PAYPAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements that involve expectations, plans, or intentions
(such as those relating to future business, future results of operations or
financial condition, new or planned features or services, mergers or
acquisitions, or management strategies). Additionally, our forward-looking
statements include expectations related to anticipated impacts of the outbreak
of the novel coronavirus. These forward-looking statements can be identified by
words such as "may," "will," "would," "should," "could," "expect," "anticipate,"
"believe," "estimate," "intend," "strategy," "future," "opportunity," "plan,"
"project," "forecast," and other similar expressions. These forward-looking
statements involve risks and uncertainties that could cause our actual results
and financial condition to differ materially from those expressed or implied in
our forward-looking statements. Such risks and uncertainties include, among
others, those discussed in "Item 1A. Risk Factors" of this Form 10-K, as well as
in our consolidated financial statements, related notes, and the other
information appearing in this report and our other filings with the Securities
and Exchange Commission ("SEC"). We do not intend, and undertake no obligation
except as required by law, to update any of our forward-looking statements after
the date of this report to reflect actual results or future events or
circumstances. Given these risks and uncertainties, readers are cautioned not to
place undue reliance on such forward-looking statements. You should read the
following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in conjunction with the audited consolidated financial
statements and the related notes that appear in this report. Unless otherwise
expressly stated or the context otherwise requires, references to "we," "our,"
"us," "the Company," and "PayPal" refer to PayPal Holdings, Inc. and its
consolidated subsidiaries.

This Management's Discussion and Analysis of Financial Condition and Results of
Operations focuses on discussion of 2020 results as compared to 2019 results.
For discussion of 2019 results as compared to 2018 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, 2019 filed with
the SEC on February 6, 2020.

BUSINESS ENVIRONMENT

THE COMPANY

We are a leading technology platform and digital payments company that enables
digital and mobile payments on behalf of merchants and consumers worldwide.
PayPal is committed to democratizing financial services to improve the financial
health of individuals and to increase economic opportunity for entrepreneurs and
businesses of all sizes around the world. Our goal is to enable our merchants
and consumers to manage and move their money anywhere in the world, anytime, on
any platform, and using any device when sending payments or getting paid. We
also facilitate person-to-person ("P2P") payments through our PayPal, Venmo, and
Xoom products and services and simplify and personalize shopping experiences for
our consumers through our Honey Platform. Our combined payment solutions,
including our core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and
Hyperwallet products and services, comprise our proprietary Payments Platform.

Regulatory Environment

We operate globally and in a rapidly evolving regulatory environment
characterized by a heightened focus by regulators globally on all aspects of the
payments industry, including countering terrorist financing, anti-money
laundering, privacy, cybersecurity, and consumer protection. The laws and
regulations applicable to us, including those enacted prior to the advent of
digital and mobile payments, are continuing to evolve through legislative and
regulatory action and judicial interpretation. New or changing laws and
regulations, including the changes to their interpretation and implementation,
as well as increased penalties and enforcement actions related to
non-compliance, could have a material adverse impact on our business, results of
operations, and financial condition. We monitor these areas closely and are
focused on designing compliant solutions for our customers.

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Information Security

Information security risks for global payments and technology companies like us
have increased significantly in recent years. Although we have developed systems
and processes designed to protect the data we manage, prevent data loss and
other security incidents, and 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. For additional information regarding our information security risks,
see "Item 1A. Risk Factors-Cyberattacks and security vulnerabilities could
result in serious harm to our reputation, business, and financial condition."

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel
coronavirus ("COVID-19") as a pandemic. The outbreak has resulted in government
authorities and businesses throughout the world implementing numerous measures
intended to contain and limit the spread of COVID-19, including travel
restrictions, border closures, quarantines, shelter-in-place and lock-down
orders, mask and social distancing requirements, and business limitations and
shutdowns. These measures have negatively impacted consumer and business
spending and payments activity generally, and have significantly contributed to
deteriorating macroeconomic conditions and higher unemployment in some
countries, including those in which we have significant operations. The spread
of COVID-19 has caused us to make significant modifications to our business
practices, including enabling most of our workforce to work from home,
establishing strict health and safety protocols for our offices, restricting
physical participation in meetings, events, and conferences, and imposing
restrictions on employee travel. We will continue to actively monitor the
situation and may take further actions that may alter our business practices as
may be required by federal, state, or local authorities or that we determine are
in the best interests of our employees, customers, or business partners.

While the current macroeconomic environment as a result of the COVID-19 pandemic
has adversely impacted general consumer and merchant spending with a more
pronounced impact on travel and events verticals, the spread of COVID-19 has
also accelerated the shift from in-store shopping and traditional in-store
payment methods (e.g. cash) towards e-commerce and digital payments and resulted
in increased customer demand for safer payment and delivery solutions (e.g.
contactless payment methods, buy online and pick up in store) and a significant
increase in online spending in certain verticals that have historically had a
strong in-store presence. On balance, our business has benefited from these
behavioral shifts, including a significant increase in net new active accounts
and payments volume. To the extent that consumer preferences revert to
pre-COVID-19 behaviors as mitigation measures to limit the spread of COVID-19
are lifted or relaxed, our business, financial condition, and results of
operations could be adversely impacted.

The rapidly changing global market and economic conditions as a result of
COVID-19 have impacted, and are expected to continue to impact, our operations
and business. The broader implications of the COVID-19 pandemic on our business,
financial condition, and results of operations remain uncertain. For additional
information on how COVID-19 has impacted and could continue to negatively impact
our business, see below for specific discussion in the respective areas, and
also refer to "Part I, Item 1A, Risk Factors" in this Form 10-K.

BREXIT

The United Kingdom ("U.K.") formally exited the European Union ("EU") and the
European Economic Area ("EEA") on January 31, 2020 (commonly referred to as
"Brexit") with the expiration of a transition period on December 31, 2020.
PayPal (Europe) S.à.r.l. et Cie, SCA ("PayPal (Europe)") operates in the U.K.
within the scope of its passport permissions (as they stood at the end of the
transition period) under the Temporary Permissions Regime pending the grant of
new U.K. authorizations by the U.K. financial regulators. We are currently
unable to determine the longer-term impact that Brexit will have on our
business, which will depend, in part, on the implications of new tariff, trade
and regulatory frameworks that now govern the provision of cross-border goods
and services between the U.K. and the EEA, as well as the financial and
operational consequences of the requirement for PayPal (Europe) to obtain new
U.K. authorizations to operate its business longer-term within the U.K. market.
For additional information on how Brexit could affect our business, see "Item
1A. Risk Factors-Brexit: The United Kingdom's departure from the EU could harm
our business, financial condition, and results of operations."

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Brexit may contribute to instability in financial, stock, and foreign currency
exchange markets, including volatility in the value of the British Pound and
Euro. We have foreign currency exchange exposure management programs designed to
help reduce the impact from foreign currency exchange rate movements. In 2020,
2019, and 2018, net revenues generated from our U.K. operations constituted 11%
of total net revenues. In 2020, 2019, and 2018, net revenues generated from the
EU (excluding the U.K.) constituted less than 20% of total net revenues.
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 loans and interest receivables as of
December 31, 2020 and 2019, respectively, were due from customers in the EU
(excluding the U.K.). 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.

OVERVIEW OF RESULTS OF OPERATIONS

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

                                                          Year Ended December 31,                                Percent Increase/(Decrease)
                                                 2020              2019              2018                          2020                          2019
                                                                        (In millions, except percentages and per share amounts)
Net revenues                                  $ 21,454          $ 17,772          $ 15,451                                       21  %               15  %
Operating expenses                              18,165            15,053            13,257                                       21  %               14  %
Operating income                                 3,289             2,719             2,194                                       21  %               24  %
Operating margin                                    15  %             15  %             14  %                                       **                  **
Other income (expense), net                      1,776               279               182                                      537  %               53  %
Income tax expense                                 863               539               319                                       60  %               69  %
Effective tax rate                                  17  %             18  %             13  %                                       **                  **
Net income                                    $  4,202          $  2,459          $  2,057                                       71  %               20  %
Net income per diluted share                  $   3.54          $   2.07          $   1.71                                       71  %               21

%

Net cash provided by operating activities(1) $ 5,854 $ 4,071

       $  5,480                                       44  %              

(26) %

All amounts in tables are rounded to the nearest million, except as otherwise
noted. As a result, certain amounts may not recalculate using the rounded
amounts provided.
** Not Meaningful
(1) Prior period amounts have been revised to conform to the current period
presentation. Refer to "Note 1-Overview and Summary of Significant Accounting
Policies" to our consolidated financial statements included in this Form 10-K
for additional information.

Net revenues increased $3.7 billion, or 21%, in 2020 as compared to 2019 driven
primarily by growth in total payment volume ("TPV", as defined below under "Net
Revenues") of 31%. Our acquisition of Honey Science Corporation ("Honey")
contributed approximately one percentage point to the growth rate in 2020.

Total operating expenses increased $3.1 billion, or 21%, in 2020 as compared to
2019 due primarily to an increase in transaction expense, and to a lesser
extent, increases in technology and development expenses, sales and marketing
expenses, transaction and credit losses, and general and administrative
expenses. Our acquisitions of Honey and a 70% equity interest in Guofubao
Information Technology Co. (GoPay), Ltd. ("GoPay") collectively contributed
approximately five percentage points to the growth rate in total operating
expenses in 2020.

Operating income increased $570 million, or 21%, in 2020 as compared to 2019 due
to growth in net revenues, partially offset by an increase in operating
expenses. Our operating margin was 15% in both 2020 and 2019. 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.

Net income increased by $1.7 billion, or 71%, in 2020 as compared to 2019 due to
the previously discussed increase in operating income of $570 million and an
increase in other income (expense), net of $1.5 billion, driven primarily by net
gains on strategic investments, partially offset by an increase in income tax
expense of $324 million, driven primarily by tax expense related to gains on
strategic investments.
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IMPACT OF FOREIGN CURRENCY EXCHANGE RATES
We have significant international operations that are denominated in foreign
currencies, primarily the British Pound, Euro, Australian Dollar, and Canadian
Dollar, subjecting us to foreign currency exchange risk which may adversely
impact our financial results. The strengthening or weakening of the U.S. dollar
versus the British Pound, Euro, Australian Dollar, and Canadian Dollar, as well
as other currencies in which we conduct our international operations, impacts
the translation of our net revenues and expenses generated in these foreign
currencies into the U.S. dollar. In 2020, 2019, and 2018, we generated
approximately 49%, 47%, and 46% of our net revenues from customers domiciled
outside of the United States, respectively. Because we generate substantial net
revenues internationally, we are subject to the risks of doing business outside
of the U.S., including those discussed under "Item 1A. Risk Factors."
We calculate the year-over-year impact of foreign currency exchange movements on
our business using prior period foreign currency exchange rates applied to
current period transactional currency amounts. While changes in foreign currency
exchange rates affect our reported results, we have a foreign currency exchange
exposure management program in which we designate certain foreign currency
exchange contracts as cash flow hedges intended to reduce the impact on earnings
from foreign currency exchange rate movements. Gains and losses from these
foreign currency exchange contracts are recognized as a component of transaction
revenues in the same period the forecasted transactions impact earnings.

In the years ended December 31, 2020 and 2019, the year-over-year foreign
currency movements relative to the U.S. dollar had the following impact on our
reported results:
                                                                         Year Ended December 31,
                                                                         2020                2019
                                                                           

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

$        66          $    (316)
Hedging impact                                                               20                238
Favorable (unfavorable) impact to net revenues                               86                (78)
Favorable impact to operating expense                                         4                158
Net favorable impact to operating income                            $       

90 $ 80

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

We also used a foreign currency exchange contract, designated as a net
investment hedge, to reduce the foreign currency exchange risk related to our
investment in a foreign subsidiary. Gains and losses associated with this
instrument will remain in accumulated other comprehensive income until the
foreign subsidiary is sold or substantially liquidated.
Additionally, in connection with our services that are paid for in multiple
currencies, we generally set our foreign currency exchange rates daily and may
face financial exposure if we incorrectly set our foreign currency exchange
rates or as a result of fluctuations in foreign currency exchange rates between
the times that we set our foreign currency exchange rates. Given that we also
have foreign currency exchange risk on our assets and liabilities denominated in
currencies other than the functional currency of our subsidiaries, we have an
additional foreign currency exchange exposure management program in which we use
foreign currency exchange contracts to offset the impact of foreign currency
exchange rate movements on our assets and liabilities. The foreign currency
exchange gains and losses on our assets and liabilities are recorded in other
income (expense), net, and are offset by the gains and losses on the foreign
currency exchange contracts. These foreign currency exchange contracts reduce,
but do not entirely eliminate, the impact of foreign currency exchange rate
movements on our assets and liabilities.
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FINANCIAL RESULTS

NET REVENUES

Our revenues are classified into the following two categories:

•Transaction revenues: Net fees charged to merchants and consumers on a
transaction basis primarily based on the TPV completed on our Payments Platform.
Growth in TPV is directly impacted by the number of payment transactions that we
enable on our Payments Platform. We earn additional fees on transactions where
we perform currency conversion, when we enable cross-border transactions (i.e.,
transactions where the merchant and consumer are in different countries), to
facilitate the instant transfer of funds for our customers from their PayPal or
Venmo account to their debit card or bank account, and other miscellaneous fees.

•Revenues from other value added services: Net revenues derived primarily from
revenue earned through partnerships, referral fees, subscription fees, gateway
fees, and other services we provide to our merchants and consumers. We also earn
revenues from interest and fees earned primarily on our portfolio of loans
receivable, and interest earned on certain assets underlying customer balances.

Our revenues can be significantly impacted by the following:

•The mix of merchants, products, and services; •The mix between domestic and cross-border transactions; •The geographic region or country in which a transaction occurs; and •The amount of our loans receivable outstanding with merchants and consumers.

Active accounts, number of payment transactions, number of payment transactions
per active account, and TPV are key non-financial performance metrics ("key
metrics") that management uses to measure the performance of our business, and
are defined as follows:

•An active account is an account registered directly with PayPal or a platform
access partner that has completed a transaction on our Payments Platform or
through our Honey 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 Payments Platform through such third party's
login credentials. The number of active accounts provides management with
additional perspective on the growth of accounts across our Payments and Honey
Platforms as well as the overall scale of our platforms.

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

•Number of payment transactions per active account reflects the total number of
payment transactions within the previous 12-month period, divided by active
accounts at the end of the period. The number of payment transactions per active
account provides management with insight into the number of times a customer is
engaged in payments activity on our Payments Platform in a given period.

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

As our transaction revenue is typically correlated with TPV growth and the
number of payment transactions completed on our Payments Platform, management
uses these metrics to gain insights into the scale and strength of our Payments
Platform, the engagement level of our customers, and underlying activity and
trends which are indicators of current and future performance. We present these
key metrics to enhance investors' evaluation of the performance of our business
and operating results.

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Net Revenue Analysis
The components of our net revenue for the years ended December 31, 2020, 2019
and 2018 were as follows (in millions):
                    [[Image Removed: pypl-20201231_g5.jpg]]
Transaction revenues
Transaction revenues increased by $3.8 billion, or 24%, in 2020 compared to 2019
and were mainly attributable to our core PayPal products and services due
primarily to strong growth in TPV and the number of payment transactions, both
of which resulted primarily from an increase in our active accounts, and to a
lesser extent, an increase in revenue from currency conversion fees.

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.
The graphs below present the respective key metrics (in millions) for the years
ended December 31, 2020, 2019, and 2018:
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*Reflects active accounts at the end of the applicable period. Active accounts
as of December 31, 2020 includes 10.2 million active accounts contributed by
Honey on the date of acquisition in January 2020.
The following table provides a summary of related metrics:
                                                                                                                         Percent Increase/
                                                                Year Ended December 31,                                     (Decrease)
                                                     2020                2019                2018                     2020                    2019

Payment transactions per active account                40.9                40.6                36.9                             1  %             10  %

Percent of cross-border TPV                              17  %               18  %               19  %                           **                **


** Not meaningful

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Transaction revenues grew more slowly than TPV, which grew 31%, and the number
of payment transactions, which grew 25%, in 2020 compared to 2019 due primarily
to a higher proportion of P2P transactions (primarily from our Venmo products)
from which we earn lower fees, a decline in hedging gains, and a higher portion
of TPV generated by platform partners and large merchants who generally pay
lower rates with higher transaction volumes. Changes in prices charged to our
customers did not significantly impact transaction revenue growth in 2020.

Revenues from other value added services

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.

In response to the COVID-19 pandemic, we have taken both proactive and reactive
measures to support our merchants and consumers that have loans and interest
receivables due to us under our credit product offerings. These measures were
intended to reduce financial difficulties experienced by our customers and
included providing payment holidays to grant payment deferrals to certain
borrowers for varying periods of time, and amended payment terms through loan
modifications in certain cases. These measures have adversely impacted and are
expected to continue to adversely impact the recognition of interest and fee
income in future periods. Given the uncertainty surrounding the COVID-19
pandemic, including its duration and severity and the ultimate impact it may
have on the financial condition of our merchants and consumers, the extent of
these types of actions and their prospective impact on our interest and fee
income is not determinable. In addition, consumers that have outstanding loans
and interest receivable due to Synchrony may experience similar hardships that
result in increased losses recognized by Synchrony, which may result in a
decrease in our revenue share earned from Synchrony in future periods. In the
event the overall return on the PayPal branded credit programs funded by
Synchrony does not meet a minimum rate of return ("minimum return threshold") in
a particular quarter, our revenue share for that period would be zero. Further,
in the event the overall return on the PayPal branded credit programs managed by
Synchrony does not meet the minimum return threshold as measured over four
consecutive quarters and in the following quarter, we would be required to make
a payment to Synchrony, subject to certain limitations. Through December 31,
2020, the overall return on the PayPal branded credit programs funded by
Synchrony exceeded the minimum return threshold.

OPERATING EXPENSES
The following table summarizes our operating expenses and related metrics we use
to assess the trends in each:
                                                                                                                     Percent Increase/
                                                               Year Ended December 31,                                   (Decrease)
                                                      2020              2019              2018                    2020                     2019
                                                                                  (In millions, except percentages)
Transaction expense                                $  7,934          $  6,790          $  5,581                            17  %              22  %
Transaction and credit losses                         1,741             1,380             1,274                            26  %               8  %
Customer support and operations                       1,778             1,615             1,407                            10  %              15  %
Sales and marketing                                   1,861             1,401             1,314                            33  %               7  %
Technology and development                            2,642             2,085             1,831                            27  %              14  %
General and administrative                            2,070             1,711             1,541                            21  %              11  %
Restructuring and other charges                         139                71               309                            96  %             (77) %
Total operating expenses                           $ 18,165          $ 15,053          $ 13,257                            21  %              14  %
Transaction expense rate(1)                            0.85  %           0.95  %           0.96  %                            **                 **
Transaction and credit loss rate(2)                    0.19  %           0.19  %           0.22  %                            **                 **


(1) Transaction expense rate is calculated by dividing transaction expense by
TPV.
(2) Transaction and credit loss rate is calculated by dividing transaction and
credit losses by TPV.
** Not meaningful.
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Transaction expense

Transaction expense is primarily composed of the costs we incur to accept a
customer's funding source of payment. These costs include fees paid to payment
processors and other financial institutions to draw funds from a customer's
credit or debit card, bank account, or other funding source they have stored in
their digital wallet. Transaction expense also includes fees paid to
disbursement partners to enable a transaction. We refer to the allocation of
funding sources used by our consumers as our "funding mix." The cost of funding
a transaction with a credit or debit card is generally higher than the cost of
funding a transaction from a bank or through internal sources such as a PayPal
or Venmo account balance or PayPal Credit. As we expand the availability and
presentation of alternative funding sources to our customers, our funding mix
may change, which could increase or decrease our transaction expense rate. The
cost of funding a transaction is also impacted by the geographic region or
country in which a transaction occurs because we generally pay lower rates for
transactions funded with credit cards outside the U.S. than in the U.S. Our
transaction expense rate is impacted by changes in product mix, merchant mix,
regional mix, funding mix, and assessments charged by payment processors and
other financial institutions when we draw funds from a customer's credit or
debit card, bank account, or other funding sources. Macroeconomic environment
changes may also result in behavioral shifts in consumer spending patterns
affecting the type of funding source they use, which also impacts the funding
mix.

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Transaction expense increased by $1.1 billion, or 17%, in 2020 compared to 2019
and was primarily attributable to an increase in TPV of 31%. 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 2% of TPV was funded with PayPal Credit. 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

Transaction losses include the expense associated with our buyer and seller
protection programs, fraud, and chargebacks. Credit losses include the losses
associated with our merchant and consumer loans receivable portfolio. Beginning
in 2020, these losses are based on current expected credit losses. Our
transaction and credit losses fluctuate depending on many factors, including
TPV, current and projected macroeconomic conditions including unemployment
rates, merchant insolvency events, changes to and usage of our customer
protection programs, the impact of regulatory changes, and the credit quality of
loans receivable arising from transactions funded with our credit products for
consumers and loans and advances to merchants.
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The components of our transaction and credit losses (in millions) for the years
ended December 31, 2020, 2019, and 2018 were as follows:
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Transaction and credit losses increased by $361 million, or 26%, in 2020 compared to 2019.

Transaction loss rate (transaction losses divided by TPV) was 0.12%, 0.15%, and 0.18% for the years ended December 31, 2020, 2019, and 2018, respectively.

Transaction losses increased by $43 million, or 4%, in 2020 compared to 2019 due
to growth in TPV, partially offset by benefits realized through improvements in
risk management capabilities, which also contributed to a decrease in our
transaction loss rate over the same period. The duration and severity of the
impacts of the COVID-19 pandemic remain unknown. The negative impact on
macroeconomic conditions could increase the risk of merchant bankruptcy,
insolvency, business failure, or other business interruption, which may
adversely impact our transaction losses, particularly for merchants that sell
goods or services in advance of the date of their delivery or use.

Credit losses increased by $318 million, or 110%, in 2020 compared to 2019 due
primarily to an increase in provisions for our loans and interest receivable
associated with changes in current and projected macroeconomic conditions,
including qualitative adjustments to account for the impact of limitations in
our expected credit loss models that have arisen due to the extreme fluctuations
in both the actual and projected macroeconomic conditions during the period as
well as to incorporate varying degrees of merchant performance in the current
environment and expected performance in future periods. 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. The year-over-year
increase of 64% in 2020 compared to 2019 was due to growth of PayPal Credit in
international markets and, to a lesser extent, growth of our installment credit
products in the U.S. and international markets. Approximately 77% and 94% of our
consumer loans receivables outstanding as of December 31, 2020 and 2019,
respectively, were due from consumers in the U.K.

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

December 31,

                                                                          2020                      2019

Percent of consumer loans and interest receivables current (1),(2)

                                                                         97.9  %                96.7  %

Percent of consumer loans and interest receivables > 90 days outstanding (1), (2), (3)

     0.9  %                 1.5  %
Net charge off rate(4)                                                           2.4  %                 4.1  %


(1) Prior period revised to conform to the current period presentation.
(2) Includes the impact of payment holidays provided by the Company as a part of
our COVID-19 payment relief initiatives.
(3) Represents percentage of balances which are 90 days past the billing date to
the consumer.
(4) Net charge off rate is the annual ratio of net credit losses, excluding
fraud losses, on consumer loans receivables as a percentage of the average daily
amount of consumer loans and interest receivables balance during the period.

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.

We offer access to credit products for certain small and medium-sized merchants,
which we refer to as our merchant lending offerings. Total merchant loans,
advances, and interest and fees receivable outstanding, net of participation
interest sold, as of December 31, 2020 and 2019 were $1.4 billion and $2.8
billion, respectively. The year-over-year decrease of 51% in 2020 compared to
2019 was due primarily to a reduction in originations due to modifications in
our acceptable risk parameters as well as a shift towards merchants borrowing
through the U.S. Government's Paycheck Protection Program ("PPP") administered
by the U.S. Small Business Administration ("SBA") and enacted in March 2020
under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in
response to the COVID-19 pandemic. We do not own the receivables associated with
loans originated through the PPP. Approximately 81% and 10% of our merchant
receivables outstanding as of December 31, 2020 were due from merchants in the
U.S. and U.K., as compared to 83% and 10% as of December 31, 2019, respectively.

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

December 31,

                                                                          2020                      2019

Percent of merchant receivables within original expected or contractual repayment period

                                                    75.4  %                89.6  %

Percent of merchant receivables > 90 days outstanding after the end of original expected or contractual repayment period (1)

                    12.5  %                 4.2  %
Net charge off rate (2)                                                         18.9  %                 7.4  %


(1) Includes the impact of payment holidays and modification programs provided
by the Company as a part of our COVID-19 payment relief initiatives.
(2) Net charge off rate is the annual ratio of net credit losses, excluding
fraud losses, on merchant loans and advances as a percentage of the average
daily amount of merchant loans, advances, and interest and fees balance during
the period.

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. Beginning in the third quarter of 2020, we have granted certain
merchants loan modifications intended to provide them with financial relief and
to help enable us to mitigate losses. The associated loans and interest
receivables have been treated as troubled debt restructurings due to significant
changes in their structure, including repayment terms and fee/rate structure.
For additional information, see "Note 11-Loans and Interest Receivable" in the
notes to our consolidated financial statements included in this Form 10-K.

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During the year ended December 31, 2020, modifications to the acceptable risk
parameters of our credit products in response to the impacts of the COVID-19
pandemic resulted in the implementation of a number of risk mitigation
strategies, including reduction of maximum loan size, tightening eligibility
terms, and a shift from automated to manual underwriting of loans and advances.
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. While the impact of COVID-19 on the
economic environment remains uncertain, the longer and more severe the pandemic,
the more likely it is to have a material adverse impact on our borrowing base,
which is primarily comprised of small and medium-sized merchants. For additional
information, see "Note 11-Loans and Interest Receivable" in the notes to the
consolidated financial statements, and "Item 1A. Risk Factors-Our credit
products expose us to additional risks." included in this Form 10-K.

Customer support and operations

Customer support and operations includes (a) costs incurred in our global
customer operations centers, including costs to provide call support to our
customers, (b) costs to support our trust and security programs protecting our
merchants and consumers, and (c) other costs incurred related to the delivery of
our products, including payment devices, card production, and customer
onboarding and compliance costs.
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Customer support and operations costs increased $163 million, or 10%, in 2020
compared to 2019. The increase in 2020 was primarily attributable to an increase
in employee-related expenses and contractors and consulting costs mainly in our
operations function that support the growth of our active accounts and payment
transactions, as well as customer onboarding and compliance costs.

Sales and marketing

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

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Sales and marketing expenses increased $460 million, or 33%, in 2020 compared to
2019 due primarily to higher spend on marketing programs and employee-related
expenses. Our acquisitions of Honey and GoPay collectively contributed
approximately 20 percentage points to the growth rate of sales and marketing
expenses in 2020.

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Technology and development

Technology and development includes (a) costs incurred in connection with the
development of our Payments Platform, new products, and the improvement of our
existing products, including the amortization of software and website
development costs incurred in developing our Payments Platform, which are
capitalized, and acquired developed technology, and (b) our site operations and
other infrastructure costs incurred to support our Payments Platform.
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Technology and development expenses increased $557 million, or 27%, in 2020
compared to 2019 due primarily to increases in employee-related expenses,
amortization of acquired intangibles, data center and cloud computing services
utilized in delivering our products, and costs related to contractors and
consultants. 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
General and administrative includes costs incurred to provide support to our
business, including legal, human resources, finance, risk, compliance,
executive, and other support operations.
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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.

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Restructuring and other charges

Restructuring and other charges primarily consist of restructuring expenses and,
in 2018, cost adjustments related to our loans and receivables, held for sale
portfolio.
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Restructuring and other charges increased by $68 million in 2020 compared to 2019.

During the first quarter of 2020, management approved a strategic reduction of
the existing global workforce, which resulted in restructuring charges of $109
million. The approved strategic reduction in 2020 is part of a multiphase
process to reorganize our workforce concurrently with the redesign of our
operating structure, which spanned multiple quarters. We primarily incurred
employee severance and benefits costs, as well as other associated consulting
costs under the 2020 strategic reduction. We 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.

Additionally, in 2020, we incurred asset impairment charges of $30 million due to the write-off of certain right-of-use lease assets and related leasehold improvements in conjunction with exiting certain leased properties.

In the first quarter of 2019, management approved strategic reductions of the
existing global workforce, which resulted in restructuring charges of $78
million. The approved strategic reductions for 2019 were intended to better
align our teams to support key business priorities and included the transfer of
certain operational functions between geographies, as well as the impact of the
transition of servicing activities provided to Synchrony, which ended in the
second quarter of 2019. We primarily incurred employee and severance benefits
expenses under the 2019 strategic reductions, which were substantially completed
by the end of the first quarter of 2020.

For information on the associated restructuring liability, see "Note 17-Restructuring and Other Charges" in the notes to the consolidated financial statements included in this Form 10-K.

Other income (expense), net

Other income (expense), net increased $1.5 billion, or 537%, in 2020 compared to
2019 primarily driven by net gains on strategic investments of $1.7 billion due
primarily to favorable changes in fair value related to our marketable equity
securities. This increase was partially offset by a decline in interest income
driven by lower interest rates as well as incremental interest expense
associated with our fixed rate notes issued in the third quarter of 2019 and
second quarter of 2020.

Income tax expense

Our effective tax rate was 17% in 2020 and 18% in 2019. The decrease in our
effective tax rate in 2020 was primarily the result of favorable discrete tax
adjustments, partially offset by taxes associated with gains on strategic
investments. See "Note 16-Income Taxes" to the consolidated financial statements
included in this Form 10-K for more information on our effective tax rate.

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LIQUIDITY AND CAPITAL RESOURCES

We require liquidity and access to capital to fund our global operations,
including customer protection programs, our credit products, capital
expenditures, investments in our business, potential acquisitions and strategic
investments, working capital, and other cash needs. The following table
summarizes our cash, cash equivalents, and investments as of December 31, 2020
and 2019:
                                                         Year Ended December 31,
                                                            2020                2019
                                                              (In millions)
   Cash, cash equivalents, and investments(1)(2)   $      15,852

$ 11,722

(1) Excludes assets related to funds receivable and customer accounts of $33.4 billion and $22.5 billion as of December 31, 2020 and 2019, respectively. (2) Excludes total restricted cash of $88 million and $64 million at December 31, 2020 and 2019, respectively, and strategic investments of $3.2 billion and $1.8 billion as of December 31, 2020 and 2019, respectively.

Foreign Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and investments held by our foreign subsidiaries were
$7.0 billion at December 31, 2020 and $7.2 billion at December 31, 2019, or 44%
and 61% of our total cash, cash equivalents, and investments as of those
respective dates. At December 31, 2020, all of our cash, cash equivalents, and
investments held by foreign subsidiaries were subject to U.S. taxation under
Subpart F, Global Intangible Low Taxed Income ("GILTI"), or the one-time
transition tax. Subsequent repatriations to the U.S. will not be taxable from a
U.S. federal tax perspective, but may be subject to state or foreign withholding
tax. A significant aspect of our global cash management activities involves
meeting our customers' requirements to access their cash while simultaneously
meeting our regulatory financial ratio commitments in various jurisdictions. Our
global cash balances are required not only to provide operational liquidity to
our businesses, but also to support our global regulatory requirements across
our regulated subsidiaries. As such, not all of our cash is available for
general corporate purposes.

Available Credit and Debt

In May 2020 and September 2019, we issued fixed rate notes with varying maturity
dates for an aggregate principal amount of $9.0 billion (collectively referred
to as the "Notes"). Proceeds from the issuance of these Notes may be used for
general corporate purposes, which may include funding the repayment or
redemption of outstanding debt, share repurchases, ongoing operations, capital
expenditures, and possible acquisitions of businesses, assets, or strategic
investments. As of December 31, 2020, we had $9.0 billion in fixed rate debt
outstanding with varying maturity dates.

In September 2019, we entered into a credit agreement (the "Credit Agreement")
that provides for an unsecured $5.0 billion, five-year revolving credit facility
that includes a $150 million letter of credit sub-facility and a $500 million
swingline sub-facility, with available borrowings under the revolving credit
facility reduced by the amount of any letters of credit and swingline borrowings
outstanding from time to time. In March 2020, we drew down $3.0 billion under
the Credit Agreement. In May 2020, we repaid the $3.0 billion using proceeds
from the May 2020 debt issuance. As of December 31, 2020, no borrowings were
outstanding under the Credit Agreement and as such, $5.0 billion of borrowing
capacity was available for the purposes permitted by the Credit Agreement,
subject to customary conditions to borrowing. Additionally, in September 2019,
we entered into a 364-day credit agreement that provided for an unsecured $1.0
billion 364-day revolving credit facility, which terminated in September 2020.

We maintain an uncommitted credit facility with a borrowing capacity of
approximately $30 million, where we can withdraw and utilize the funds at our
discretion for general corporate purposes. As of December 31, 2020, the majority
of the borrowing capacity under this credit facility was available, subject to
customary conditions to borrowing.

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

We have a cash pooling arrangement with a financial institution for cash
management purposes. The arrangement allows for cash withdrawals from the
financial institution based upon our aggregate operating cash balances held
within the financial institution ("Aggregate Cash Deposits"). The arrangement
also allows us to withdraw amounts exceeding the Aggregate Cash Deposits up to
an agreed-upon limit. The net balance of the withdrawals and the Aggregate Cash
Deposits are used by the financial institution as a basis for calculating our
net interest expense or income under the arrangement. As of December 31, 2020,
we had a total of $3.9 billion in cash withdrawals offsetting our $3.9 billion
in Aggregate Cash Deposits held within the financial institution under the cash
pooling arrangement.

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Liquidity for Loans Receivable

Growth in our portfolio of loan receivables increases our liquidity needs, and
any inability to meet those liquidity needs could adversely affect our business.
We continue to evaluate partnerships and third party sources of funding for our
loans receivable portfolio. In June 2018, the Luxembourg Commission de
Surveillance du Secteur Financier (the "CSSF") agreed that PayPal's management
may designate up to 35% of European customer balances held in our Luxembourg
banking subsidiary to be used for European and U.S. credit activities. As of
December 31, 2020, the cumulative amount approved by management to be designated
for credit activities aggregated to $2.0 billion and represented approximately
21% of European customer balances potentially available for our corporate use at
that date as determined by applying financial regulations maintained by the
CSSF. We may periodically seek to designate additional amounts of customer
balances, if necessary, based on utilization of the approved funds and
anticipated credit funding requirements. Our objective is to expand the
availability of our credit products with capital from external sources, although
there can be no assurance that we will be successful in achieving that goal.
Under certain exceptional circumstances, corporate liquidity could be called
upon to meet our obligations related to our European customer balances.

In April 2020, PayPal was approved to participate in the PPP administered by the
SBA. The program was designed to provide a direct incentive for small businesses
to keep their workers on payroll during the COVID-19 pandemic and includes
initial loan repayment deferrals and debt forgiveness provisions for eligible
borrowers. Loans made under this program are funded by an independent chartered
financial institution that we partner with, and the related receivables are not
purchased by PayPal. We receive a fee for providing origination services and
loan servicing for the loans and retain operational risk related to those
activities.

Credit Ratings

As of December 31, 2020, we continue to be rated investment grade by Standard
and Poor's Financial Services, LLC, Fitch Ratings, Inc., and Moody's Investors
Services Inc. We expect that these credit rating agencies will continue to
monitor our performance, including our capital structure and results of
operations. Our goal is to be rated investment grade, but as circumstances
change, there are factors that could result in our credit ratings being
downgraded or put on a watch list for possible downgrading. If that were to
occur, it could increase our borrowing rates, including the interest rate on
borrowings under our credit agreement.

Risk of Loss

The risk of losses from our buyer and seller protection programs are specific to
individual customers, merchants, and transactions, and may also be impacted by
regional variations in, and changes or modifications to, the programs, including
as a result of changes in regulatory requirements. For the periods presented in
these consolidated financial statements included in this report, our transaction
loss rates ranged between 0.12% and 0.18% of TPV. Historical loss rates may not
be indicative of future results. The duration and severity of the impacts of the
COVID-19 pandemic remain unknown. Its negative impact on macroeconomic
conditions could increase the risk of merchant bankruptcy, insolvency, business
failure, or other business interruption, which may result in an adverse impact
on our transaction losses, particularly for merchants that sell goods or
services in advance of the date of their delivery or use.

Stock Repurchases and Acquisitions

During the year ended December 31, 2020, we repurchased approximately $1.6
billion of our common stock in the open market under our stock repurchase
programs authorized in April 2017 and July 2018. The July 2018 stock repurchase
program became effective during the first quarter of 2020 upon completion of the
April 2017 stock repurchase program. As of December 31, 2020, a total of
approximately $8.4 billion remained available for future repurchases of our
common stock under our July 2018 stock repurchase program. For additional
information, see "Note 14-Stock Repurchase Programs" to our consolidated
financial statements included in this Form 10-K.

In January 2020, we completed our acquisition of Honey for approximately $3.6
billion in cash and approximately $400 million in assumed restricted stock,
restricted stock units, and options, subject to vesting conditions. We believe
our acquisition of Honey will enhance our value proposition by allowing us to
further simplify and personalize shopping experiences for consumers while
driving conversion and increasing consumer engagement and sales for merchants.
For additional information, see "Note 4-Business Combinations" in the notes to
the consolidated financial statements included in this Form 10-K.

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Other Considerations

In the second quarter of 2020, we announced our commitment to invest $530
million to support racial equality. The investments will include: charitable
contributions, grants to small businesses, internal investments to support and
strengthen diversity and inclusion initiatives, and an economic opportunity
fund, which will include bolstering our relationships with community banks and
credit unions serving underrepresented minority communities, as well as
investing directly into black- and minority-led startups and minority-focused
investment funds.

Our liquidity, access to capital, and borrowing costs could be adversely
impacted by declines in our credit rating, our financial performance, and global
credit market conditions, as well as a broad range of other factors, including
those related to the COVID-19 pandemic discussed in this Form 10-K. In addition,
our liquidity, access to capital, and borrowing costs could also be negatively
impacted by the outcome of any of the legal or regulatory proceedings to which
we are a party. See "Item 1A. Risk Factors" and "Note 13-Commitments and
Contingencies" to our consolidated financial statements included in this Form
10-K for additional discussion of these and other risks that our business faces.

We believe that our existing cash, cash equivalents, and investments, cash
expected to be generated from operations, and our expected access to capital
markets, together with potential external funding through third party sources,
will be sufficient to fund our operating activities, anticipated capital
expenditures, and our credit products for the foreseeable future. Depending on
market conditions, we may from time to time issue debt, including in private or
public offerings, to fund our operating activities, finance acquisitions, make
strategic investments, repurchase shares under our stock repurchase program, or
reduce our cost of capital.

CASH FLOWS

The following table summarizes our consolidated statements of cash flows:

                                                                          Year Ended December 31,
                                                                2020                2019               2018
                                                                               (In millions)
Net cash provided by (used in):
Operating activities(1)                                     $    5,854          $   4,071          $   5,480
Investing activities(1)                                        (16,218)            (5,742)               821
Financing activities(1)                                         12,492              4,187             (1,240)

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

                                                    169                 (6)              (113)

Net increase in cash, cash equivalents, and restricted cash $ 2,297

$ 2,510 $ 4,948

(1) Prior period amounts have been revised to conform to the current period
presentation. Refer to "Note 1-Overview and Summary of Significant Accounting
Policies" to our consolidated financial statements included in this Form 10-K
for additional information.

Operating Activities

Cash flows from operating activities includes net income adjusted for certain
non-cash expenses, timing differences between expenses recognized for provision
for transaction and credit losses and actual cash transaction losses incurred,
and changes in other assets and liabilities. Significant non-cash expenses for
the period include depreciation and amortization and stock-based compensation.
The cash impact from actual transaction losses incurred during a period is
reflected as a negative impact to changes in other assets and liabilities in
cash from operating activities. The expenses recognized during the period for
provision for credit losses are estimates of current expected credit losses on
our merchant and consumer credit products. Actual charge-offs of receivables
related to our merchants and consumer credit products have no impact on cash
from operating activities.

We generated cash from operating activities of $5.9 billion in 2020 due
primarily to operating income of $3.3 billion, as well as adjustments for
non-cash expenses including: provision for transaction and credit losses of $1.7
billion, stock-based compensation of $1.4 billion, and depreciation and
amortization of $1.2 billion. Net income was also adjusted for net gains on our
strategic investments of $1.9 billion in 2020, and changes in other assets and
liabilities primarily related to actual cash transaction losses incurred during
the period of $1.1 billion and an increase in other assets of $498 million,
partially offset by an increase in other liabilities of $1.0 billion.

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We generated cash from operating activities of $4.1 billion in 2019 due
primarily to operating income of $2.7 billion. During 2019, adjustments for
non-cash expenses included provision for transaction and credit losses of $1.4
billion, stock-based compensation of $1.0 billion, and depreciation and
amortization of $912 million, partially offset by adjustments related to
deferred income taxes of $269 million and net unrealized gains on our strategic
investments of $208 million. The cash generated from operating activities was
negatively impacted by changes in other assets and liabilities primarily related
to actual cash transaction losses incurred during the period of $1.1 billion, an
increase in other assets of $566 million and accounts receivable of $120
million, partially offset by an increase in other liabilities of $722 million.

We generated cash from operating activities of $5.5 billion in 2018 due
primarily to operating income of $2.2 billion and the positive impact of $1.4
billion of changes in loans and interest receivable, held for sale, net
following the sale of our U.S. consumer credit receivables portfolio. During
2018, adjustments for non-cash expenses included provision for transaction and
credit losses of $1.3 billion, stock-based compensation of $853 million,
depreciation and amortization of $776 million, and cost basis adjustments to
loans and interest receivable held for sale of $244 million. The cash generated
from operating activities was also impacted by changes in other assets and
liabilities, primarily related to actual cash transaction losses incurred during
the period of $1.0 billion, partially offset by an increase in other liabilities
of $428 million.

Cash paid for income taxes, net in 2020, 2019, and 2018 was $565 million, $665 million, and $328 million, respectively.

Investing Activities

Cash flows from investing activities includes purchases, maturities and sales of
investments, cash paid for acquisitions and strategic investments, purchases and
sales of property and equipment, changes in principal loans receivable, and
funds receivable.

The net cash used in investing activities of $16.2 billion in 2020 was due
primarily to purchases of investments of $41.5 billion, acquisitions (net of
cash acquired) of $3.6 billion, changes in funds receivable from customers of
$1.6 billion, and purchases of property and equipment of $866 million. These
cash outflows were partially offset by maturities and sales of investments of
$30.9 billion, changes in principal loans receivable, net of $294 million, and
proceeds from the sale of property and equipment of $120 million.

The net cash used in investing activities of $5.7 billion in 2019 was due
primarily to purchases of investments of $27.9 billion, changes in principal
loans receivable, net of $1.6 billion, purchases of property and equipment of
$704 million, and changes in funds receivable from customers of $351 million.
These cash outflows were partially offset by maturities and sales of investments
of $24.9 billion.

We generated cash from investing activities of $821 million in 2018 due
primarily to maturities and sales of investments of $21.9 billion, changes in
principal loans receivable, net of $3.1 billion, and changes in funds receivable
from customers of $1.1 billion. These cash inflows were offset by purchases of
investments of $22.4 billion, acquisitions of $2.1 billion (net of cash and
restricted cash acquired), and purchases of property and equipment of $823
million.

Financing Activities

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

We generated cash from financing activities of $12.5 billion in 2020 due
primarily to changes in funds payable and amounts due to customers of $10.6
billion and $7.0 billion of cash proceeds from the issuance of long-term debt in
the form of fixed rate notes, as well as proceeds from borrowings under our
Credit Agreement. These cash inflows were partially offset by the repayment of
outstanding borrowings under our Credit Agreement of $3.0 billion, the
repurchase of $1.6 billion of our common stock under our stock repurchase
program, and tax withholdings related to net share settlement of equity awards
of $521 million.

We generated cash from financing activities of $4.2 billion in 2019 due
primarily to $5.5 billion of cash proceeds from the issuance of long-term debt
in the form of fixed rate notes as well as borrowings under a previous credit
agreement, and changes in funds payable and amounts due to customers of $3.0
billion. These cash inflows were partially offset by repayment of borrowings
under a previous credit agreement of $2.5 billion, the repurchase of $1.4
billion of our common stock under our stock repurchase programs, and tax
withholdings related to net share settlement of equity awards of $504 million.

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The net cash used in financing activities of $1.2 billion in 2018 was due
primarily to the repurchase of $3.5 billion of our common stock under our stock
repurchase programs, repayments of borrowing under financing arrangements of
$1.1 billion, and tax withholdings related to net share settlement of equity
awards of $419 million, partially offset by cash inflows from borrowings under
financing arrangements of $2.1 billion and changes in funds payable and amounts
due to customers of $1.6 billion.

Effect of Exchange Rates on Cash, Cash Equivalents, and Restricted Cash

Foreign currency exchange rates had a positive impact of $169 million, a
negative impact of $6 million, and a negative impact of $113 million on cash,
cash equivalents, and restricted cash during 2020, 2019, and 2018, respectively.
The positive impact in 2020 was due to the weakening of the U.S. dollar against
certain foreign currencies, primarily the Australian dollar. The negative impact
in 2018 was due to the strengthening of the U.S. dollar against certain foreign
currencies, primarily the Australian dollar and to a lesser extent, the Euro.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2020 and 2019, we had no off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future material effect on
our consolidated financial condition, results of operations, liquidity, capital
expenditures, or capital resources.

FUTURE LIQUIDITY AND OBLIGATIONS

As of December 31, 2020, approximately $3.0 billion of unused credit was
available to PayPal Credit account holders compared to $3.1 billion of unused
credit as of December 31, 2019. Substantially all of the PayPal Credit account
holders with unused credit are in the U.K. While this amount represents the
total unused credit available, we have not experienced, and do not anticipate,
that all our PayPal Credit account holders will access their entire available
credit at any given point in time. In addition, the individual lines of credit
that make up this unused credit are subject to periodic review and termination
based on, among other things, account usage and customer creditworthiness.

We have certain fixed contractual obligations and commitments that include
future estimated payments for general operating purposes. Changes in our
business needs, contractual cancellation provisions, fluctuating interest rates,
and other factors may result in actual payments differing from the estimates. We
cannot provide certainty regarding the timing and amounts of these payments. The
following table summarizes our obligations as of December 31, 2020 that are
expected to impact liquidity and cash flow in future periods. We believe we will
be able to fund these obligations through our existing cash and investment
portfolio and cash expected to be generated from operations.
                                                                     Purchase             Operating
                                                                    Obligations             Leases            Transition Tax           Long-term Debt             Total
Payments Due During the Year Ending December 31,                                                                (In millions)
2021                                                              $        409          $       171          $          114          $           213          $      907
2022                                                                       239                  140                     114                    1,213               1,706
2023                                                                       129                  126                     212                    1,185               1,652
2024                                                                       134                  116                     284                    1,428               1,962
2025                                                                        60                  100                     354                    1,140               1,654
Thereafter                                                                  52                  277                       -                    5,854               6,183
                                                                  $      1,023          $       930          $        1,078          $        11,033          $   14,064

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

•Purchase obligation amounts include minimum purchase commitments for
advertising, capital expenditures (computer equipment, software applications,
engineering development services, and construction contracts), data center and
cloud computing services, and other goods and services entered into in the
ordinary course of business.

•Operating lease amounts include minimum rental payments under our
non-cancelable operating leases (including leases not yet commenced) primarily
for office and data center facilities. The amounts presented are consistent with
contractual terms and are not expected to differ significantly from actual
results under our existing leases, unless a substantial change in our headcount
needs requires us to expand our occupied space or exit an office facility early.
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•Transition tax represents the one-time mandatory tax on previously deferred foreign earnings under the Tax Cuts and Jobs Act.

•Long-term debt amounts represent the future principal and interest payments (based on contractual interest rates) on our fixed-rate debt. For more information, see "Note 12-Debt" to our consolidated financial statements included in this Form 10-K.

As we are unable to reasonably predict the timing of settlement of liabilities
related to unrecognized tax benefits, net, the table above does not include $1.4
billion of such non-current liabilities included in deferred and other tax
liabilities recorded on our consolidated balance sheet as of December 31, 2020.

SEASONALITY

The Company does not experience meaningful seasonality with respect to net revenues. No individual quarter in 2020, 2019, or 2018 accounted for more than 30% of annual net revenue.

CRITICAL ACCOUNTING POLICES AND ESTIMATES

The application of U.S. GAAP requires us to make estimates and assumptions about
certain items and future events that directly affect our reported financial
condition. We have established detailed policies and control procedures to
provide reasonable assurance that the methods used to make estimates and
assumptions are well controlled and are applied consistently from period to
period. The accounting estimates and assumptions discussed in this section are
those that we consider to be the most critical to our financial statements. An
accounting estimate is considered critical if both (a) the nature of the
estimate or assumption is material due to the levels of subjectivity and
judgment involved, and (b) the impact within a reasonable range of outcomes of
the estimate and assumption is material to our financial condition. Senior
management has discussed the development, selection, and disclosure of these
estimates with the Audit, Risk, and Compliance Committee of our Board of
Directors. Our significant accounting policies, including recent accounting
pronouncements, are described in "Note 1-Overview and Summary of Significant
Accounting Policies" to the consolidated financial statements included in this
Form 10-K.

A quantitative sensitivity analysis is provided where information is available
to reasonably estimate the impact, and provides material information to
investors. The amounts used to assess sensitivity are included to allow users of
this report to understand a general directional cause and effect of changes in
the estimates and do not represent management's predictions of variability. For
all of these estimates, it should be noted that future events rarely develop
exactly as forecasted, and estimates require regular review and adjustment.

TRANSACTION AND CREDIT LOSSES

Transaction and credit losses include the expense associated with our customer
protection programs, fraud, chargebacks, and credit losses associated with our
loans receivable balances. Our transaction and credit losses fluctuate depending
on many factors, including: total TPV, current and projected macroeconomic
conditions, including unemployment rates, merchant insolvency events, changes to
and usage of our customer protection programs, the impact of regulatory changes,
and the credit quality of loans receivable arising from transactions funded with
our credit products, which include our PayPal Credit consumer product and
merchant loans and advances arising from our PayPal Working Capital ("PPWC") and
PayPal Business Loan ("PPBL") products.

We establish allowances for negative customer balances and estimated transaction
losses arising from processing customer transactions, such as chargebacks for
unauthorized credit card use and merchant-related chargebacks due to
non-delivery or unsatisfactory delivery of purchased items, buyer protection
program claims, account takeovers, and Automated Clearing House returns.
Additions to the allowance, in the form of provisions, are reflected in
transaction and credit losses on our consolidated statements of income. The
allowances are based on known facts and circumstances, internal factors
including experience with similar cases, historical trends involving collection
and write-off patterns, and the mix of transaction and loss types, as well as
current and projected macroeconomic factors, as appropriate.

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We also establish an allowance for loans and interest receivable, which
represents our estimate of current expected credit losses inherent in our
portfolio of loans and interest receivable. This evaluation process is subject
to numerous estimates and judgments. The allowance is primarily based on
expectations of credit losses based on historical lifetime loss data as well as
macroeconomic forecasts applied to the portfolio, which is segmented by factors
such as geographic region, delinquency, and vintage. Loss curves are generated
using historical loss data for each loan portfolio and are applied to segments
of each portfolio, categorized by factors such as geographic region, first
borrowing versus reuse, delinquency, credit rating and vintage, which vary by
portfolio. We then apply macroeconomic factors such as forecasted trends in
unemployment and benchmark credit card charge-off rates, which are sourced
externally, using a single scenario that we believe is most appropriate to the
economic conditions applicable to a particular period. 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. Projected loss rates, inclusive of historical loss data and
macroeconomic factors, are applied to the principal amount of our consumer and
merchant receivables. We also include qualitative adjustments that incorporate
incremental information not captured in the quantitative estimates of our
current expected credit losses. Our consumer receivables are primarily revolving
in nature and do not have a contractual term; however, the reasonable and
supportable forecast period we have included in our projected loss rates based
on externally sourced data is approximately seven years. Our merchant
receivables vary in contractual term; however, the reasonable and supportable
forecast period we have considered for projected loss rates is approximately 2.5
to 3.5 years, depending upon the product. The allowance for credit losses on
interest and fees receivable is determined primarily by applying loss curves to
each portfolio by geography, delinquency, and period of origination, among other
factors.

Determining appropriate current expected credit loss allowances for loans and
interest receivable is an inherently uncertain process and ultimate losses may
vary from the current estimates. We regularly update our allowance estimates as
new facts become known and events occur that may impact the settlement or
recovery of losses. The allowances are maintained at a level we deem appropriate
to adequately provide for current expected credit losses at the balance sheet
date after incorporating the impact of externally sourced macroeconomic
forecasts. These forecasts project scenarios such as future unemployment and
benchmark credit card charge-off rates. As of December 31, 2020, we utilized
externally published projections of the U.S. and U.K. forecasted unemployment
rates and credit card charge-off rates over the reasonable and supportable
period, indicating a slight increase in the first half of 2021 followed by a
gradual decline and ultimate stabilization of these rates, resulting in an
overall principal and interest coverage ratio of approximately 23%. The
projected gradual decline in unemployment and credit card charge-off rates is
reflective of a prolonged recovery period where we expect to experience elevated
charge-off rates. A significant change in the forecasted macroeconomic factors
could result in a material change in our allowances. Our allowance as of
December 31, 2020 has been adjusted to account for the proactive and reactive
measures that we have taken that are intended to reduce financial difficulties
experienced by our customers, and other limitations in our expected credit loss
models that have arisen due to the extreme fluctuations in both the actual and
projected macroeconomic conditions during the period. These qualitative
adjustments were also made to incorporate varying degrees of merchant
performance both in the current environment as well as expected future
performance, and to account for payment holidays granted. Our allowance as of
December 31, 2020 has not been adjusted to account for the potential impacts of
the CARES Act, which are also intended to help mitigate the negative impact the
current pandemic may have on the financial condition of our customers. We are
unable to predict the ultimate impact of these actions which may result in
adjustments to our allowance for loans and interest receivable in future
periods. An increase of 1% in the principal and interest coverage ratio would
increase our allowances by approximately $36 million based on the loans and
interest receivable balance outstanding as of December 31, 2020.

ACCOUNTING FOR INCOME TAXES

Our annual tax rate is based on our income, statutory tax rates, and tax
planning opportunities available to us in the various jurisdictions in which we
operate. Tax laws are complex and subject to different interpretations by the
taxpayer and respective government taxing authorities. Significant judgment is
required in determining our tax expense and in evaluating our tax positions,
including evaluating uncertainties. We review our tax positions quarterly and
adjust the balances as new information becomes available. Our income tax rate is
significantly affected by the tax rates that apply to our foreign earnings. In
addition to local country tax laws and regulations, our income tax rate depends
on the extent that our foreign earnings are taxed by the U.S. through provisions
such as the GILTI tax and base erosion anti-abuse tax or as a result of our
indefinite reinvestment assertion. Indefinite reinvestment is determined by
management's judgment about, and intentions concerning, our future operations.

Deferred tax assets represent amounts available to reduce income taxes payable
on taxable income in future years. Such assets arise because of temporary
differences between the financial reporting and tax bases of assets and
liabilities, as well as from net operating loss and tax credit carryforwards. We
evaluate the recoverability of these future tax deductions and credits by
assessing the adequacy of future expected taxable income from all sources,
including reversal of taxable temporary differences, forecasted operating
earnings, and available tax planning strategies. These sources of income rely
heavily on estimates that are based on a number of factors, including our
historical experience and short-range and long-range business forecasts. To the
extent deferred tax assets are not expected to be realized, we record a
valuation allowance.
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We recognize and measure uncertain tax positions in accordance with U.S. GAAP,
pursuant to which we only recognize the tax benefit from an uncertain tax
position if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such
positions are then measured based on the largest benefit that has a greater than
50 percent likelihood of being realized upon ultimate settlement. We report a
liability for unrecognized tax benefits resulting from uncertain tax positions
taken or expected to be taken in a tax return. U.S. GAAP further requires that a
change in judgment related to the expected ultimate resolution of uncertain tax
positions be recognized in earnings in the quarter in which such change occurs.
We recognize interest and penalties, if any, related to unrecognized tax
benefits in income tax expense.

We file annual income tax returns in multiple taxing jurisdictions around the
world. A number of years may elapse before an uncertain tax position is audited
by the relevant tax authorities and finally resolved. While it is often
difficult to predict the final outcome or the timing of resolution of any
particular uncertain tax position, we believe that our reserves for income taxes
are adequate such that we reflect the benefits more likely than not to be
sustained in an examination. We adjust these reserves, as well as the related
interest and penalties, where appropriate in light of changing facts and
circumstances. Settlement of any particular position could require the use of
cash.

Based on our results for the year ended December 31, 2020, a one-percentage point increase in our effective tax rate would have resulted in an increase in our income tax expense of approximately $51 million.

LOSS CONTINGENCIES

We are currently involved in various claims, regulatory and legal proceedings,
and investigations of potential operating violations by regulatory oversight
authorities. We regularly review the status of each significant matter and
assess our potential financial exposure. If the potential loss from any claim,
legal proceeding, or potential regulatory violation is considered probable and
the amount can be reasonably estimated, we accrue a liability for the estimated
loss. Significant judgment is required in both the determination of probability
and whether an exposure is reasonably estimable. Our judgments are subjective
and are based on the status of the legal or regulatory proceedings, the merits
of our defenses, and consultation with in-house and outside legal counsel.
Because of uncertainties related to these matters, accruals are based only on
the best information available at the time. As additional information becomes
available, we reassess the potential liability related to pending claims,
litigation, or other violations and may revise our estimates. Due to the
inherent uncertainties of the legal and regulatory process in the multiple
jurisdictions in which we operate, our judgments may differ materially from the
actual outcomes.

REVENUE RECOGNITION

Application of the accounting principles in U.S. GAAP related to the measurement
and recognition of revenue requires us to make judgments and estimates. Complex
arrangements with nonstandard terms and conditions may require significant
contract interpretation to determine the appropriate accounting. Specifically,
the determination of whether we are a principal to a transaction (gross revenue)
or an agent (net revenue) can require considerable judgment. Further, we provide
incentive payments to consumers and merchants, which require judgment to
determine whether the payments should be recorded as a reduction to gross
revenue. Changes in judgments with respect to these assumptions and estimates
could impact the amount of revenue recognized.

VALUATION OF GOODWILL AND INTANGIBLES

The valuation of assets acquired in a business combination and asset impairment
reviews require the use of significant estimates and assumptions. The
acquisition method of accounting for business combinations requires us to
estimate the fair value of assets acquired, liabilities assumed, and any
noncontrolling interest in an acquired business to properly allocate purchase
price consideration between assets that are depreciated or amortized and
goodwill. Impairment testing for assets, other than goodwill and
indefinite-lived intangible assets, requires the allocation of cash flows to
those assets or group of assets and, if required, an estimate of fair value for
the assets or group of assets. Our estimates are based upon assumptions that we
believe to be reasonable, but which are inherently uncertain and unpredictable.
These valuations require the use of management's assumptions, which do not
reflect unanticipated events and circumstances that may occur.

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We evaluate goodwill and intangible assets for impairment on an annual basis, or
sooner if indicators of impairment exist. Under U.S. GAAP, the evaluation of
indefinite-lived intangible assets for impairment allows for a qualitative
assessment to be performed, which is similar to U.S. GAAP for evaluating
goodwill for impairment. In performing these qualitative assessments, we
consider relevant events and conditions, including but not limited to:
macroeconomic trends, industry and market conditions, overall financial
performance, cost factors, company-specific events, legal and regulatory
factors, and our market capitalization. If the qualitative assessments indicate
that it is more likely than not that the fair value of the reporting unit or
indefinite-lived intangible assets are less than their carrying amounts, we must
perform a quantitative impairment test.

Under the quantitative impairment test, if the carrying amount of the reporting
unit goodwill or indefinite-lived intangible asset exceeds the fair value of the
respective reporting unit goodwill or indefinite-lived intangible asset, an
impairment loss is recorded in the statement of income. Measurement of the fair
value of a reporting unit could be based on one or more of the following fair
value measures: amounts at which the unit as a whole could be bought or sold in
a current transaction between willing parties, present value techniques of
estimated future cash flows, valuation techniques based on multiples of earnings
or revenue, or a similar performance measure.
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