for business continuity and system redundancy purposes and to help [removed: address] [added: mitigate] cybersecurity risks.

We have a comprehensive cybersecurity program designed to protect our technology infrastructure and Payments Platform against [removed: these challenges, including] [added: cybersecurity threats, which includes] regularly testing [added: of] our systems to identify and address potential vulnerabilities.

[removed: ][added: ]

[removed: *Merchant] [added: Merchant] Value [removed: Proposition*][added: Proposition]

We offer alternative payment methods, including access to credit solutions, provide fraud prevention and risk management solutions, [removed: reducing] [added: reduce] losses through proprietary protection programs, and offer tools and insights for leveraging data analytics to attract new customers and improve sales conversion.

We employ a technology and platform agnostic approach intended to enable merchants of all sizes to [added: quickly and easily] provide digital checkout online, on [removed: mobile,] [added: mobile devices,] and in-store [removed: (at the point of sale)] across all platforms and devices and to securely and simply receive payments from their customers.

We offer access to credit products for certain small and medium-sized merchants through our PayPal Working Capital and PayPal Business Loan products, which we collectively refer to as our [removed: business financing] [added: merchant lending] offerings.

We believe that our [removed: business financing] [added: merchant lending] offerings allow us to deepen our engagement with our existing small and medium-sized merchants and expand services to new merchants by providing access to capital that may not be available effectively or efficiently from traditional banks or other lending providers.

[removed: *Consumer] [added: Consumer] Value [removed: Proposition*][added: Proposition]

We provide consumers with a digital wallet [removed: which] [added: that] enables them to send payments to merchants more safely using a variety of funding sources, which may include a bank account, a PayPal [added: Cash or Cash Plus] account balance, a Venmo account balance, [removed: a PayPal Credit account,] [added: our consumer credit products,] a credit [removed: or] [added: card,] debit card, or other stored value products such as coupons, gift cards, and eligible credit card rewards.

We also offer consumers [removed: person-to-person (“P2P”)] [added: P2P] payment solutions through our PayPal, Venmo, and Xoom [removed: products.][added: products and services.]

[removed: PayPal continues to be a key driver of our total P2P volumes, enabling] [added: We enable] both domestic and international P2P transfers across our Payments Platform.

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

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.

Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” or “PayPal” refer to PayPal Holdings, Inc. and its consolidated subsidiaries.

The COVID-19 pandemic has impacted consumer behavior and has accelerated the shift from traditional in-store shopping toward e-commerce and buy online and pick up in store to the extent that merchants are adopting safer contactless payment solutions based on consumer demand for such options.

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Our Payments Platform provides for digital, mobile, and in-store (at the point of sale) transactions while being both technology and platform agnostic.

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*•Scale—*our global scale allows us to drive organic growth.

In 2020, we processed $936 billion of TPV.

- *Brands—*we have built and strengthened well-recognized and trusted brands, including PayPal, Braintree, Venmo, Xoom, Hyperwallet, iZettle, and Honey.


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PayPal’s Payments Platform enables merchants to accept all types of online and offline payments, including those made with the PayPal and Venmo wallets, credit cards and debit cards, Apple Pay, Samsung Pay, and Google Pay, as well as other popular local payment methods.

Our diversified product suite is tailored to meet the needs of merchants regardless of their size or business complexity.

We have expanded our merchant value proposition to enable payment acceptance at the point of sale through our PayPal and Venmo digital wallets, our iZettle point of sale solutions, and our quick response (“QR”) code-based solutions.

We aim to offer a seamless, omni-channel solution that helps merchants manage and grow their business.

Our Honey Platform and PayPal consumer credit offerings, including installment payment products, enable merchants to drive increased conversion through higher consumer engagement.

We also simplify and personalize shopping experiences for our consumers through our Honey Platform by offering tools for product discovery, price-tracking, and offers, which enhances consumer engagement and conversion and sales for our merchants.

In addition, we have expanded our consumer credit offerings to include installment payment products in the U.S., U.K., France, and Germany.

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We compete against a wide range of businesses.

Some of our current and potential competitors may be larger than we are, have larger customer bases, greater brand recognition, longer operating histories, a dominant or more secure position, broader geographic scope, volume, scale, resources, and market share than we do, or offer products and services that we do not offer.

Other competitors are smaller or younger companies that may be more agile in responding quickly to regulatory and technological changes.

We differentiate ourselves to merchants through our ability to innovate and develop products and services that offer new payment experiences for our merchants, demonstrate that they may achieve incremental sales by using and offering our services to consumers, support transactions on our Payments Platform across varied technologies and payment methods, through the simplicity and transparency of our fee structure, and our seller protection programs.

We believe that we compare favorably to our competitors with respect to these factors and we invest resources towards improving our products and services, offering choice in payment options, providing excellent customer service, and building brands that merchants and consumers trust.

Our business faces competition from a wide range of businesses and from all forms of physical and electronic payments.

We face competition from banks and financial institutions, which provide traditional payment methods (particularly credit cards and debit cards (collectively, “payment cards”), electronic bank transfers, and credit), payment networks that facilitate payments for payment cards or proprietary retail networks, payment card processors, and “card on file” services.

We also face competition from providers offering a variety of payment products and services including tokenized and contactless payment cards, digital wallets and mobile payments solutions, credit, installment or other buy now pay later methods, real-time payment systems, P2P payments and money remittance services, card readers and other devices or technologies for payment at point of sale, virtual currencies and distributed ledger technologies, and tools that simplify and personalize shopping experiences for consumers and merchants.

Our products and services face competition from all forms of payments, which include paper-based payments (primarily cash and checks), credit cards, debit cards, electronic bank transfers, credit, installment methods, digital wallets and mobile payment solutions, contactless payments (including contactless cards, tokenized cards, near field communication (“NFC”) based solutions, and QR code-based solutions), and virtual currencies, such as cryptocurrencies and stablecoins.

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In 2021, we intend to further enhance our PayPal and Venmo digital wallets to increase their functionality and drive higher engagement on our Payments Platform.

PayPal is committed to democratizing financial services and empowering people and businesses to join and thrive in the global economy.

Our gateway services, which include our Payflow Gateway service and Braintree Gateway service, provide the technology that links a merchant’s website to its processing network and merchant account and enables merchants to accept payments online with credit or debit cards.

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Merchants can onboard quickly with PayPal and are generally not required to invest in new or specialized hardware.

PayPal is also a popular form of payment solution for mobile commerce, and our business has grown with the increased adoption of mobile devices.

We believe our Braintree products strengthen our position in digital and mobile payments and extend our coverage to a new class of retailers and service providers that offer their services primarily through mobile applications.

Through a single Braintree integration, a merchant can begin accepting payments with credit or debit cards, PayPal, PayPal Credit, Google Pay, Apple Pay, Samsung Pay, and other payment solutions.

iZettle offers a card acceptance service that enables small businesses to accept credit and debit card payments, as well as a software solution to record, manage, and analyze sales.

iZettle provides in-store capabilities in twelve countries.

During 2019, we launched PayPal for Marketplaces, our global, end-to-end solution designed to satisfy the unique payment needs of platforms, marketplaces, and crowdfunding sites, which provides payment solutions for accepting and disbursing funds between consumers and businesses.

We also offer gateway services which provide the payment gateway technology that links a merchant’s website to its processing network and enable merchants to accept payments online with credit or debit cards.

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

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

We compete primarily on the basis of the following:

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

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

| • | simplicity and transparency of our fee structure; |

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

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

| • | customer service experience; |

| • | brand recognition and preference; |

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

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

| • | system reliability and data security; |

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

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

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

That focus continues to become even more heightened as regulators on a global basis focus on such important issues as countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection.

*Data Protection and Information Security.* Aspects of our operations or business are subject to privacy and data protection regulation in the U.S., the EU, Asia Pacific, and elsewhere.

Risk Factors” under the caption “*Risk Factors That May Affect Our Business, Results of Operations, and Financial Condition*” and “Item 3.

Seasonality

The Company does not experience meaningful seasonality with respect to net revenues.

No individual quarter in 2019, 2018 or 2017 accounted for more than 30% of annual net revenue.

Employees

As of December 31, 2019, we employed approximately 23,200 people globally, of whom approximately 11,200 were located in the U.S. We consider our relationship with our employees to be good.

Separation from eBay Inc.

PayPal Holdings, Inc. was incorporated in Delaware in January 2015 for the purpose of owning and operating eBay’s Payments business in connection with the separation and distribution described below.

eBay completed the transfer of substantially all of the assets, liabilities, and operations of eBay’s Payments business to PayPal in June 2015.

Prior to the contribution of the Payments business, PayPal Holdings, Inc. had no operations.

The information set forth under “Note 13—Commitments and Contingencies—Litigation and Regulatory Matters” to the consolidated financial statements included in Part IV, Item 15 of this [removed: Annual Report on] Form 10-K is incorporated herein by reference.

[removed: FORM 10-K][added: FORM 10-K]

| ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

For the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2019.][added: 2020.]

| ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

Commission file [removed: number 001-36859][added: number 001-36859]

| Delaware | | | [added: | | | | | |] 47-2989869 | [added: | |]

| (State or Other Jurisdiction [removed: of Incorporation] [added: of Incorporation] or Organization) | | | [added: | | | | | |] (I.R.S. [removed: Employer Identification] [added: Employer Identification] No.) | [added: | |]

| 2211 North First Street | [added: | |] San Jose, | [added: | |] California | [added: | |] 95131 | [added: | |]

| (Address of Principal Executive Offices) | | | [added: | | | | | |] (Zip Code) | [added: | |]

[removed: (408) 967-1000][added: (408) 967-1000]

| *Title of each class* | [added: | |] *Trading Symbol(s)* | [added: | |] *Name of each exchange on which registered* | [added: | |]

| Common stock, $0.0001 par value per share | [added: | |] PYPL | [added: | |] NASDAQ Global Select Market | [added: | |]

Securities registered pursuant to Section 12(g) of the [removed: Securities Exchange Act of 1934:][added: Act:]

| Large Accelerated Filer | [added: | |] ☒ | [added: | |] Accelerated Filer | [added: | |] ☐ | [added: | |]

| Non-accelerated Filer | [added: | |] ☐ | [added: | |] Smaller reporting company | [added: | |] ☐ | [added: | |]

| | | [added: | | | |] Emerging growth company | [added: | |] ☐ | [added: | |]

[removed: |] If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [removed: ☐ | | | |]

As of June [removed: 28, 2019,] [added: 30, 2020,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately [removed: $134.5] [added: $204.2] billion based on the closing sale price as reported on the NASDAQ Global Select Market.

As of January [removed: 31, 2020,] [added: 29, 2021,] there were [removed: 1,172,955,485] [added: 1,171,175,760] shares of common stock outstanding.

Portions of the registrant’s definitive proxy statement for its [removed: 2020] [added: 2021] Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, [removed: 2019.][added: 2020.]

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| Part I | | | [added: | | | | | |]

| Item 1. | [removed: [Business](#sF1BB3293FE725F579AA9CBFF5186D00B)] | [removed: [4](#sF1BB3293FE725F579AA9CBFF5186D00B)] | [added: [Business](#i11ff72e598004c6da6b0c9b6b21e6464_16) | | | [4](#i11ff72e598004c6da6b0c9b6b21e6464_16) | | |]

| Item 1A. | [added: | |] [Risk [removed: Factors](#s266F01DAB4ED5E6C9773ED99ABFB80EE)] [added: Factors](#i11ff72e598004c6da6b0c9b6b21e6464_19)] | [removed: [12](#s266F01DAB4ED5E6C9773ED99ABFB80EE)] | [added: | [13](#i11ff72e598004c6da6b0c9b6b21e6464_19) | | |]

| Item 1B. | [added: | |] [Unresolved Staff [removed: Comments](#sB1EC6FFD760F5F2D9930731F4D41CFEA)] [added: Comments](#i11ff72e598004c6da6b0c9b6b21e6464_22)] | [removed: [37](#sB1EC6FFD760F5F2D9930731F4D41CFEA)] | [added: | [27](#i11ff72e598004c6da6b0c9b6b21e6464_22) | | |]

| Item 2. | [removed: [Properties](#s441127BF8B1B594D9AB07865AFEC9CE0)] | [removed: [37](#s441127BF8B1B594D9AB07865AFEC9CE0)] | [added: [Properties](#i11ff72e598004c6da6b0c9b6b21e6464_25) | | | [27](#i11ff72e598004c6da6b0c9b6b21e6464_25) | | |]

| Item 3. | [added: | |] [Legal [removed: Proceedings](#s73918C4B72705FB4B49BFE2C44FDF247)] [added: Proceedings](#i11ff72e598004c6da6b0c9b6b21e6464_28)] | [removed: [37](#s73918C4B72705FB4B49BFE2C44FDF247)] | [added: | [28](#i11ff72e598004c6da6b0c9b6b21e6464_28) | | |]

| Item 4. | [added: | |] [Mine Safety [removed: Disclosures](#s0A74907E8A5F554D917EA0B63F8BD0CB)] [added: Disclosures](#i11ff72e598004c6da6b0c9b6b21e6464_31)] | [removed: [37](#s0A74907E8A5F554D917EA0B63F8BD0CB)] | [added: | [28](#i11ff72e598004c6da6b0c9b6b21e6464_31) | | |]

| Part II | | | [added: | | | | | |]

| Item 5. | [added: | |] [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#s3E8A81FDF63A552A9EAC2F2AE315B6C6)] [added: Securities](#i11ff72e598004c6da6b0c9b6b21e6464_37)] | [removed: [38](#s3E8A81FDF63A552A9EAC2F2AE315B6C6)] | [added: | [29](#i11ff72e598004c6da6b0c9b6b21e6464_37) | | |]

| Item 6. | [added: | |] [Selected Financial [removed: Data](#s7B9DD89F3BD850BCB4EEE779A4B8BD16)] [added: Data](#i11ff72e598004c6da6b0c9b6b21e6464_40)] | [removed: [39](#s7B9DD89F3BD850BCB4EEE779A4B8BD16)] | [added: | [30](#i11ff72e598004c6da6b0c9b6b21e6464_40) | | |]

| Item 7. | [added: | |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s227EBA79D515596D9232EBC6715DB66E)] [added: Operations](#i11ff72e598004c6da6b0c9b6b21e6464_43)] | [removed: [40](#s227EBA79D515596D9232EBC6715DB66E)] | [added: | [31](#i11ff72e598004c6da6b0c9b6b21e6464_43) | | |]

| Item 7A. | [added: | |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s721293C236EF59ABA66DD4AF3FEBC5BC)] [added: Risk](#i11ff72e598004c6da6b0c9b6b21e6464_58)] | [removed: [56](#s721293C236EF59ABA66DD4AF3FEBC5BC)] | [added: | [53](#i11ff72e598004c6da6b0c9b6b21e6464_58) | | |]

| Item 8. | [added: | |] [Financial Statements and Supplementary [removed: Data](#s7C6FF6A6E3125BF28F96D4AE81060E78)] [added: Data](#i11ff72e598004c6da6b0c9b6b21e6464_61)] | [removed: [57](#s7C6FF6A6E3125BF28F96D4AE81060E78)] | [added: | [54](#i11ff72e598004c6da6b0c9b6b21e6464_61) | | |]

| Item 9. | [added: | |] [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#sAABCF0FB34B953838738469A5632A404)] [added: Disclosure](#i11ff72e598004c6da6b0c9b6b21e6464_64)] | [removed: [58](#sAABCF0FB34B953838738469A5632A404)] | [added: | [55](#i11ff72e598004c6da6b0c9b6b21e6464_64) | | |]

| Item 9A. | [added: | |] [Controls and [removed: Procedures](#sEEEF1D773F0854A58CC77398D496D9FF)] [added: Procedures](#i11ff72e598004c6da6b0c9b6b21e6464_67)] | [removed: [58](#sEEEF1D773F0854A58CC77398D496D9FF)] | [added: | [55](#i11ff72e598004c6da6b0c9b6b21e6464_67) | | |]

| Item 9B. | [added: | |] [Other [removed: Information](#s853B5D862A86508FB1B9851090631534)] [added: Information](#i11ff72e598004c6da6b0c9b6b21e6464_70)] | [removed: [58](#s853B5D862A86508FB1B9851090631534)] | [added: | [55](#i11ff72e598004c6da6b0c9b6b21e6464_70) | | |]

| Part III | | | [added: | | | | | |]

| Item 10. | [added: | |] [Directors, Executive Officers and Corporate [removed: Governance](#s75D21EF3DF6258DF8420A15EBDE37DD2)] [added: Governance](#i11ff72e598004c6da6b0c9b6b21e6464_76)] | [removed: [58](#s75D21EF3DF6258DF8420A15EBDE37DD2)] | [added: | [55](#i11ff72e598004c6da6b0c9b6b21e6464_76) | | |]

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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Additionally, our forward-looking statements include expectations related to anticipated impacts of the outbreak of the novel coronavirus (“COVID-19”).

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Presentation of Information

On July 17, 2015, PayPal Holdings, Inc. (“PayPal Holdings”) became an independent publicly traded company through the pro rata distribution by eBay (defined below) of 100% of the outstanding common stock of PayPal Holdings to eBay’s stockholders (which we refer to as the “separation” or the “distribution”).

For additional information, see “Business—Separation from eBay Inc.” To accomplish this separation, in January 2015, eBay incorporated PayPal Holdings, Inc., which ultimately became the parent of PayPal, Inc. and holds directly or indirectly all of the assets and liabilities associated with PayPal, Inc. Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” or “PayPal” refer to PayPal Holdings, Inc. and its consolidated subsidiaries or, in the case of information as of dates or for periods prior to our separation from eBay, the consolidated entities of the payments business of eBay, including PayPal, Inc. and certain other assets and liabilities that were historically held at the eBay corporate level, but were specifically identifiable and attributable to the payments business, and references to our “Payments Platform” mean our combined payment solution capabilities, including our PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products.

References in this Annual Report on Form 10-K to “eBay” refer to eBay Inc., a Delaware corporation, and its consolidated subsidiaries, which prior to the separation and distribution, but not after such date, included the business and operations of PayPal.

As of December 31, [removed: 2019,] [added: 2020,] our owned and leased properties provided us with aggregate square footage as follows:

| | [added: | |] United States | | | [added: | | |] Other Countries | | | [added: | | |] Total | | [added: |]

| | [added: | |] (In millions) | | | | | | | | [added: | | | | | | |]

| Owned facilities | [removed: 1.2] | | [added: 1.0] | [added: | | | | |] 0.2 | | | [removed: 1.4] | | [added: | 1.2 | | |]

| Total facilities | [added: | |] 2.4 | | | [removed: 2.0] | | | [removed: 4.4] [added: 2.2] | | [added: | | | | 4.6 | | |]

We own a total of approximately [removed: 113] [added: 106] acres of land, with approximately [removed: 92] [added: 85] acres in the U.S. Our corporate headquarters are located in San Jose, California and occupy approximately 0.7 million of owned square feet.

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| Leased facilities | | | 1.4 | | | | | | 2.0 | | | | | | 3.4 | | |

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| Leased facilities | 1.2 | | | 1.8 | | | 3.0 | |

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As of January [removed: 31, 2020,] [added: 29, 2021,] there were [removed: 3,553] [added: 3,926] holders of record of our common stock.

In [removed: April 2017,] [added: July 2018,] our Board of Directors authorized a stock repurchase program that provides for the repurchase of up to [removed: $5] [added: $10] billion of our common stock, with no expiration from the date of authorization.

Our stock repurchase [removed: programs are] [added: program is] intended to offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, may also be used to make opportunistic repurchases of our common stock to reduce outstanding share count.

Any share repurchases under our stock repurchase [removed: programs] [added: program] may be made through open market transactions, block trades, privately negotiated transactions including accelerated share repurchase agreements or other means at times and in such amounts as management deems appropriate, and will be funded from our working capital or other financing alternatives.

We may terminate our stock repurchase [removed: programs] [added: program] at any time without prior notice.

The stock repurchase activity under our stock repurchase [removed: programs] [added: program] during the three months ended December 31, [removed: 2019] [added: 2020] is summarized as follows:

| | [added: | |] Total number of shares purchased | | | [added: | | |] Average price paid per share(1) | | | | [added: | |] Total number of shares purchased as part of publicly announced plans or programs | | | [added: | | | | | | | | |] Approximate dollar value of shares that may yet be purchased under the plans or programs | | |

| | [added: | |] (In millions, except per share amounts) | | | | | | | | | | | | | [added: | | | | | | | | | | | | | |]

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| Balance as of September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,698 | |

| October 1, 2020 through October 31, 2020 | | | 0.6 | | | | | | $ | 198.39 | | | | | 0.6 | | | | | | | | | | | | 8,586 | | |

| November 1, 2020 through November 30, 2020 | | | 0.5 | | | | | | $ | 188.64 | | | | | 0.5 | | | | | | | | | | | | 8,488 | | |

| December 1, 2020 through December 31, 2020 | | | 0.2 | | | | | | $ | 224.55 | | | | | 0.2 | | | | | | | | | | | | 8,433 | | |

| Balance as of December 31, 2020 | | | 1.3 | | | | | | | | | | | | 1.3 | | | | | | | | | | | | $ | 8,433 | |

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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.

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| October 1, 2019 through October 31, 2019 | — | | | $ | — | | | — | | | $ | 10,374 | |

| November 1, 2019 through November 30, 2019 | — | | | $ | — | | | — | | | 10,374 | | |

| December 1, 2019 through December 31, 2019 | 2.9 | | | $ | 105.21 | | | 2.9 | | | 10,068 | | |

| | 2.9 | | | | | | | 2.9 | | | $ | 10,068 | |

No activity has occurred to date under the July 2018 stock repurchase program.

PayPal derived the selected consolidated income statement data for the years ended December 31, [added: 2020,] 2019, [removed: 2018,] and [removed: 2017] [added: 2018] and the selected consolidated balance sheet data as of December 31, [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] as set forth below, from its audited consolidated financial statements, which are included in “Item 15.

Exhibits, Financial Statement Schedules” of this Annual Report on Form [removed: 10-K.][added: 10-K (“Form 10-K”).]

PayPal derived the selected consolidated income statement data for the years ended December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] and selected consolidated balance sheet data as of December 31, [added: 2018,] 2017, [removed: 2016,] and [removed: 2015] [added: 2016] from audited consolidated financial statements not included in this [removed: Annual Report on] Form 10-K.

[removed: To ensure a full understanding, you] [added: You] should read the selected consolidated financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included [removed: elsewhere] in this report.

| | [added: | |] Year Ended December 31, | | | | | | | | | | | | | | | | | | | [added: | | | | | | | |]

| | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | | | [removed: 2017] | | [added: 2017] | | [removed: 2016] | | | | [removed: 2015] [added: 2016] | | |

| | [added: | |] (In millions, except per share amounts) | | | | | | | | | | | | | | | | | | | [added: | | | | | | | |]

| Consolidated Statement of Income Data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Net revenues | [added: | |] $ | [removed: 17,772] [added: 21,454] | | | [added: | |] $ | [removed: 15,451] [added: 17,772] | | | [added: | |] $ | [removed: 13,094] [added: 15,451] | | | [added: | |] $ | [removed: 10,842] [added: 13,094] | | | [added: | |] $ | [removed: 9,248] [added: 10,842] | |

| Operating income | [added: | | 3,289 | | | | | |] 2,719 | | | | [added: | |] 2,194 | | | | [removed: 2,127] | | [added: 2,127] | | [removed: 1,586] | | | | [removed: 1,461] [added: 1,586] | | |

| Net income | [added: | | 4,202 | | | | | |] 2,459 | | | | [added: | |] 2,057 | | | | [removed: 1,795] | | [added: 1,795] | | [removed: 1,401] | | | | [removed: 1,228] [added: 1,401] | | |

| Net income per share: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Basic | [added: | |] $ | [removed: 2.09] [added: 3.58] | | | [added: | |] $ | [removed: 1.74] [added: 2.09] | | | [added: | |] $ | [removed: 1.49] [added: 1.74] | | | [added: | |] $ | [removed: 1.16] [added: 1.49] | | | [added: | |] $ | [removed: 1.00] [added: 1.16] | |

| Diluted | [added: | |] $ | [removed: 2.07] [added: 3.54] | | | [added: | |] $ | [removed: 1.71] [added: 2.07] | | | [added: | |] $ | [removed: 1.47] [added: 1.71] | | | [added: | |] $ | [removed: 1.15] [added: 1.47] | | | [added: | |] $ | [removed: 1.00] [added: 1.15] | |

| Weighted average [removed: shares(1):] [added: shares:] | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Basic | [added: | | 1,173 | | | | | |] 1,174 | | | | [added: | |] 1,184 | | | | [removed: 1,203] | | [added: 1,203] | | [removed: 1,210] | | | | [removed: 1,222] [added: 1,210] | | |

| Diluted | [added: | | 1,187 | | | | | |] 1,188 | | | | [added: | |] 1,203 | | | | [removed: 1,221] | | [added: 1,221] | | [removed: 1,218] | | | | [removed: 1,229] [added: 1,218] | | |

| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Total assets | [added: | |] $ | [removed: 51,333] [added: 70,379] | | | [added: | |] $ | [removed: 43,332] [added: 51,333] | | | [added: | |] $ | [removed: 40,774] [added: 43,332] | | | [added: | |] $ | [removed: 33,103] [added: 40,774] | | | [added: | |] $ | [removed: 28,881] [added: 33,103] | |

| Total long-term liabilities | [added: | | 11,869 | | | | | |] 7,485 | | | | [added: | |] 2,042 | | | | [removed: 1,917] | | [added: 1,917] | | [removed: 1,513] | | | | [removed: 1,505] [added: 1,513] | | |

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(1) In 2015, PayPal became an independent publicly traded company through the pro rata distribution by eBay of 100% of the outstanding common stock of PayPal to eBay stockholders (which we refer to as the “separation” or the “distribution”).

On July 17, 2015, the distribution date, eBay stockholders of record as of the close of business on July 8, 2015 received one share of PayPal common stock for every share of eBay common stock held as of the record date.

The weighted average number of common shares outstanding for basic and diluted earnings per share for the year ended December 31, 2015 was based on the number of common shares distributed on July 17, 2015 for the period prior to distribution and the weighted average number of common shares outstanding for the period beginning after the distribution date.

The audited consolidated financial statements covering the years ended December 31, [added: 2020,] 2019, [removed: 2018,] and [removed: 2017] [added: 2018] and accompanying notes listed in Part IV, Item 15(a)(1) of this [removed: Annual Report on] Form 10‑K are included [removed: elsewhere] in this report.

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|  | | | | | | | | | 54 | | |

*Evaluation of disclosure controls and procedures.* Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), our principal executive officer and our principal financial officer have concluded that as of December 31, [removed: 2019,] [added: 2020,] the end of the period covered by this report, our disclosure controls and procedures were effective.

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, [removed: 2019.][added: 2020.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2019] [added: 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 [removed: Annual Report on] Form 10-K.

Incorporated by reference from our Proxy Statement for our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2019.][added: 2020.]

Incorporated by reference from our Proxy Statement for our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2019.][added: 2020.]

Incorporated by reference from our Proxy Statement for our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2019.][added: 2020.]

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|  | | | | | | | | | 55 | | |

Incorporated by reference from our Proxy Statement for our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2019.][added: 2020.]

Incorporated by reference from our Proxy Statement for our [removed: 2020] [added: 2021] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2019.][added: 2020.]

| 1. Consolidated Financial Statements | [removed: Page Number] | [added: | Page Number | | |]

| [removed: [Report] [added: [Report] of Independent Registered Public Accounting [removed: Firm](#s598EF2193C485F15BB54C49685265DD5)] [added: Firm](#i11ff72e598004c6da6b0c9b6b21e6464_97)] | [removed: [60](#s598EF2193C485F15BB54C49685265DD5)] | [added: | [57](#i11ff72e598004c6da6b0c9b6b21e6464_97) | | |]

| [removed: [Consolidated] [added: [Consolidated] Balance [removed: Sheets](#s1C367BFBF31B54739AAB95CC30496EA0)] [added: Sheets](#i11ff72e598004c6da6b0c9b6b21e6464_100)] | [removed: [62](#s1C367BFBF31B54739AAB95CC30496EA0)] | [added: | [59](#i11ff72e598004c6da6b0c9b6b21e6464_100) | | |]

| [removed: [Consolidated] [added: [Consolidated] Statements of [removed: Income](#sC1C9DEAC8F2051939338CBD593D3D852)] [added: Income](#i11ff72e598004c6da6b0c9b6b21e6464_106)] | [removed: [63](#sC1C9DEAC8F2051939338CBD593D3D852)] | [added: | [60](#i11ff72e598004c6da6b0c9b6b21e6464_106) | | |]

| [removed: [Consolidated] [added: [Consolidated] Statements of Comprehensive [removed: Income](#s803F09A60A65506784F03997E19D4093)] [added: Income](#i11ff72e598004c6da6b0c9b6b21e6464_109)] | [removed: [64](#s803F09A60A65506784F03997E19D4093)] | [added: | [61](#i11ff72e598004c6da6b0c9b6b21e6464_109) | | |]

| [removed: [Consolidated] [added: [Consolidated] Statements of Stockholders’ [removed: Equity](#s65BA9E943109540A83A4B02C4103A973)] [added: Equity](#i11ff72e598004c6da6b0c9b6b21e6464_112)] | [removed: [65](#s65BA9E943109540A83A4B02C4103A973)] | [added: | [62](#i11ff72e598004c6da6b0c9b6b21e6464_112) | | |]

| [removed: [Consolidated] [added: [Consolidated] Statements of Cash [removed: Flows](#s2B9B7A81C93151BBB30856F089438AA2)] [added: Flows](#i11ff72e598004c6da6b0c9b6b21e6464_115)] | [removed: [66](#s2B9B7A81C93151BBB30856F089438AA2)] | [added: | [63](#i11ff72e598004c6da6b0c9b6b21e6464_115) | | |]

[removed: | [Notes to Consolidated Financial Statements](#s7C06D31A87CC5EEB8A633F2004AD3F57) | [68](#s7C06D31A87CC5EEB8A633F2004AD3F57) |][added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)]

| 2. Financial Statement Schedule | | [added: | | | |]

| [removed: [Schedule] [added: [Schedule] II—Valuation and Qualifying [removed: Accounts](#s916BC522206951E2B0A8D52635FD37BD)] [added: Accounts](#i11ff72e598004c6da6b0c9b6b21e6464_193)] | [removed: [117](#s916BC522206951E2B0A8D52635FD37BD)] | [added: | [115](#i11ff72e598004c6da6b0c9b6b21e6464_193) | | |]

| All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. | | [added: | | | |]

| [removed: [3.] [added: [3.] Exhibits Required by Item 601 of Regulation [removed: S-K](#sD40DFBC5D28F53D9B871B79A3780FA15)] [added: S-K](#i11ff72e598004c6da6b0c9b6b21e6464_199)] | [removed: [118](#sD40DFBC5D28F53D9B871B79A3780FA15)] | [added: | [116](#i11ff72e598004c6da6b0c9b6b21e6464_199) | | |]

| The information required by this Item is set forth in the Index of Exhibits that precedes the signature page of this Annual Report. | | [added: | | | |]

We have audited the accompanying consolidated balance sheets of PayPal Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, [removed: 2019,] [added: 2020,] including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, [removed: 2019] [added: 2020] listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the [removed: Company's] [added: Company’s] internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2019] [added: 2020] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for [added: credit losses on financial instruments in 2020 and the manner in which it accounts for] leases [removed: as of January 1,] [added: in] 2019.

[removed: *Accounting for Income Taxes*][added: Income taxes]

[removed: The] [added: For the year ended December 31, 2019, the] difference between the effective income tax rate and the federal statutory rate [added: of 21% to income before income taxes] is primarily the result of foreign income taxed at [added: different] rates [removed: other than the federal statutory rate] and [removed: stock based] [added: stock-based] compensation deductions, partially offset by [removed: incremental] tax expense related to the intra-group transfer of intellectual property.

[removed: The Company also benefits] [added: We benefit] from [removed: tax rulings] [added: agreements] concluded in [removed: several] [added: certain] jurisdictions, most significantly Singapore [removed: and] [added: and, through 2019,] Luxembourg.

| | [added: | |] As of December 31, | | | | | | | [added: | |]

| | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | |

| | [added: | |] (In millions, except par value) | | | | | | | [added: | |]

| ASSETS | | | | | | | | [added: | | | |]

| Current assets: | | | | | | | | [added: | | | |]

| Cash and cash equivalents | [added: | |] $ | [added: 4,794 | | | | | $ |] 7,349 | | | [added: | |] $ | 7,575 | |

| Short-term investments | [removed: 3,412] | | [added: 8,289] | | [removed: 1,534] | | | [added: | 3,412 | | |]

| Accounts receivable, net | [removed: 435] | | [added: 577] | | [removed: 313] | | | [added: | 435 | | |]

| Loans and interest receivable, net of allowances of [added: $838 and] $258 [removed: in 2019] [added: as of December 31, 2020] and [removed: $172 in 2018] [added: 2019, respectively] | [removed: 3,972] | | [added: 2,769] | | [removed: 2,532] | | | [added: | 3,972 | | |]

| Funds receivable and customer accounts | [removed: 22,527] | | [added: 33,418] | | [removed: 20,062] | | | [added: | 22,527 | | |]

| Prepaid expenses and other current assets | [removed: 800] | | [added: 1,148] | | [removed: 947] | | | [added: | 800 | | |]

| Total current assets | [removed: 38,495] | | [added: 50,995] | | [removed: 32,963] | | | [added: | 38,495 | | |]

| Long-term investments | [removed: 2,863] | | [added: 6,089] | | [removed: 971] | | | [added: | 2,863 | | |]

| Property and equipment, net | [removed: 1,693] | | [added: 1,807] | | [removed: 1,724] | | | [added: | 1,693 | | |]

| Goodwill | [removed: 6,212] | | [added: 9,135] | | [removed: 6,284] | | | [added: | 6,212 | | |]

| Intangible assets, net | [removed: 778] | | [added: 1,048] | | [removed: 825] | | | [added: | 778 | | |]

| Other assets | [removed: 1,292] | | [added: 1,305] | | [removed: 565] | | | [added: | 1,292 | | |]

| Total assets | [added: | |] $ | [removed: 51,333] [added: 70,379] | | | [added: | |] $ | [removed: 43,332] [added: 51,333] | |

| LIABILITIES AND EQUITY | | | | | | | | [added: | | | |]

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| [Notes to Consolidated Financial Statements](#i11ff72e598004c6da6b0c9b6b21e6464_118) | | | [65](#i11ff72e598004c6da6b0c9b6b21e6464_118) | | |

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|  | | | | | | | | | 56 | | |

*Changes in Accounting Principles*

|  | | | | | | | | | 57 | | |

*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.

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.

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