PayPal Holdings (PYPL) 10-K risk factor changes: FY2021 vs FY2020

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

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, [added: proliferation of variants] and [removed: geographic spread] [added: increase in the transmissibility] of the [removed: outbreak,] [added: virus,] 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.

Cross-border and domestic commerce may be adversely impacted by measures taken by government authorities and businesses globally to contain and limit the [removed: outbreak’s spread,] [added: 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.

In particular, we have experienced and may continue to experience adverse financial impacts from a number of operational factors, including, but not limited to: [added: increased liability under our buyer protection program or chargebacks on payment cards resulting from merchants’ selling goods or services in advance of the delivery date or experiencing bankruptcy, insolvency or other business interruption; customer defaults on]

[removed: - Merchants selling] [added: In the event of the bankruptcy, insolvency, business failure, or other business interruption of a merchant that sells] goods or services in advance of the date of their delivery [removed: (e.g., travel and events verticals)] or [removed: experiencing bankruptcy, insolvency, business failure,] [added: use (e.g., airline, cruise,] or [removed: other business interruption, which] [added: concert tickets, custom-made goods, and subscriptions), we] could [removed: result in our becoming] [added: be] liable to the buyers of such goods or [removed: services] [added: services, including] through our buyer protection program or through chargebacks on payment cards used by customers to fund their [removed: payments;][added: payments.]

The techniques used to [added: attempt to] obtain [removed: unauthorized, improper,] [added: unauthorized] or illegal access to systems and information (including customers’ personal data), disable or degrade service, [added: exploit vulnerabilities,] or sabotage systems are constantly evolving, and [removed: often are] [added: in some circumstances may] not [added: be] 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 customers) into disclosing user names, passwords, payment card information, or other sensitive [removed: information.][added: information used to gain access to such systems or facilities.]

Numerous and evolving cybersecurity threats, including advanced and persisting cyberattacks, cyberextortion, [added: distributed denial-of-service attacks, ransomware,] 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 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 [added: for cybercriminals] due to our [removed: name and] [added: name,] brand [removed: recognition] [added: recognition, types of data (including payments-related data) that customers provide to us,] and the widespread adoption and use of our products and services.

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

Cybersecurity breaches and [added: other exploited] 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, [removed: 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 [removed: them.][added: them, or expose us to regulatory penalties and fines.]

While we maintain insurance [removed: policies,] [added: policies intended to offset the financial impact we may experience from these risks,] our coverage may be insufficient to compensate us for all losses caused by security [removed: breaches.][added: breaches and other damage to or unavailability of our systems.]

Our systems and operations and those of our service providers and partners have experienced from time to time, and may experience in the [removed: future] [added: future,] business interruptions or degradation because of distributed denial-of-service and other cyberattacks, insider threats, hardware and software defects or malfunctions, human error, earthquakes, hurricanes, floods, fires, and other natural disasters, 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.

Our corporate headquarters are located in the [removed: Silicon Valley,] [added: San Francisco Bay Area,] a seismically active region in California.

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

Moreover, if any system failure or similar event results in [removed: damages] [added: damage] to our customers or their business partners, [removed: these customers or partners] [added: they] 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 condition*.”

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

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

We also rely on facilities, components, applications, and services supplied by third parties, including data center facilities and cloud [added: data] storage [added: and processing] services.

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

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 [removed: NFC] [added: Near Field Communication] 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, [removed: mobile,] and social commerce.

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

We [removed: may not be able to accurately] [added: cannot] predict [added: the effects of technological changes on our business,] which technological developments or innovations will become widely [removed: adopted] [added: adopted,] and how those technologies may be regulated.

Our business is subject to complex and changing laws, rules, regulations, policies, and legal interpretations in the markets in which we [removed: operate,] [added: offer services directly or through partners,] including, but not limited to, those governing: banking, credit, deposit taking, cross-border and domestic money transmission, prepaid access, foreign currency exchange, [removed: privacy and] [added: privacy,] data protection, data governance, cybersecurity, banking secrecy, digital [removed: payments and] [added: payments,] cryptocurrency, payment services (including payment processing and settlement services), fraud detection, consumer protection, antitrust and competition, economic and trade sanctions, anti-money laundering, and counter-terrorist financing.

Regulators globally have been establishing and increasing their regulatory authority, oversight, and enforcement in [removed: ways] [added: a manner] that [removed: impact] [added: impacts] our business.

As we introduce new products and services and expand into new markets, including through acquisitions, we [removed: may] [added: expect to] become subject to additional regulations, restrictions, and licensing requirements.

In addition, because we facilitate sales of goods and provide services to customers worldwide, one or more jurisdictions may claim that we or our customers are required to comply with their [removed: laws] [added: laws,] which may impose different, more specific, or conflicting obligations on us, as well as broader liability.

The complexity of [removed: U.S.] [added: United States (“U.S.”)] federal and state and international regulatory and enforcement regimes, coupled with the global scope of our operations and the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions.

[removed: We] [added: While we] have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, [removed: but] there can be no assurance that our employees, contractors, and agents will not violate such laws and regulations.

In the U.S., PayPal, Inc. (a wholly-owned subsidiary) holds licenses to operate as a money transmitter (or its equivalent) in the states where such licenses are required, as well as in the District of Columbia and certain [removed: territories (as described further in “Item 1.][added: territories.]

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

These limitations may adversely affect our ability to grow our [removed: business in these markets.][added: business.]

We principally provide our services to customers in the European [removed: Union (“EU”)] [added: Economic Area (“EEA”)] and the United Kingdom (“U.K.”) through PayPal [removed: (Europe) S.à r.l.][added: (Europe), our wholly-owned subsidiary that is licensed and subject to regulation as a credit institution in Luxembourg.]

PayPal (Europe) is potentially subject to significant fines or other enforcement action if it violates applicable [removed: requirements imposed on Luxembourg credit institutions.][added: requirements.]

Additionally, compliance with [removed: EU] [added: applicable] laws and regulations could become more costly and operationally difficult to manage due to potentially inconsistent interpretations and domestic regulations by [removed: EU member countries.][added: various countries in the region.]

European [removed: Directives,] [added: regulation,] such as the Revised Payment Services Directive (“PSD2”) enabling payment and account information sharing by regulated payment providers, could subject us to data security and other legal and financial risks.

If the business activities of PayPal (Europe) exceed certain thresholds, or if the European Central Bank (“ECB”) determines, PayPal (Europe) may be deemed a significant supervised entity and certain activity of PayPal (Europe) [removed: could] [added: would] become directly supervised by the ECB, rather than by the [removed: CSSF (the] Luxembourg [removed: regulator),] [added: Commission de Surveillance du Secteur Financier,] which [added: could subject us to additional requirements and would likely increase compliance costs.]

Ltd. is not able to offer outbound remittance payments [added: to PayPal customers] from Singapore.

Ltd. has submitted an application for a Major Payment Institution license to the MAS to continue to provide payments [removed: services.][added: services, and is operating under an exemption from holding a license within a statutory transition period while the application is pending.]

We could be subject to fines, other enforcement action, and litigation if we are found to violate any aspects of [removed: installment loan] [added: applicable law or] regulations.

The frequency and intensity of weather events related to climate change are increasing, which could increase the likelihood and severity of such disasters as well as related damage and business interruption.

From time to time, we have experienced interruptions in the provision of such facilities and services provided by these third parties.

In addition, in certain markets outside of the U.S., we provide our services to customers through PayPal Pte.

Ltd. or, if required by local regulations, a local branch of PayPal Pte.

Ltd. or a local subsidiary subject to local regulatory supervision or oversight.

*Cryptocurrency Regulation*

Our current and planned cryptocurrency offerings could subject us to additional regulations, licensing requirements, or other obligations.

The rapidly evolving regulatory landscape with respect to cryptocurrency may subject us to inquiries or investigations from regulators and governmental authorities, require us to make product changes, restrict or discontinue product offerings, and implement additional and potentially costly controls.

If we fail to comply with regulations, requirements,

prohibitions or other obligations applicable to us, we could face regulatory or other enforcement actions and potential fines and other consequences.

In addition, financial and third party risks related to our cryptocurrency offerings, such as inappropriate access to or theft or destruction of cryptocurrency assets held by our custodian, insufficient insurance coverage by the custodian to reimburse us for all such losses, the custodian’s failure to maintain effective controls over the custody and settlement services provided to us, the custodian’s inability to purchase or liquidate cryptocurrency holdings, and defaults on financial or performance obligations by counterparty financial institutions, could materially and adversely affect our financial performance and significantly harm our business.

We hold a number of U.S. state lending licenses for our U.S. consumer short-term installment loan product, which is subject to federal and state laws governing consumer credit and debt collection.

While our non-U.S. consumer short-term installment loan products which are available in the U.K., France, Germany, Spain, Italy and Australia are generally exempt from primary consumer credit legislation, certain consumer lending laws, consumer protection or banking transparency regulations continue to apply to these products.

Increased global regulatory focus on short-term installment products and consumer credit more broadly could result in laws or regulations requiring changes to our policies, procedures, operations, and product offerings, and restrict or limit our ability to offer credit products.

In October 2021, the CFPB issued an order pursuant to its market-monitoring authority requiring us to provide extensive information on our payment products, including with respect to the collection, use of, and access to data and consumer protections, among other items.

In December 2021, the CFPB issued a separate order pursuant to its market-monitoring authority requiring us to provide information on our Buy Now, Pay Later offerings.

In June 2021, the European Commission imposed new SCC requirements which impose certain contract and operational requirements on PayPal, its merchants, and vendors in order to adhere to certain affirmative duties, including requirements related to government access transparency, enhanced data subject rights, and broader third party assessments to ensure safeguards necessary to protect personal data exported from PayPal’s EEA customers and/or employees to countries outside the EEA.

To the extent PayPal relies on SCCs, such engagements will require new contractual arrangements under the updated requirements to avoid limitations on PayPal’s ability to process EEA data in countries outside of the EEA.

In the wake of the California Consumer Privacy Act passed in 2018, multiple U.S. states have adopted or proposed similar legislation to protect consumers in their states.

California passed the Consumer Privacy Rights Act of 2020, and Virginia and Colorado have passed similar privacy and data protection laws.

The continued increase in state-level privacy laws is likely to result in a disparate array of privacy rules with unaligned or conflicting provisions, accountability requirements, individual rights, and state enforcement powers and may subject us to increased regulatory scrutiny and business costs, and lead to unintended consumer confusion.

Determining legal reserves or possible losses from such

payment obligations under PayPal branded credit products; increased cybersecurity and payment fraud risk; challenges to the availability and reliability of our products and services; and supply chain disruptions impacting our business.

While our business has benefited from the shift from in-store shopping and traditional payment methods towards e-commerce and digital payments, to the extent that customer preferences revert to pre-COVID-19 behaviors as the pandemic-related restrictions lessen, our business, financial condition, and results of operations would be adversely impacted.

obligations and require us to change our business practices.

For information on lending regulations that impact our business, see “*Our business is subject to extensive government regulation and oversight.

Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business*—*Lending Regulation*” in this risk factor section.

Third parties have attempted, and we expect that they will likely continue to attempt, to abuse access to and misuse our payment services to commit fraud by, among other things, creating fictitious PayPal accounts using stolen or synthetic identities or personal information, making transactions with stolen financial instruments, abusing or misusing our services for financial gain, or fraudulently inducing users of our systems into engaging in bad transactions.

Due to the nature of PayPal’s digital payments services, third parties may seek to engage in abusive schemes or fraud attacks that are often difficult to detect and may be deployed at a scale that would otherwise not be possible in physical transactions.

fraud, particularly new and continually evolving forms of fraud or in connection with new or expanded product offerings.

We also incur substantial losses from erroneous transactions and situations where funding instruments used for legitimate transactions are closed or have insufficient funds to satisfy payments, or the payment is made to an unintended recipient in error.

Numerous and evolving fraud schemes and misuse of our payments service could subject us to significant costs and liabilities, 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, and 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.

Our buyer and seller protection programs are intended to reduce the likelihood of losses for consumers and merchants from fraudulent transactions.

Regulators and card networks may also adapt error resolution and chargeback requirements to account for evolving forms of fraud, which could increase PayPal’s exposure to fraud losses and impact the scope of coverage of our buyer and seller protection programs.

Failure to effectively monitor and evaluate the financial condition of our merchants may also expose PayPal to losses.

While we invest in measures intended to prevent and detect illegal activities that may occur within our payments platform, these measures require continuous improvement and may not be effective in detecting and preventing illegal activity or improper uses.

For example, government enforcement or regulatory authorities could seek to impose additional restrictions or liability on us arising from the use of our payments platform for illegal or improper activity, and our failure to detect or prevent such use.

merchant default.

Real or perceived inaccuracies in our metrics may harm our reputation and negatively affect our business.

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

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.

- 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.

Our Payments Platform has experienced and may in the future experience intermittent unavailability.

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

Business – Government Regulation” of this Form 10-K).

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

could subject us to additional requirements and would likely increase compliance costs.

It will continue to operate within a statutory transition period while the application is pending.

In the additional markets in which we do business, we provide our services to customers through a local subsidiary subject to local regulatory supervision or oversight and we may be subject to significant fines or other enforcement actions if we violate applicable requirements.

PayPal’s U.S. consumer short-term installment loan product is subject to state lending laws (some of which require licensure and/or state regulator notification), state collection laws, as well as compliance with the Equal Credit Opportunity Act and Regulation B as implemented by the Consumer Financial Protection Bureau (“CFPB”) and other applicable laws and regulations.

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

The CFPB issued a final rule on prepaid accounts that came into effect on April 1, 2019.

We have implemented certain changes to comply with the final rule and made substantial changes to the design of certain U.S. consumer accounts and their operability, which could lead to unintended customer confusion and dissatisfaction, discourage customers from opening new accounts, require us to reallocate resources, and increase our costs, which could negatively affect our business.

The legal and regulatory environment relating to “privacy and data protection laws” (as defined in “Item 1.

For further information regarding data protection and information security, see “Item 1.

Business—Government Regulation”.

PayPal must also ensure that third parties processing personal data of PayPal’s EEA customers and/or employees outside of the EEA have compliant transfer mechanisms.

In July 2020, the European Court of Justice invalidated the Privacy Shield regime and raised several questions regarding the efficacy of SCCs focusing on whether data transfers under SCCs are consistent with the EU privacy principles.

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

disputes, services, charitable fundraising, contract disputes, escheatment of unclaimed or abandoned property, product liability, the matters described in “Note 13—Commitments and Contingencies—Litigation and Regulatory Matters—General Matters” to our consolidated financial statements, and other matters.

Some competitors may also be

loan is made and will not be affected by subsequent events such as sale, assignment, or other transfer.

In addition, in the event of the bankruptcy or other business interruption of a merchant that sells goods or services in advance of the date of their delivery or use (e.g., airline, cruise, or concert tickets, custom-made goods, and subscriptions), we could be liable to the buyers of such goods or services, including through our buyer protection program or through chargebacks on payment cards used by customers to fund their payments.

We also incur substantial losses from claims that the consumer did not authorize the purchase, fraud, erroneous transactions, and customers who have closed bank accounts or have insufficient funds in their bank accounts to satisfy payments.

Any threatened or resulting claims could result in reputational harm, and any resulting liabilities, loss of transaction volume, or increased costs could harm our business.

transactions”).

If the distribution of our common stock in connection with our separation from eBay, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we and certain of our stockholders could be subject to significant tax liabilities.

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

eBay received an opinion from its outside legal counsel regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code.

Notwithstanding the opinion of counsel, the Internal Revenue Service (the “IRS”) could determine that the distribution, together with certain related transactions, should be treated as a taxable transaction if the IRS determines that any of these representations, assumptions, or undertakings upon which such opinion was based are incorrect or have been violated or if the IRS disagrees with the conclusions in the opinion of counsel.

If the distribution, together with certain related transactions, failed to qualify as a transaction that is generally tax-free, eBay stockholders who received PayPal common stock in the distribution may be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares, and we could incur significant liabilities.

There are risks associated with our relationship with eBay.

Additionally, our forward-looking statements include expectations related to anticipated impacts of the [removed: outbreak of the novel coronavirus.][added: coronavirus pandemic.]

This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on discussion of [removed: 2020] [added: 2021] results as compared to [removed: 2019] [added: 2020] results.

For discussion of [removed: 2019] [added: 2020] results as compared to [removed: 2018] [added: 2019] results, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Form 10-K for the year ended December 31, [removed: 2019] [added: 2020] filed with the SEC on February [removed: 6, 2020.][added: 5, 2021.]

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

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

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

The laws and regulations applicable to us, including those enacted prior to the advent of digital [removed: and mobile] payments, are continuing to evolve through legislative and regulatory action and judicial interpretation.

New or changing laws and regulations, including [removed: the] changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition.

Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security [removed: incidents,] [added: 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.

The [removed: outbreak] [added: coronavirus (“COVID-19”) pandemic] 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.

The spread of COVID-19 [added: and increased variants] has [removed: caused] [added: caused, and may continue to cause] 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 [removed: 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.

[removed: 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] [added: The] spread of COVID-19 has also accelerated the shift from in-store shopping and traditional in-store payment methods [removed: (e.g.] [added: (e.g.,] cash) towards e-commerce and digital payments and resulted in increased customer demand for safer payment and delivery solutions [removed: (e.g.] [added: (e.g.,] contactless payment methods, buy online and pick up in store) and [removed: a] significant [removed: increase] [added: increases] in online spending in certain verticals that have historically had a strong in-store presence.

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

To the extent that [removed: consumer preferences] [added: consumers] revert to pre-COVID-19 behaviors as [removed: mitigation measures to limit] the [removed: spread of COVID-19 are lifted or relaxed,] [added: pandemic-related restrictions lessen,] our business, financial condition, and results of operations [removed: could] [added: would] be adversely impacted.

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

The broader implications of the COVID-19 pandemic [added: and related global economic unpredictability] on our business, financial condition, and results of operations remain uncertain.

For additional information on how [added: the] COVID-19 [added: pandemic] 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.

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 [removed: a] [added: the] transition period on December 31, 2020.

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, [removed: trade] [added: 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.

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

[removed: In 2020, 2019, and 2018, net] [added: | Net] revenues generated from the EU (excluding the U.K.) [removed: constituted less than 20% of total net revenues.][added: | | | 19 | | % | | | | 19 | | % | | | | 17 | | % |]

[removed: Approximately 50% and 37% of our gross loans and interest receivables as of December 31, 2020 and 2019, respectively, were due from customers in the U.K. Approximately 14% and 6% of our gross] [added: | Gross] loans and interest [removed: receivables as of December 31, 2020 and 2019, respectively, were] [added: receivable] due from customers in the EU (excluding the [removed: U.K.).][added: U.K.) | | | 21 | | % | | | | 14 | | % |]

The following table provides a summary of our consolidated financial results for the years ended December 31, [added: 2021,] 2020, [removed: 2019,] and [removed: 2018:][added: 2019:]

| | | | [removed: 2020 | | | | | | 2019 | | | | | | 2018] [added: 2021] | | | | | | 2020 | | | | | | 2019 | | |

| Net revenues | | | $ | [removed: 21,454] [added: 25,371] | | | | | $ | [removed: 17,772] [added: 21,454] | | | | | $ | [removed: 15,451] [added: 17,772] | | | | | [removed: 21] [added: 18] | | % | | | | [removed: 15] [added: 21] | | % |

| Operating expenses | | | [removed: 18,165] [added: 21,109] | | | | | | [removed: 15,053] [added: 18,165] | | | | | | [removed: 13,257] [added: 15,053] | | | | | | [removed: 21] [added: 16] | | % | | | | [removed: 14] [added: 21] | | % |

| Operating income | | | [removed: 3,289] [added: 4,262] | | | | | | [removed: 2,719] [added: 3,289] | | | | | | [removed: 2,194] [added: 2,719] | | | | | | [removed: 21] [added: 30] | | % | | | | [removed: 24] [added: 21] | | % |

| Operating margin | | | [removed: 15] [added: 17] | | % | | | | 15 | | % | | | | [removed: 14] [added: 15] | | % | | | | | | | | | | | | |

| Other income (expense), net | | | [removed: 1,776] [added: (163)] | | | | | | [removed: 279] [added: 1,776] | | | | | | [removed: 182] [added: 279] | | | | | | [removed: 537] [added: (109)] | | % | | | | [removed: 53] [added: 537] | | % |

| Income tax [added: (benefit)] expense | | | [removed: 863] [added: (70)] | | | | | | [removed: 539] [added: 863] | | | | | | [removed: 319] [added: 539] | | | | | | [removed: 60] [added: (108)] | | % | | | | [removed: 69] [added: 60] | | % |

| Effective tax rate | | | [removed: 17] [added: (2)] | | % | | | | [removed: 18] [added: 17] | | % | | | | [removed: 13] [added: 18] | | % | | | | | | | | | | | | |

| Net income | | | $ | [removed: 4,202] [added: 4,169] | | | | | $ | [removed: 2,459] [added: 4,202] | | | | | $ | [removed: 2,057] [added: 2,459] | | | | | [removed: 71] [added: (1)] | | % | | | | [removed: 20] [added: 71] | | % |

| Net income per diluted share | | | $ | [removed: 3.54] [added: 3.52] | | | | | $ | [removed: 2.07] [added: 3.54] | | | | | $ | [removed: 1.71] [added: 2.07] | | | | | [removed: 71] [added: (1)] | | % | | | | [removed: 21] [added: 71] | | % |

| Net cash provided by operating [removed: activities(1)] [added: activities] | | | $ | [removed: 5,854] [added: 6,340] | | | | | $ | [removed: 4,071] [added: 5,854] | | | | | $ | [removed: 5,480] [added: 4,071] | | | | | [removed: 44] [added: 8] | | % | | | | [removed: (26)] [added: 44] | | % |

[removed: Refer to] [added: Our significant accounting policies, including recent accounting pronouncements, are described in] “Note [removed: 1—Overview] [added: 1—Overview] and Summary of Significant Accounting Policies” to [removed: our] [added: the] consolidated financial statements included in this Form [removed: 10-K for additional information.][added: 10‑K.]

Net revenues increased [removed: $3.7] [added: $3.9] billion, or [removed: 21%,] [added: 18%,] in [removed: 2020 as] [added: 2021] compared to [removed: 2019] [added: 2020] driven primarily by growth in total payment volume (“TPV”, as defined below under [removed: “Net Revenues”)] [added: “Key Metrics”)] of [removed: 31%.][added: 33%.]

Total operating expenses increased [removed: $3.1] [added: $2.9] billion, or [removed: 21%,] [added: 16%,] in [removed: 2020 as] [added: 2021] compared to [removed: 2019] [added: 2020] due primarily to an increase in transaction expense, and to a lesser extent, increases in [added: sales and marketing expenses,] technology and development expenses, [removed: sales] and [removed: marketing] [added: customer support and operations] expenses, [added: partially offset by a decline in] transaction and credit [removed: losses, and general and administrative expenses.][added: losses.]

Operating income increased [removed: $570] [added: $973] million, or [removed: 21%,] [added: 30%,] in [removed: 2020 as] [added: 2021] compared to [removed: 2019] [added: 2020] due to growth in net revenues, partially offset by an increase in operating expenses.

The tables below provide the percentage of our total net revenues and gross loans and interest receivable from the U.K. and EU (excluding the U.K.) for the periods presented:

| | | | | | | | | | | | | | | | | | |

| Net revenues generated from the U.K. | | | 9 | | % | | | | 11 | | % | | | | 11 | | % |

| | | | December 31, 2021 | | | | | | December 31, 2020 | | |

| Gross loans and interest receivable due from customers in the U.K. | | | 40 | | % | | | | 50 | | % |

The change in the percentage of gross loans and interest receivable due from customers in the U.K. and EU year-over-year was primarily attributable to expansion of our installment credit products in the EU.

Operating margin for 2021 was positively impacted primarily by the decrease in transaction and credit losses.

| | | | 2021 | | | | | | 2020 | | |

This contract matured in 2020.

KEY METRICS

A user may register on our platform to access different products and may register more than one account to access a product.

Accordingly, a user may have more than one active account.

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

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

The methodologies used to calculate our key metrics require judgment.

We regularly review our processes for calculating these key metrics, and from time to time we may make adjustments to improve their accuracy or relevance.

For example, we continuously apply models, processes and practices designed to detect and prevent fraudulent account creation on our platforms, and work to improve and enhance those capabilities.

When we detect a significant volume of illegitimate activity, we generally remove the activity identified from our key metrics.

Although such adjustments may impact key metrics reported in prior periods, we generally do not update previously reported key metrics to reflect these subsequent adjustments unless the retrospective impact of process improvements or enhancements is determined by management to be material.

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

In the year ended December 31, 2021, we benefited from the recovery of travel and events verticals, which were adversely impacted in the prior year as a result of the COVID-19 pandemic.

These factors favorably impacting growth in transaction revenues in 2021 were partially offset by a decline in TPV and revenue we generate from eBay’s marketplace platform, which we expect to continue, to a lesser extent, to negatively impact revenue growth trends in the first half of 2022.

In the first quarter of 2020, we experienced an adverse impact on our TPV and transaction revenues due to the initial impact of the COVID-19 pandemic.

In the second quarter of 2020, we benefited from a shift from in-store payment methods to digital payments (as described above) which was sustained throughout the remainder of 2020 and in 2021.

We had active accounts of 426 million and 377 million as of December 31, 2021 and 2020, respectively, an increase of 13%.

Number of payment transactions were 19.3 billion and 15.4 billion as of December 31, 2021 and 2020, respectively, an increase of 25%.

TPV was $1.25 trillion and $936 billion as of December 31, 2021 and 2020, respectively, an increase of 33%.

The fee revenue associated with the PPP loans in the year ended December 31, 2021 was $157 million, which included revenue recognized upon loan forgiveness and the extinguishment of our servicing obligations for a portion of the outstanding loans.

At December 31, 2021, the remaining unearned fee revenue associated with the PPP loans was not material.

The growth in revenue from other value added services in the year ended December 31, 2021 was also attributable to an increase in interest and fee revenue on our consumer loans receivable portfolio driven primarily by growth in international markets, partially offset by a decline in interest and fee revenue on our merchant loans receivable portfolio due to a decrease in average outstanding loans year-over-year and a decline in interest earned on certain assets underlying customer account balances resulting from lower interest rates.

The total gross consumer and merchant loans receivable balance as of December 31, 2021 and 2020 was $5.3 billion and $3.6 billion, respectively, reflecting a year-over-year increase of 48% driven primarily by growth in our consumer receivable portfolio due to the expansion of our installment credit products, including the entry into new markets.

The decrease in transaction expense rate in 2021 compared to 2020 was due primarily to a decline in transaction expense rates associated with both our core PayPal and Braintree products, offset by an increase in the share of volume associated with our Braintree products.

Transaction and credit losses decreased by $681 million, or 39%, in 2021 compared to 2020.

Transaction losses were $1.2 billion and $1.1 billion for the years ended December 31, 2021 and 2020, respectively, reflecting an increase of $18 million, or 2%, year-over-year.

Credit losses decreased by $699 million, or 115%, in 2021 compared to 2020.

The components of credit losses for the years ended December 31, 2021, 2020, and 2019 were as follows (in millions):

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Net charge-offs(2) | | | $ | 219 | | | | | $ | 310 | | | | | $ | 208 | |

| Reserve build (release)(3) | | | (312) | | | | | | 296 | | | | | | 80 | | |

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

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

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

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.

In 2020, 2019, and 2018, net revenues generated from our U.K. operations constituted 11% of total net revenues.

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.

(1) Prior period amounts have been revised to conform to the current period presentation.

Our acquisition of Honey Science Corporation (“Honey”) contributed approximately one percentage point to the growth rate in 2020.

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.

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.

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.

However, we have experienced strong growth in online retail, gaming, and food volume, offsetting this decline.

Revenues from other value added services decreased by $137 million, or 8%, in 2020 compared to 2019 due primarily to a decline in interest earned on certain assets underlying customer account balances resulting from lower interest rates and a decrease in interest and fee income on our loans and advances receivable due to an increase in the allowance for expected credit losses against interest and fees receivable, a decline in originations, and payment holidays that we provided during the year to our customers as a part of our COVID-19 payment relief initiatives.

Additionally, the decline in revenues from other value added services was driven by a decline in revenue earned from transition servicing activities provided to Synchrony Bank (“Synchrony”), which ended in the second quarter of 2019.

This decline was partially offset by incremental revenues from our acquisition of Honey, which contributed approximately 15 percentage points to the revenue growth rate for other value added services in 2020, and an increase in our revenue share earned from Synchrony.

The total gross consumer and merchant loans receivable balance as of December 31, 2020 and 2019 was $3.6 billion and $4.2 billion, respectively.

The year-over-year decrease of 15% in 2020 compared to 2019 was driven by a decline in our merchant receivable portfolio due to reduced originations, partially offset by growth in our consumer receivable portfolio.

These measures have adversely impacted and are expected to continue to adversely impact the recognition of interest and fee income in future periods.

Transaction expense also includes fees paid to disbursement partners to enable a transaction.

The decrease in transaction expense rate in 2020 compared to 2019 was due primarily to favorable changes in product mix and funding mix.

For the years ended December 31, 2020, 2019, and 2018, approximately 40%, 41%, and 43% of TPV, respectively, was generated outside of the U.S.

Transaction and credit losses increased by $361 million, or 26%, in 2020 compared to 2019.

Our estimate of the macroeconomic impact on current expected credit losses is most significantly impacted by projected unemployment trends and benchmark credit card charge-off rates, which directly correlate to the forecast of loans and interest receivables that we expect to charge off in the future.

Credit losses for the year ended December 31, 2020 include the impact of the increase in actual unemployment rates and credit card charge-off rates during the current period and expectations of a prolonged economic recovery period over which the value of loans and interest receivable that charge-off are projected to exceed historical trends.

If the actual unemployment and charge-offs vary from these projections as of December 31, 2020, the credit losses recognized in future periods will be impacted.

The consumer loans and interest receivables balance as of December 31, 2020 and 2019 was $2.2 billion and $1.3 billion, respectively.

(1) Prior period revised to conform to the current period presentation.

The decrease in the net charge off rate for consumer receivables at December 31, 2020 as compared to December 31, 2019 was primarily attributable to the continued expansion and maturity of our international consumer loan receivable portfolio and was in-part favorably impacted in the current year by payment holidays provided by the Company as a part of our COVID-19 payment relief initiatives.

(1) Includes the impact of payment holidays and modification programs provided by the Company as a part of our COVID-19 payment relief initiatives.

The decline in the percent of merchant receivables within the original expected or contractual repayment period, increase in percent of merchant receivables greater than 90 days outstanding, and increase in the net charge off rate for merchant receivables at December 31, 2020 as compared to December 31, 2019 was primarily due to an increase in payment delinquency driven by financial difficulties experienced by our merchants associated with the economic impact of COVID-19 and a significant decline in our outstanding merchant receivables balance due to repayments and reduced originations, which increases net charge offs and delinquency rates presented as a percentage of our outstanding loan balance.

For additional information, see “Note 11—Loans and Interest Receivable” in the notes to our consolidated financial statements included in this Form 10-K.

These changes in acceptable risk parameters have resulted in a deceleration in the growth of our borrowing base and a decrease in merchant receivables as of December 31, 2020, as compared to 2019.

Our acquisitions of Honey and GoPay collectively contributed approximately 20 percentage points to the growth rate of sales and marketing expenses in 2020.

Our acquisitions of Honey and GoPay collectively contributed approximately 15 percentage points to the growth rate of technology and development expenses in 2020.

General and administrative expenses increased $359 million, or 21%, in 2020 compared to 2019 due primarily to increases in employee-related expenses, professional services expenses, including those attributable to acquisition related transaction expenses, and amortization of acquired intangibles and internally developed software used in our general and administrative functions.

Our acquisitions of Honey and GoPay collectively contributed approximately 13 percentage points to the growth rate of general and administrative expenses in 2020.

Restructuring and other charges primarily consist of restructuring expenses and, in 2018, cost adjustments related to our loans and receivables, held for sale portfolio.

The approved strategic reduction in 2020 is part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

We have experienced delays, primarily as a result of COVID-19, in the execution of these restructuring actions, which are now expected to be completed by the end of the first quarter of 2021.

In the first quarter of 2019, management approved strategic reductions of the existing global workforce, which resulted in restructuring charges of $78 million.

Management establishes and oversees the implementation of policies governing our investing, funding, and foreign currency derivative activities [removed: in order] [added: intended] to mitigate market risks.

As of December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] approximately [removed: 30%] [added: 40%] and [removed: 63%,] [added: 30%,] 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 [removed: which] [added: that] we hold on our consolidated balance sheets as customer accounts are maintained in interest and non-interest bearing bank deposits, time deposits, [removed: U.S.] and [removed: foreign government and agency securities, corporate] [added: available-for-sale] debt [removed: securities, and asset-backed] securities.

If interest rates increased by 100 basis points, the fair value of our available-for-sale debt securities investment portfolio would [removed: decrease] [added: have decreased] by approximately [removed: $173] [added: $272] million and [removed: $68] [added: $173] million at December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] respectively.

[removed: We have] [added: As of December 31, 2021, we had] $9.0 billion in fixed rate debt with varying maturity dates.

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

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

We are generally a net receiver of foreign currencies and therefore benefit from a weakening of the [removed: U.S.] [added: United States (“U.S.”)] dollar, and are adversely affected by a strengthening of the U.S. dollar, relative to foreign currencies.

[removed: For] [added: These foreign currency exchange contracts are accounted for as derivative instruments; for] additional details related to our foreign currency exchange contracts, please see “Note 10—Derivative Instruments” to the consolidated financial statements included in this Form 10-K.

If the U.S. dollar weakened by 20% at December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately [removed: $1.1] [added: $1.0] billion and [removed: $900 million] [added: $1.1 billion] lower, respectively.

If the U.S. dollar strengthened by 20% at December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately [removed: $1.1] [added: $1.0] billion and [removed: $900 million] [added: $1.1 billion] higher, respectively.

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: $353] [added: $386] million and [removed: $147] [added: $353] million at December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] respectively, without considering the offsetting effect of foreign currency exchange contracts.

Foreign currency exchange contracts in place as of December 31, [removed: 2019] [added: 2021] would have positively impacted income before income taxes by approximately [removed: $153] [added: $400] million, resulting in a net positive impact of approximately [removed: $6] [added: $14] million.

As of [added: both] December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] our strategic investments totaled $3.2 billion [removed: and $1.8 billion, respectively,] which represented approximately [removed: 17%] [added: 20%] and [removed: 13%] [added: 17%] of our total cash, cash equivalents, and [added: short-term and long-term] investment portfolio at each of those respective dates.

Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are [added: primarily] investments in privately held [removed: companies that are not publicly traded.][added: companies.]

A hypothetical adverse change of 10% in the carrying value of our strategic investments, which could be experienced in the near term, would have resulted in a decrease of approximately [removed: $323] [added: $321] million to the carrying value of the portfolio as of December 31, [removed: 2020.][added: 2021.]

As of December 31, 2021, we also had revolving credit facilities of approximately $5.2 billion available to us.

As of December 31, 2021, we had approximately $98 million outstanding under these credit facilities.

No amounts were outstanding as of December 31, 2020.

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

As of December 31, 2020 and 2019, we had no amounts outstanding under this credit facility.

These foreign currency exchange contracts are accounted for as derivative instruments.

PayPal Holdings, Inc. was incorporated in Delaware in January 2015 and is a leading technology platform [removed: and digital payments company] that enables digital [removed: and mobile] payments [added: and simplifies commerce experiences] on behalf of merchants and consumers worldwide.

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

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

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

We operate a global, two-sided network at scale that connects merchants and consumers with [removed: 377] [added: 426] million active accounts (consisting of [removed: 348] [added: 392] million consumer active accounts and [removed: 29] [added: 34] million merchant active accounts) across more than 200 markets.

PayPal helps merchants and consumers connect, transact, and complete payments, whether they are [removed: online, on a mobile device, in an app,] [added: online] or in person.

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

We offer merchants an end-to-end payments solution that provides authorization and settlement capabilities, as well as instant access to [removed: funds.][added: funds and payouts.]

We [added: also] help merchants connect with their [removed: customers] [added: customers, process exchanges] and [added: returns, and] manage risk.

We enable consumers to engage in cross-border shopping and merchants to extend their global reach while reducing the complexity and friction involved in enabling [removed: overseas and] cross-border trade.

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

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

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 [removed: Payments Platform or through our Honey Platform,] [added: platform,] not including gateway-exclusive transactions, within the past 12 months.

A platform access partner is a third party whose customers are provided access to PayPal’s [removed: Payments Platform] [added: platform or services] through such third-party’s login [removed: credentials.][added: credentials, including entities that utilize Hyperwallet’s payout capabilities.]

- *Two-sided network—*our [removed: Payments Platform] [added: payments platform] connecting merchants and consumers enables PayPal to offer unique end-to-end product experiences while gaining valuable insights into [removed: customer behavior.][added: how customers use our platform.]

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

*•Scale—*our global scale [removed: allows] [added: helps] us to drive organic growth.

As of December 31, [removed: 2020,] [added: 2021,] we had [removed: 377] [added: 426] million active accounts, consisting of [removed: 348] [added: 392] million consumer active accounts and [removed: 29] [added: 34] million merchant active accounts in more than 200 markets around the world.

- [removed: *Brands—*we] [added: *Trusted brands—*we] have built and strengthened well-recognized and trusted brands, including PayPal, Braintree, Venmo, Xoom, [removed: Hyperwallet, iZettle,] [added: Zettle,] and Honey.

Our [added: communications and] marketing efforts across multiple [added: geographies and] demographic groups play an important role in building brand visibility, usage, and overall preference among customers.

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

- [removed: *Regulatory—*we] [added: *Regulatory licenses—*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.

We offer alternative payment methods, including access to credit solutions, provide fraud prevention and risk management solutions, reduce losses through proprietary protection programs, and offer tools and insights for [removed: leveraging] [added: utilizing] 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 quickly and easily provide digital checkout [removed: online, on mobile devices,] [added: online] and in-store across all platforms and devices and to securely and simply receive payments from their customers.

PayPal’s [removed: Payments Platform] [added: payments platform] enables merchants to accept all types of online and offline payments, including those made with the PayPal and Venmo [added: digital] wallets, [added: our consumer] credit [added: products, credit] cards and debit cards, [removed: Apple Pay, Samsung Pay,] and [removed: Google Pay,] [added: other competitor digital wallets,] as well as other popular local payment methods.

Our diversified [removed: product] suite [added: of products and services] 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, [removed: our iZettle point of sale solutions, and our] quick response (“QR”) code-based [added: solutions, and our Zettle point of sale] solutions.

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

[removed: Our] [added: The] PayPal Working Capital product allows businesses to [removed: borrow] [added: access] a [removed: certain percentage of] [added: loan or cash advance for a fixed fee and based on] their annual payment volume processed by [removed: PayPal for a fixed fee.][added: PayPal.]

[removed: Our] [added: The] PayPal Business Loan product provides businesses with short-term financing for a fixed fee based on an evaluation of both the applying business as well as the business owner.

We believe that [removed: our] [added: these] merchant [removed: lending] [added: finance] offerings [removed: allow] [added: enable] 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.

Our acquisition of [removed: a controlling equity interest in] Guofubao Information Technology Co. (GoPay), [removed: Ltd (“GoPay”),] [added: Ltd.,] a holder of payment business licenses in China, enables us to partner with Chinese financial institutions and technology platforms to provide a more comprehensive set of payment solutions to merchants and consumers, both in China and globally.

We focus on providing [removed: affordable] [added: affordable, convenient, and secure] consumer [added: financial] products [added: and services] intended to democratize the management and movement of money.

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

Our Venmo [removed: app] [added: digital wallet] in the U.S. is a leading mobile application used to move money between our customers and to make purchases at select merchants.

We also simplify and personalize shopping experiences for our consumers [removed: through our Honey Platform] by offering tools for product discovery, price-tracking, [removed: and] offers, [added: and easier exchanges and returns,] which enhances consumer engagement and [removed: conversion and] sales [added: conversion] for our merchants.

We offer [removed: our PayPal Credit] [added: credit] products to consumers in certain markets as a potential funding source at checkout.

Once a consumer is approved for credit, [removed: PayPal Credit] [added: the product] is made available as a funding source for that account holder.

[removed: Our] [added: The] U.S. PayPal- and Venmo-branded consumer credit program is offered [removed: primarily] through Synchrony Bank.

In addition, we have expanded our consumer credit offerings to include [added: buy now, pay later] installment [removed: payment] products in the U.S., U.K., France, [added: Germany, Australia, Spain, Italy,] and [removed: Germany.][added: through the acquisition of Paidy, in Japan.]

We believe that effective management of environmental, social, and governance (“ESG”) risks and opportunities is essential to deliver on our mission and strategy.

Our core values of Collaboration, Inclusion, Innovation, and Wellness are the driving forces behind our mission and form the foundation of our operating philosophy.

We believe that they help stimulate the creativity and engagement of our global workforce to deliver products and services designed to meet the diverse needs of our customers.

A user may register on our platform to access different products and may register more than one account to access a product.

Accordingly, a user may have more than one active account.

In 2021, we processed $1.25 trillion of TPV.

Through our consumer focused offerings, we provide simplified and personalized shopping experiences for consumers, including the ability to easily make exchanges and returns, to help merchants drive increased conversion through higher consumer engagement.

In the United States (“U.S.”), these products are provided under a program agreement with WebBank.

Our acquisition of Paidy, Inc. (“Paidy”) enables us to expand our buy now, pay later solutions and other capabilities in Japan.

We also earn revenues from interest and fees earned on our merchant loans receivables.

We offer a PayPal-issued PayPal Credit product in the United Kingdom (“U.K.”) and a PayPal branded consumer credit card issued by Citigroup in Australia.

A key attribute of our buy now, pay later products is the absence of consumer late fees for missed payments in most of the geographies where we offer it.

We have expanded our consumer value proposition through enhancements to the PayPal and Venmo digital wallets, which provide increased functionality for consumers to explore deals and offers and to more easily transact with cryptocurrencies in certain markets.

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

ESG MANAGEMENT

PayPal is committed to creating a more inclusive global economy and advancing our core values of Collaboration, Inclusion, Innovation, and Wellness across our communities, workforce, and strategies.

We manage priority ESG risks and opportunities through four key pillars: (1) social innovation, (2) employees and culture, (3) environmental sustainability, and (4) responsible business practices.

We believe this integrated, enterprise-wide approach to managing our global business responsibly helps to enable us to create value for all of our stakeholders, including our employees, stockholders, partners, and communities.

In 2021, we continued to advance our ESG strategy, including through the following: a science-based approach to reducing our climate change impacts, targeted investments to address the racial wealth gap and empower underserved communities and businesses, programmatic development intended to foster an inclusive culture across the employee lifecycle, and ongoing enhancements to support the safety and security of our products and platform.

We take this commitment seriously and endeavor to provide transparent disclosures on the progress of this work through our annual Global Impact Report and other communications.

In certain cases, these licenses also generally cover PayPal’s service enabling customers to buy, hold, and sell cryptocurrency directly from their PayPal or Venmo account.

Under the U.K.’s Temporary Permissions Regime, PayPal is also deemed to be authorized and regulated by the U.K. FCA as a result of Brexit.

PayPal’s U.S. consumer installment loan product is subject to federal and state laws governing consumer credit and debt collection.

PayPal holds multiple state licenses as the lender of this product.

PayPal Ratenzahlung, a regulated installment loan for consumers in Germany, is subject to applicable local laws such as consumer (lending) laws, consumer protection, or banking transparency regulations.

Paidy, Inc. holds multiple licenses for the issuance of their short-term installment products in Japan and is registered with the Ministry of Economy, Trade and Industry as a Comprehensive Credit Purchase Intermediary.

In Australia, PayPal Credit Pty Limited offers a consumer short-term installment product that is exempt from regulation by the primary consumer credit legislation but is subject to other laws which cover the provision of financial services, credit reporting, debt collection, and privacy.

PayPal’s consumer buy now, pay later installment loan products in the U.K., France, Germany, Spain, and Italy are generally exempt from primary consumer credit legislation; however, certain consumer lending laws, consumer protection, or banking transparency regulations continue to apply to this activity.

PayPal and Venmo co-branded consumer credit cards and the PayPal Credit consumer credit product are issued by Synchrony Bank in the U.S. and the PayPal branded consumer credit card is issued by Citigroup in Australia, and are subject to laws and regulations governing these programs.

PayPal Credit in the U.K. is a regulated, revolving consumer credit product subject to applicable local laws and regulations.

Our merchant finance offerings are subject to the applicable laws and regulations governing those programs, which differ by jurisdiction.

Certain governments around the world are adopting laws and regulations pertaining to ESG performance, transparency, and reporting, including those related to overall corporate ESG disclosures (e.g., EU Sustainable Reporting Directive) as well as topical reporting requirements, such as reporting on climate-related financial disclosures.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

For example, in 2021, we continued to invest in employee mental wellness by providing workplace flexibility to reflect the diverse needs of our global workforce and appointing a Global Wellness Advocate.

In addition to administering an annual survey to gather input from our global workforce, we also conducted specific surveys to gather direct employee feedback on our annual performance program and evolving workplace preferences.

Our score measuring intent to stay was 80%, which reflects an employee’s expectation to remain employed with the company in two years.

Additionally, we observed improvements in employee scores regarding effective collaboration and work life balance, two areas we focused on advancing in 2021.

For example, in 2021, we focused on enhancing our employee communications and opportunities to better support ongoing remote working.

In 2021, we expanded our new employee development program with specific topical training sessions, including mobility and developing women in leadership.

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

The 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.

In 2020, we processed $936 billion of TPV.

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

We also offer consumers P2P payment solutions through our PayPal, Venmo, and Xoom products and services.

As a result, merchants may incur losses for chargebacks and other claims on certain transactions when using other payments providers that the merchants would not incur if they used our payments services.

We also provide consumer protection against losses on qualifying purchases and accept claims for review up to 180 days post-transaction.

We believe that this protection is generally consistent with, or better than, that offered by other payments providers.

We believe mobile devices will continue to play a significant and increasing role in commerce, including by creating the opportunities to make the payments ecosystem safer.

For example, PayPal uses data from mobile devices to help reduce financial and fraud risk to merchants and consumers.

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’s U.S. consumer short-term installment loan product is subject to state lending laws (some of which require licensure and/or state regulator notification), state collection laws, as well as compliance with the Equal Credit Opportunity Act and Regulation B as implemented by the Consumer Financial Protection Bureau (the “CFPB”) and other applicable laws and regulations.

*Consumer Financial Protection Bureau*.

The EU has adopted a comprehensive General Data Protection Regulation (the “GDPR”), which came into effect in May 2018.

PayPal relies on a variety of compliance methods to transfer personal data of EEA individuals to the U.S., including reliance on Binding Corporate Rules (“BCRs”) for internal transfers of certain types of personal data and Standard Contractual Clauses (“SCCs”).

PayPal must also ensure that third parties processing personal data of PayPal’s EEA customers and/or employees outside of the EEA have compliant transfer mechanisms.

In July 2020, the European Court of Justice (“ECJ”) invalidated the U.S.-EU Privacy Shield - safe harbor framework that was previously relied upon by some PayPal vendors, and PayPal entered into SCCs with those third parties.

PayPal did not certify under the Privacy Shield regime and continues to use SCCs and BCRs as the primary cross border data transfer mechanisms.

However, the ECJ ruling made clear that these transfer mechanisms will be subject to additional scrutiny as well.

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

For example, in 2020, we enhanced our Crisis Leave Program, provided flexible work arrangements, and adjusted our benefits to include additional mental health support.

In addition to administering an annual survey to gather input from our global workforce, we conducted regular wellness surveys throughout the COVID-19 pandemic to get real-time feedback from our employees.

In 2020, we continued to enhance our employee programs based on results from our 2019 survey and other employee input.

For example, we established in-person feedback sessions to improve efficiencies, enhanced employee communication strategies, and launched additional learning and development programs.

As part of our integrated approach to benefits, we have made strengthening employee financial wellness a strategic priority at PayPal.

In late 2019, we designed an inclusive program that raised wages (where appropriate), lowered the cost of U.S. healthcare benefits for hourly-wage earners, offered new financial tools and resources, and granted equity or equity-based awards to all employees of the company, subject to legal limitations.

We continue to extend this initiative and recently added resources for employees to improve their cash flow through access to early earned wages and modified retirement programs in select global markets.

In 2020, we also announced a targeted commitment to support Black- and minority-owned businesses, and underrepresented communities and employees, including additional financial commitments to enhance our employee resource groups, cultivate diverse talent pipelines, and create inclusive onboarding and skill building opportunities.

For the fiscal year ended December 31, [removed: 2020.][added: 2021.]

As of June 30, [removed: 2020,] [added: 2021,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately [removed: $204.2] [added: $342.2] billion based on the closing sale price as reported on the NASDAQ Global Select Market.

As of January [removed: 29, 2021,] [added: 28, 2022,] there were [removed: 1,171,175,760] [added: 1,165,004,913] shares of common stock outstanding.

Portions of the registrant’s definitive proxy statement for its [removed: 2021] [added: 2022] 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: 2020.][added: 2021.]

| Item 1. | | | [removed: [Business](#i11ff72e598004c6da6b0c9b6b21e6464_16)] [added: [Business](#i09726fea9d9f449582277ae89ab03ce6_16)] | | | [removed: [4](#i11ff72e598004c6da6b0c9b6b21e6464_16)] [added: [4](#i09726fea9d9f449582277ae89ab03ce6_16)] | | |

| Item 1A. | | | [Risk [removed: Factors](#i11ff72e598004c6da6b0c9b6b21e6464_19)] [added: Factors](#i09726fea9d9f449582277ae89ab03ce6_19)] | | | [removed: [13](#i11ff72e598004c6da6b0c9b6b21e6464_19)] [added: [16](#i09726fea9d9f449582277ae89ab03ce6_19)] | | |

| Item 1B. | | | [Unresolved Staff [removed: Comments](#i11ff72e598004c6da6b0c9b6b21e6464_22)] [added: Comments](#i09726fea9d9f449582277ae89ab03ce6_22)] | | | [removed: [27](#i11ff72e598004c6da6b0c9b6b21e6464_22)] [added: [30](#i09726fea9d9f449582277ae89ab03ce6_22)] | | |

| Item 2. | | | [removed: [Properties](#i11ff72e598004c6da6b0c9b6b21e6464_25)] [added: [Properties](#i09726fea9d9f449582277ae89ab03ce6_25)] | | | [removed: [27](#i11ff72e598004c6da6b0c9b6b21e6464_25)] [added: [31](#i09726fea9d9f449582277ae89ab03ce6_25)] | | |

| Item 3. | | | [Legal [removed: Proceedings](#i11ff72e598004c6da6b0c9b6b21e6464_28)] [added: Proceedings](#i09726fea9d9f449582277ae89ab03ce6_28)] | | | [removed: [28](#i11ff72e598004c6da6b0c9b6b21e6464_28)] [added: [32](#i09726fea9d9f449582277ae89ab03ce6_28)] | | |

| Item 4. | | | [Mine Safety [removed: Disclosures](#i11ff72e598004c6da6b0c9b6b21e6464_31)] [added: Disclosures](#i09726fea9d9f449582277ae89ab03ce6_31)] | | | [removed: [28](#i11ff72e598004c6da6b0c9b6b21e6464_31)] [added: [32](#i09726fea9d9f449582277ae89ab03ce6_31)] | | |

| Item 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#i11ff72e598004c6da6b0c9b6b21e6464_37)] [added: Securities](#i09726fea9d9f449582277ae89ab03ce6_37)] | | | [removed: [29](#i11ff72e598004c6da6b0c9b6b21e6464_37)] [added: [32](#i09726fea9d9f449582277ae89ab03ce6_37)] | | |

| Item 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i11ff72e598004c6da6b0c9b6b21e6464_43)] [added: Operations](#i09726fea9d9f449582277ae89ab03ce6_43)] | | | [removed: [31](#i11ff72e598004c6da6b0c9b6b21e6464_43)] [added: [33](#i09726fea9d9f449582277ae89ab03ce6_43)] | | |

| Item 7A. | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i11ff72e598004c6da6b0c9b6b21e6464_58)] [added: Risk](#i09726fea9d9f449582277ae89ab03ce6_58)] | | | [removed: [53](#i11ff72e598004c6da6b0c9b6b21e6464_58)] [added: [54](#i09726fea9d9f449582277ae89ab03ce6_58)] | | |

| Item 8. | | | [Financial Statements and Supplementary [removed: Data](#i11ff72e598004c6da6b0c9b6b21e6464_61)] [added: Data](#i09726fea9d9f449582277ae89ab03ce6_61)] | | | [removed: [54](#i11ff72e598004c6da6b0c9b6b21e6464_61)] [added: [55](#i09726fea9d9f449582277ae89ab03ce6_61)] | | |

| Item 9. | | | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#i11ff72e598004c6da6b0c9b6b21e6464_64)] [added: Disclosure](#i09726fea9d9f449582277ae89ab03ce6_64)] | | | [removed: [55](#i11ff72e598004c6da6b0c9b6b21e6464_64)] [added: [56](#i09726fea9d9f449582277ae89ab03ce6_64)] | | |

| Item 9A. | | | [Controls and [removed: Procedures](#i11ff72e598004c6da6b0c9b6b21e6464_67)] [added: Procedures](#i09726fea9d9f449582277ae89ab03ce6_67)] | | | [removed: [55](#i11ff72e598004c6da6b0c9b6b21e6464_67)] [added: [56](#i09726fea9d9f449582277ae89ab03ce6_67)] | | |

| Item 9B. | | | [Other [removed: Information](#i11ff72e598004c6da6b0c9b6b21e6464_70)] [added: Information](#i09726fea9d9f449582277ae89ab03ce6_70)] | | | [removed: [55](#i11ff72e598004c6da6b0c9b6b21e6464_70)] [added: [56](#i09726fea9d9f449582277ae89ab03ce6_70)] | | |

| Item 10. | | | [Directors, Executive Officers and Corporate [removed: Governance](#i11ff72e598004c6da6b0c9b6b21e6464_76)] [added: Governance](#i09726fea9d9f449582277ae89ab03ce6_76)] | | | [removed: [55](#i11ff72e598004c6da6b0c9b6b21e6464_76)] [added: [56](#i09726fea9d9f449582277ae89ab03ce6_76)] | | |

| Item 11. | | | [Executive [removed: Compensation](#i11ff72e598004c6da6b0c9b6b21e6464_79)] [added: Compensation](#i09726fea9d9f449582277ae89ab03ce6_79)] | | | [removed: [55](#i11ff72e598004c6da6b0c9b6b21e6464_79)] [added: [56](#i09726fea9d9f449582277ae89ab03ce6_79)] | | |

| Item 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i11ff72e598004c6da6b0c9b6b21e6464_82)] [added: Matters](#i09726fea9d9f449582277ae89ab03ce6_82)] | | | [removed: [55](#i11ff72e598004c6da6b0c9b6b21e6464_82)] [added: [57](#i09726fea9d9f449582277ae89ab03ce6_82)] | | |

| Item 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i11ff72e598004c6da6b0c9b6b21e6464_85)] [added: Independence](#i09726fea9d9f449582277ae89ab03ce6_85)] | | | [removed: [56](#i11ff72e598004c6da6b0c9b6b21e6464_85)] [added: [57](#i09726fea9d9f449582277ae89ab03ce6_85)] | | |

| Item 14. | | | [Principal Accounting Fees and [removed: Services](#i11ff72e598004c6da6b0c9b6b21e6464_88)] [added: Services](#i09726fea9d9f449582277ae89ab03ce6_88)] | | | [removed: [56](#i11ff72e598004c6da6b0c9b6b21e6464_88)] [added: [57](#i09726fea9d9f449582277ae89ab03ce6_88)] | | |

| Item 15. | | | [Exhibits, Financial Statement [removed: Schedules](#i11ff72e598004c6da6b0c9b6b21e6464_94)] [added: Schedules](#i09726fea9d9f449582277ae89ab03ce6_94)] | | | [removed: [56](#i11ff72e598004c6da6b0c9b6b21e6464_94)] [added: [58](#i09726fea9d9f449582277ae89ab03ce6_94)] | | |

| Item 16. | | | [Form 10-K [removed: Summary](#i11ff72e598004c6da6b0c9b6b21e6464_196)] [added: Summary](#i09726fea9d9f449582277ae89ab03ce6_184)] | | | [removed: [120](#i11ff72e598004c6da6b0c9b6b21e6464_196)] [added: [122](#i09726fea9d9f449582277ae89ab03ce6_184)] | | |

Some of the more important trademarks that PayPal owns or has rights to use that appear in this Annual Report on Form 10-K include: PayPal®, PayPal Credit®, Braintree, Venmo, Xoom, [removed: iZettle,] [added: Zettle,] Hyperwallet, [removed: and] Honey, [added: and Paidy,] which may be registered or trademarked in the United States and other jurisdictions.

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

| Item 6. | | | [Removed and Reserved](#i09726fea9d9f449582277ae89ab03ce6_40) | | | [33](#i09726fea9d9f449582277ae89ab03ce6_40) | | |

| Item 9C. | | | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#i09726fea9d9f449582277ae89ab03ce6_1645) | | | [56](#i09726fea9d9f449582277ae89ab03ce6_1645) | | |

| Item 6. | | | [Selected Financial Data](#i11ff72e598004c6da6b0c9b6b21e6464_40) | | | [30](#i11ff72e598004c6da6b0c9b6b21e6464_40) | | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

We own and lease various properties in the [removed: U.S.] [added: United States (“U.S.”)] and other countries around the world.

We use the properties for executive and administrative offices, [removed: data] [added: customer services and operations] centers, product development offices, [removed: and customer services] [added: warehouses,] and [removed: operations] [added: data] centers.

As of December 31, [removed: 2020,] [added: 2021,] our owned and leased properties provided us with aggregate square footage as follows:

| Owned facilities | | | 1.0 | | | | | | [removed: 0.2] [added: 0.1] | | | | | | [removed: 1.2] [added: 1.1] | | |

| Total facilities | | | 2.4 | | | | | | [removed: 2.2] [added: 2.1] | | | | | | [removed: 4.6] [added: 4.5] | | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

As of January [removed: 29, 2021,] [added: 28, 2022,] there were [removed: 3,926] [added: 4,103] holders of record of our common stock.

The stock repurchase activity under our stock repurchase program during the three months ended December 31, [removed: 2020] [added: 2021] is summarized as follows:

| Balance as of September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,560 | |

| October 1, 2021 through October 31, 2021 | | | — | | | | | | $ | — | | | | | — | | | | | | | | | | | | 6,560 | | |

| November 1, 2021 through November 30, 2021 | | | 1.7 | | | | | | $ | 186.67 | | | | | 1.7 | | | | | | | | | | | | 6,236 | | |

| December 1, 2021 through December 31, 2021 | | | 6.3 | | | | | | $ | 187.56 | | | | | 6.3 | | | | | | | | | | | | 5,060 | | |

| Balance as of December 31, 2021 | | | 8.0 | | | | | | | | | | | | 8.0 | | | | | | | | | | | | $ | 5,060 | |

| 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 | |

The following selected financial data reflect the consolidated operations of PayPal.

PayPal derived the selected consolidated income statement data for the years ended December 31, 2020, 2019, and 2018 and the selected consolidated balance sheet data as of December 31, 2020 and 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 10-K (“Form 10-K”).

PayPal derived the selected consolidated income statement data for the years ended December 31, 2017 and 2016 and selected consolidated balance sheet data as of December 31, 2018, 2017, and 2016 from audited consolidated financial statements not included in this Form 10-K.

The historical results do not necessarily indicate the results expected for any future period.

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 in this report.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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| | | | Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | 2020 | | | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | |

| | | | (In millions, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Consolidated Statement of Income Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net revenues | | | $ | 21,454 | | | | | $ | 17,772 | | | | | $ | 15,451 | | | | | $ | 13,094 | | | | | $ | 10,842 | |

| Operating income | | | 3,289 | | | | | | 2,719 | | | | | | 2,194 | | | | | | 2,127 | | | | | | 1,586 | | |

| Net income | | | 4,202 | | | | | | 2,459 | | | | | | 2,057 | | | | | | 1,795 | | | | | | 1,401 | | |

| Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Basic | | | $ | 3.58 | | | | | $ | 2.09 | | | | | $ | 1.74 | | | | | $ | 1.49 | | | | | $ | 1.16 | |

| Diluted | | | $ | 3.54 | | | | | $ | 2.07 | | | | | $ | 1.71 | | | | | $ | 1.47 | | | | | $ | 1.15 | |

| Weighted average shares: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Basic | | | 1,173 | | | | | | 1,174 | | | | | | 1,184 | | | | | | 1,203 | | | | | | 1,210 | | |

| Diluted | | | 1,187 | | | | | | 1,188 | | | | | | 1,203 | | | | | | 1,221 | | | | | | 1,218 | | |

| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total assets | | | $ | 70,379 | | | | | $ | 51,333 | | | | | $ | 43,332 | | | | | $ | 40,774 | | | | | $ | 33,103 | |

| Total long-term liabilities | | | 11,869 | | | | | | 7,485 | | | | | | 2,042 | | | | | | 1,917 | | | | | | 1,513 | | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

The audited consolidated financial statements covering the years ended December 31, [added: 2021,] 2020, [removed: 2019,] and [removed: 2018] [added: 2019] and accompanying notes listed in Part IV, Item 15(a)(1) of this Form 10‑K are included in this report.

*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: 2020,] [added: 2021,] 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: 2020.][added: 2021.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2020] [added: 2021] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Form 10-K.

In October 2021, we completed our acquisition of Paidy, Inc. (“Paidy”).

Based upon Securities and Exchange Commission staff guidance, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting for the first year of acquisition.

We have excluded Paidy from our assessment of internal control over financial reporting as of December 31, 2021.

Paidy is a wholly-owned subsidiary whose total revenue and assets, excluding goodwill and intangibles, represented less than 1% of our total consolidated revenue and consolidated assets for the year ended and as of December 31, 2021.

PART III

None.

PART III

Incorporated by reference from our Proxy Statement for our [removed: 2021] [added: 2022] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2020.][added: 2021.]

Incorporated by reference from our Proxy Statement for our [removed: 2021] [added: 2022] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2020.][added: 2021.]

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Incorporated by reference from our Proxy Statement for our [removed: 2021] [added: 2022] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2020.][added: 2021.]

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Incorporated by reference from our Proxy Statement for our [removed: 2021] [added: 2022] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2020.][added: 2021.]

Incorporated by reference from our Proxy Statement for our [removed: 2021] [added: 2022] Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, [removed: 2020.][added: 2021.]

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| [Report of Independent Registered Public Accounting [removed: Firm](#i11ff72e598004c6da6b0c9b6b21e6464_97)] [added: Firm](#i09726fea9d9f449582277ae89ab03ce6_97) (PCAOB ID 238)] | | | [removed: [57](#i11ff72e598004c6da6b0c9b6b21e6464_97)] [added: [59](#i09726fea9d9f449582277ae89ab03ce6_97)] | | |

| [Consolidated Balance [removed: Sheets](#i11ff72e598004c6da6b0c9b6b21e6464_100)] [added: Sheets](#i09726fea9d9f449582277ae89ab03ce6_100)] | | | [removed: [59](#i11ff72e598004c6da6b0c9b6b21e6464_100)] [added: [61](#i09726fea9d9f449582277ae89ab03ce6_100)] | | |

| [Consolidated Statements of [removed: Income](#i11ff72e598004c6da6b0c9b6b21e6464_106)] [added: Comprehensive Income](#i09726fea9d9f449582277ae89ab03ce6_106)] | | | [removed: [60](#i11ff72e598004c6da6b0c9b6b21e6464_106)] [added: [63](#i09726fea9d9f449582277ae89ab03ce6_106)] | | |

| [Consolidated Statements of Stockholders’ [removed: Equity](#i11ff72e598004c6da6b0c9b6b21e6464_112)] [added: Equity](#i09726fea9d9f449582277ae89ab03ce6_109)] | | | [removed: [62](#i11ff72e598004c6da6b0c9b6b21e6464_112)] [added: [64](#i09726fea9d9f449582277ae89ab03ce6_109)] | | |

| [Consolidated Statements of Cash [removed: Flows](#i11ff72e598004c6da6b0c9b6b21e6464_115)] [added: Flows](#i09726fea9d9f449582277ae89ab03ce6_112)] | | | [removed: [63](#i11ff72e598004c6da6b0c9b6b21e6464_115)] [added: [65](#i09726fea9d9f449582277ae89ab03ce6_112)] | | |

[removed: | [Notes to Consolidated Financial Statements](#i11ff72e598004c6da6b0c9b6b21e6464_118) | | | [65](#i11ff72e598004c6da6b0c9b6b21e6464_118) | | |][added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)]

| [Schedule II—Valuation and Qualifying [removed: Accounts](#i11ff72e598004c6da6b0c9b6b21e6464_193)] [added: Accounts](#i09726fea9d9f449582277ae89ab03ce6_178)] | | | [removed: [115](#i11ff72e598004c6da6b0c9b6b21e6464_193)] [added: [117](#i09726fea9d9f449582277ae89ab03ce6_178)] | | |

| [3. Exhibits Required by Item 601 of Regulation [removed: S-K](#i11ff72e598004c6da6b0c9b6b21e6464_199)] [added: S-K](#i09726fea9d9f449582277ae89ab03ce6_181)] | | | [removed: [116](#i11ff72e598004c6da6b0c9b6b21e6464_199)] [added: [118](#i09726fea9d9f449582277ae89ab03ce6_181)] | | |

We have audited the accompanying consolidated balance sheets of PayPal Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] 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: 2020,] [added: 2021,] including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, [removed: 2020] [added: 2021] listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, [removed: 2020,] [added: 2021,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated [removed: Framework] [added: 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: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2020] [added: 2021] 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: 2020,] [added: 2021,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated [removed: Framework] [added: Framework*] (2013) issued by the COSO.

As described in Notes 1 and 11 to the consolidated financial statements, as of December 31, [removed: 2020,] [added: 2021,] the Company recorded total loans and interest receivable of [removed: $2,769] [added: $4,846] million, net of an allowance [removed: for current expected credit losses] of [removed: $838] [added: $491] million.

Management applies macroeconomic factors such as forecasted trends in unemployment [removed: 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 [removed: quantitative estimates of current] expected credit [removed: losses.][added: loss models.]

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

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

| | | | [added: 2021 | | | | | |] 2020 | | | | | | 2019 | | |

| Cash and cash equivalents | | | $ | [added: 5,197 | | | | | $ |] 4,794 | | | | | $ | 7,349 | |

| Short-term investments | | | [removed: 8,289] [added: 4,303] | | | | | | [removed: 3,412] [added: 8,289] | | |

| Accounts receivable, net | | | [removed: 577] [added: 800] | | | | | | [removed: 435] [added: 577] | | |

| Loans and interest receivable, net of allowances of [removed: $838] [added: $491] and [removed: $258] [added: $838] as of December 31, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] respectively | | | [removed: 2,769] [added: 4,846] | | | | | | [removed: 3,972] [added: 2,769] | | |

| Funds receivable and customer accounts | | | [removed: 33,418] [added: 36,141] | | | | | | [removed: 22,527] [added: 33,418] | | |

| Prepaid expenses and other current assets | | | [removed: 1,148] [added: 1,287] | | | | | | [removed: 800] [added: 1,148] | | |

| Total current assets | | | [removed: 50,995] [added: 52,574] | | | | | | [removed: 38,495] [added: 50,995] | | |

| Long-term investments | | | [removed: 6,089] [added: 6,797] | | | | | | [removed: 2,863] [added: 6,089] | | |

| Property and equipment, net | | | [removed: 1,807] [added: 1,909] | | | | | | [removed: 1,693] [added: 1,807] | | |

| Goodwill | | | [removed: 9,135] [added: 11,454] | | | | | | [removed: 6,212] [added: 9,135] | | |

| Intangible assets, net | | | [removed: 1,048] [added: 1,332] | | | | | | [removed: 778] [added: 1,048] | | |

| Other assets | | | [removed: 1,305] [added: 1,737] | | | | | | [removed: 1,292] [added: 1,305] | | |

| Total assets | | | $ | [removed: 70,379] [added: 75,803] | | | | | $ | [removed: 51,333] [added: 70,379] | |

| Accounts payable | | | $ | [removed: 252] [added: 197] | | | | | $ | [removed: 232] [added: 252] | |

| Funds payable and amounts due to customers | | | [removed: 35,418] [added: 38,841] | | | | | | [removed: 24,527] [added: 35,418] | | |

| Accrued expenses and other current liabilities | | | [removed: 2,648] [added: 3,755] | | | | | | [removed: 2,087] [added: 2,648] | | |

| Income taxes payable | | | [removed: 129] [added: 236] | | | | | | [removed: 73] [added: 129] | | |

| Total current liabilities | | | [removed: 38,447] [added: 43,029] | | | | | | [removed: 26,919] [added: 38,447] | | |

| Deferred tax liability and other long-term liabilities | | | [removed: 2,930] [added: 2,998] | | | | | | [removed: 2,520] [added: 2,930] | | |

| Long-term debt | | | [removed: 8,939] [added: 8,049] | | | | | | [removed: 4,965] [added: 8,939] | | |

| Total liabilities | | | [removed: 50,316] [added: 54,076] | | | | | | [removed: 34,404] [added: 50,316] | | |

| [Consolidated Statements of Income](#i09726fea9d9f449582277ae89ab03ce6_103) | | | [62](#i09726fea9d9f449582277ae89ab03ce6_103) | | |

| [Notes to Consolidated Financial Statements](#i09726fea9d9f449582277ae89ab03ce6_115) | | | [67](#i09726fea9d9f449582277ae89ab03ce6_115) | | |

As described in Management’s report on internal control over financial reporting, management has excluded Paidy, Inc. from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded Paidy, Inc. from our audit of internal control over financial reporting.

Paidy, Inc. is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

February 3, 2022

| Change in noncontrolling interest | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (44) | | | | | | (44) | | |

| Balances at December 31, 2021 | | | 1,168 | | | | | | $ | (11,880) | | | | | $ | 17,208 | | | | | $ | (136) | | | | | $ | 16,535 | | | | | $ | — | | | | | $ | 21,727 | |

We have consolidated two VIEs that provide financing for and hold loans receivable of Paidy, Inc. (“Paidy”).

We are the primary beneficiary of the VIEs as we perform the servicing and collection for the loans receivable which are the activities that most significantly impact the VIE's economic performance and we have the obligation to absorb the losses and/or the right to receive the benefits of the VIE that could potentially be significant to these entities.

The financial results of our consolidated VIEs are included in the consolidated financial statements.

The carrying value of the assets and liabilities of our consolidated VIEs is included as short-term investments of $87 million, loans and interest receivable, net of $21 million, and long-term debt of $98 million as of December 31, 2021.

Cash of $87 million, included in short-term investments, is restricted to settle the debt obligations.

PayPal Credit consists of revolving credit products.

In the U.S., PPWC and PPBL products are provided under a program agreement we have with WebBank, an independent chartered financial institution.

WebBank extends credit to merchants for the PPWC and PPBL products and we are able to purchase the related receivables originated by WebBank.

We utilize externally sourced macroeconomic scenario data to supplement our historical information due to the limited period in which our credit product offerings have been in existence.

Our consumer receivables consist of revolving products, which do not have a contractual term, and installment products.

In 2020, the reasonable and supportable forecast period for revolving consumer products was based only on externally sourced data due to the lack of availability of historical data, and in 2021, it was updated to reflect historical loss experience with the portfolio.

This change did not result in a material impact to the reserve.

During the year ended December 31, 2021, an additional $700 million was approved to fund such credit activities.

Customer balances deposited with our partners on a short-term basis in advance of customer transactions and used to fulfill our direct obligation under amounts due to customers are classified as cash and cash equivalents within our customer accounts classification on our consolidated balance sheets.

We earn transaction revenues primarily from fees paid by our customers to receive payments on our platform.

Our transaction revenues are also reduced by certain incentives provided to our customers.

To promote engagement and acquire new users on our platform, we may provide incentives to merchants and consumers in various forms including discounts on fees, rebates, rewards, and coupons.

Evaluating whether an incentive is a payment to a customer requires judgment.

Incentives that are determined to be consideration payable to a customer or paid on behalf of a customer are recognized as a reduction of revenue.

Certain incentives paid to users that are not customers are classified as sales and marketing expense.

Paidy

We completed the acquisition of Paidy in October 2021 by acquiring all outstanding shares for total consideration of approximately $2.7 billion, consisting of approximately $2.6 billion in cash, and approximately $161 million in assumed restricted stock and restricted stock units, subject to vesting conditions.

Paidy is a two-sided payments platform that primarily provides buy now, pay later solutions (installment credit offerings) in Japan.

With the acquisition of Paidy, we intend to expand our capabilities and relevance in Japan.

| Goodwill | | | $ | 1,918 | |

| Short-term and long-term debt | | | (188) | | |

Contractual gross loans and interest receivables acquired were $216 million.

We expect to collect substantially all of these receivables.

The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

In connection with the acquisition, we issued restricted stock and restricted stock units with an approximate grant date fair value of $161 million, which represents post-business combination expense.

The equity granted is a combination of shares issued to certain former Paidy employees subject to a holdback arrangement and assumed Paidy employee grants, which vest over a period of up to approximately four years and are subject to continued employment.

In 2021, we completed four other acquisitions accounted for as business combinations.

| [Consolidated Statements of Comprehensive Income](#i11ff72e598004c6da6b0c9b6b21e6464_109) | | | [61](#i11ff72e598004c6da6b0c9b6b21e6464_109) | | |

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February 4, 2021

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PayPal Holdings, Inc.

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PayPal Holdings, Inc.

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PayPal Holdings, Inc.

PayPal Holdings, Inc.

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

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

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

The terms “we,” “our,” “us,” “the Company,” and “PayPal” mean PayPal Holdings, Inc. and, unless otherwise expressly stated or the context requires, its subsidiaries.

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

Reclassifications

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

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

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

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

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

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

| | | | As Previously Reported (1) | | | | | | Adjustments | | | | | | Reclassified | | |

| Net cash provided by (used in): | | | | | | | | | | | | | | | | | |

| Operating activities(2) | | | $ | 4,561 | | | | | $ | (490) | | | | | $ | 4,071 | |

| Investing activities(3) | | | (5,733) | | | | | | (9) | | | | | | (5,742) | | |

| Financing activities(4) | | | 3,688 | | | | | | 499 | | | | | | 4,187 | | |

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

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

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

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

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

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

| | | | As Previously Reported (1) | | | | | | Adjustments | | | | | | Reclassified | | |