PYPLPayPal

We note your reconciliation of the changes in the allowance for transaction losses and negative customer balances, which you consider to be assurance-type warranties, includes reconciling items "provision," "realized losses," and "recoveries." Please revise your tabular reconciliation to include the reconciling items specified by ASC 460-10-50-8c.

Our protection programs comprise (1) our purchase protection program that protects buyers who did not receive their item from a seller or received the item, but it was not the item they ordered and (2) our seller protection program protecting merchants when buyers claim that the transaction was unauthorized, or they did not receive the item. Our protection program disclosures within Note 13, Commitments and Contingencies, comprise both the allowance for transaction losses and the allowance for negative customer balances.

Rest of the answer

The allowance for transaction losses represents an accumulation of the estimated amounts of probable transaction losses as of the reporting date for losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, purchase protection program claims, and account takeovers. Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for bank returns and reversals, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, which are generally within the scope of our protection programs. Negative customer balances are financing receivables subject to ASC 326-20, Financial Instruments – Credit Losses Measured at Amortized Cost. The allowance for negative customer balances is an estimate of expected credit losses based on historical trends involving collection and write-off patterns, internal factors including our experience with similar cases, other known facts and circumstances, and reasonable and supportable macroeconomic forecasts, as appropriate.

The allowance for transaction losses and the allowance for negative customer balances both relate to our protection programs and are interconnected such that we believe the users of our financial statements benefit from the combined disclosure of these allowances to understand the impact of our protection programs. For example, assume a buyer purchases an item from a seller. PayPal processes the transaction and the item is eligible for purchase protection. We estimate the probable transaction losses from our protection programs in our allowance for transaction losses. If the buyer submits an “Item Not Received” claim and the seller is not protected under our seller protection program as they cannot provide proof of shipment or delivery, PayPal will process a chargeback. Chargebacks often create negative customer balances when the merchant/seller has insufficient funds in their PayPal account to cover the chargeback. Upon a negative customer balance being recognized, the estimated losses are subsequently recognized in our allowance for negative customer balances. Alternatively, if the seller in this example could provide proof of shipment or delivery, they would be protected under the seller protection program and the negative customer balance would not occur.

To illustrate the linkage further, a substantial portion of transaction losses are initially recognized in the allowance for transaction losses and then subsequently recognized in the allowance for negative customer balances. We estimate probable losses related to our protection programs in our allowance for transaction losses and as those losses materialize as negative customer balances, they are recognized in our allowance for negative customer balances. We believe that disclosing the allowances separately would not provide investors with a useful or complete view of our losses related to our protection programs.

Based on the interconnectedness of the allowance for transaction losses and the allowance for negative customer balances and their linkage to our protection programs, we present the reconciliation of the activity in aggregate. Given that the allowance for negative customer balances was $256 million and $218 million at December 31, 2024 and 2023, respectively, and the allowance for transaction losses was not material at $86 million and $64 million at December 31, 2024 and 2023, respectively, we applied the rollforward disclosure guidance within ASC 326-20-50-13 (“CECL rollforward”) as required for the allowance for negative customer balances to the aggregate of both allowances. Disclosure requirements within ASC 460-10-50-8c (“product warranty reconciliation”) are relatively similar to the CECL rollforward guidance. However, the product warranty reconciliation requires a reconciling item that is not required for the CECL rollforward and vice versa. The product warranty reconciliation requires the aggregate changes in the liability for accruals related to preexisting warranties (including adjustments related to changes in estimates) to be separately presented as a reconciling item; however, we present preexisting warranties within our provision reconciling line as discussed further below. The CECL rollforward requires recoveries which are not relevant for the product warranty reconciliation. Apart from those differences in requirements, the reconciling items required for the product warranty reconciliation are similar to those for the CECL rollforward. Accordingly, we present the aggregate changes in the liability for accruals related to product warranties issued during the reporting period within the provision line and aggregate reductions in that liability for payments made under the product warranties in the realized losses line.

We do not believe the adjustment for preexisting warranties is a meaningful reconciling item for our protection programs, and it is not material. Our protection programs have a short duration of 180 days from the transaction date and our account takeover protection, which is our protection provided for unauthorized transactions, has a duration of 60 days from the account statement date. Additionally, the majority of protection program losses relate to chargebacks and occur within 60 days from the transaction date. Changes to our estimate for preexisting warranties would primarily represent the estimate of probable losses that converted to a negative balance in a subsequent reporting period and migrated from the allowance for transaction losses to the allowance for negative customer balances.

To further enhance the usefulness of our disclosure, in future filings we will expand upon the interconnectedness of the allowances and add footnotes to our rollforward disclosure to enhance the description of the reconciling items. Specifically, we plan to add a footnote to the provisions line to explain that the provision includes adjustments for preexisting warranties (including changes in estimates) and a footnote to the recoveries line to explain that recoveries are only relevant for our allowance for negative customer balances, and as such, there are no recoveries related to the allowance for transaction losses. Further, we will update the reconciling line “realized losses” to “realized losses and charge-offs.” A revised disclosure is presented below:

NOTE 13—COMMITMENTS AND CONTINGENCIES

PROTECTION PROGRAMS

In addition to the protections afforded by applicable law, we provide consumers and merchants with protection programs for certain purchase transactions completed on our payments platform. Our protection programs help protect both consumers and merchants from financial loss resulting from, among other things, counterparty non-performance. These programs are designed to promote confidence on the part of both consumers, who will be reimbursed in certain circumstances, such as not receiving their purchased item in the condition significantly as described, as well as merchants, who will receive payment in certain circumstances, such as establishing proof of shipment or delivery of an item to the customer. These protection programs are considered assurance-type warranties under applicable accounting standards for which we estimate associated costs within the allowance for transaction losses. Our protection programs often result in negative customer balances when there are insufficient funds in a customer’s PayPal account to cover charges applied for merchant-related chargebacks within the scope of our protection programs. Negative customer balances can also occur from bank returns and reversals due to insufficient funding sources. The allowance for negative customer balances represents our estimate of current expected credit losses on negative customer balances.

At December 31, 2024 and 2023, the allowance for transaction losses was $86 million and $64 million, respectively. The allowance for negative customer balances was $256 million and $218 million at December 31, 2024 and 2023, respectively. The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the years ended December 31, 2024 and 2023:

As of December 31,

2024 2023

(In millions)

Beginning balance $ 282 $ 278

Provision1

1,114 1,192

Realized losses and charge-offs (1,218) (1,313)

Recoveries2

164 125

Ending balance $ 342 $ 282

1.Changes in estimates for prior period provision related to the allowance for transaction losses are not material and are aggregated with current period provisions.

2.Recoveries are only relevant for the allowance for negative customer balances.

Read in the reply ↗

Regarding your disclosure of total payment volume (TPV) metrics in quarterly earnings presentations, you state in response to prior comment 1 TPV does not directly relate to transaction revenues as TPV includes payment transactions processed on our payments platform that do not earn revenue. However, in MD&A you typically attribute changes in revenues to changes in TPV.

Rest of the question

Please advise or revise your MD&A disclosure accordingly.

We acknowledge the Staff’s comment and provide the following additional details to our response to prior comment 1. In our prior response, we explained that TPV does not directly relate to transaction revenues. We disclose in our MD&A that transaction revenue growth is typically correlated with TPV growth and that management uses TPV to gain insight into the scale and strength of our payments platform, the engagement level of our customers, and underlying activity and trends which may be indicators of current and future performance.

Rest of the answer

Under ASC 606-10-55-90, an entity should consider how information about the entity’s revenue has been presented for other purposes. TPV is used to assess scale and relevance of our payments platform and not to reflect revenue. Given the absence of a direct relationship between TPV and transaction revenues, we do not believe that our presentation of TPV constitutes information about our revenues presented for other purposes.

Although the relationship between TPV and transaction revenues is not always direct and absolute, there is a positive correlation between TPV and transaction revenues. In accordance with Item 303 of SEC Regulation S-K, within MD&A we describe the underlying reasons for material changes in our results of operations in both quantitative and qualitative terms. In periods when the growth in the scale of our platform is determined to be the material driver of transaction revenues for that period, we reference the increase in TPV to explain the qualitative reasons underlying the growth in revenue.

In future MD&A disclosures in our Form 10-Q and 10-K filings, we will clarify that TPV does not always have a direct and absolute relationship with transaction revenues. Please refer to a revised version of relevant disclosure in our Form 10-K for Fiscal Year Ended December 31, 2024 as an example:

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

Read in the reply ↗

We note your response to prior comment 1. Please tell us whether your CODM regularly reviews transaction revenue by product when evaluating the financial performance of your operating/reporting segment. If so, please tell us how you considered ASC 606-10-55-90b. If not, tell us how the CODM makes performance or resource allocation decisions within the segment.

Our Chief Operating Decision Maker (CODM) evaluates performance and allocates resources using consolidated operating results and does not evaluate performance or make decisions on the basis of separate products. Our CODM regularly receives financial information which generally includes consolidated metrics, metrics to track the success of our strategic imperatives (such as TPV and TPV growth, monthly active account (MAA) growth, and monthly debit card users as a percentage of MAAs), and revenue information, TPV, and take rate percentage for our customer businesses (i.e., Consumer Group, Small

Rest of the answer

Business & Financial Services (“SMB”), and Large Enterprise). In our prior response, we explained how business decisions must be evaluated based on their overall contribution to the company’s consolidated results due to the interconnected nature of our customer-focused business units and the interdependency of our products to drive increased customer engagement and facilitate the flywheel effect across our platform. We do not believe that revenue information alone is sufficient for the CODM to make decisions about allocating resources and assessing performance. Revenue information below consolidated totals, which may include product, customer, key initiative or geographic information, are provided to the CODM to explain key drivers and contributions to consolidated revenue fluctuations period over period.

In Q1 2025, at our Investor Day on February 25, 2025, PayPal introduced our strategic imperatives driving focused execution in 2025: win checkout, scale omni, grow Venmo, and accelerate SMB. The strategic initiatives aim to drive durable profitable consolidated growth (i.e., consolidated non-GAAP transaction margin dollars and non-GAAP EPS). Our strategic initiatives are intended to accelerate consolidated profitable growth across our payments platform and across all products, as we operate as a dual-sided network where strategic, interconnected business decisions focus on both sides of the platform and strategies aimed at our consumer business generally impact our merchant business and vice versa.

We have considered ASC 606-10-55-90 when analyzing how information about our revenue has been presented for other purposes, including our CODM’s evaluation of financial performance of our operating segment, when selecting the type of categories to use for revenue disaggregation. The guidance does not require disaggregation of revenue definitively when information about our revenue is presented for other purposes, but rather, that we analyze any revenue information presented for other purposes to determine if those categories are affected differently by economic factors to achieve the objective in ASC 606-10-50-5 for disaggregating revenue.

As noted in our prior response, the nature of each product within transaction revenues is payment processing, and these products broadly share similar characteristics, share substantially the same nature, timing of revenue recognition, uncertainty of future cash flows, and contract structure, and are similarly impacted by economic factors. While we offer a wide range of products on our payments platform to meet the diverse needs of our customers, the nature of each product offering in transaction revenues is transaction processing. We earn transaction revenues primarily from fees paid by our customers to receive payments on our payments platform. In a typical transaction only the merchant (party receiving funds) pays a fee, and the standard payment flow is free for consumers. Accordingly, the majority of PayPal’s transaction revenue is derived from merchant accounts, but purchases are primarily initiated by consumer activity. The majority of transaction revenue we generate across our products is dependent on consumer spending on goods and services and consumers choosing to transact at the merchants we serve. Changes in economic conditions or shifts in discretionary versus non-discretionary spending patterns generally have the potential to impact all our products similarly. Given that approximately 60% of Large Enterprise merchant accounts and 40% of SMB merchant accounts have more than one product, economic factors often manifest similarly across merchants and products. Since economic factors impact all our products similarly and the uncertainty of future cash flows may be significantly impacted by geographic region, we disclose revenue by geographic region. Transaction revenue is earned from contracts with customers that are defined at the transaction level and do not extend beyond the service already provided. Revenue within this category arises from a single performance obligation, which is satisfied at the point in time a transaction is completed on our platform. The nature, the uncertainty of revenue and cash flows, the timing of revenue recognition, and the contract structure do not significantly differ between our products within transaction revenue. As such, we have concluded that the products within transaction revenues do not require disclosure of disaggregated revenue categories according to ASC 606-10-50-5.

Read in the reply ↗

In your response to prior comment 1 you state you may provide product-specific revenue information when useful to explain consolidated results (e.g., the Xoom negative revenue trend in Q1 2024). In addition to the previously cited example, we note the following: • In your Q1 2025 earnings release you cite progress across branded checkout, PSP, omnichannel, and Venmo as contributing to your results, • In prepared

Rest of the question

remarks during the related earnings call, you cite 20% revenue growth for Venmo, • On slide 8 of the earnings presentation, you cite growth in branded checkout and Venmo offsetting lower Braintree revenue, • In your Q1 2025 Form 10-Q, you quantify the change in Braintree revenue (- $200m) and Venmo/PayPal revenue (+$170m), and • In your 2024 Form 10-K, you quantify the change in Braintree revenue ($+1.3b), core PayPal (+$0.5b), and Venmo (+$0.2b). While you have not provided this information for all products on a consistent basis nor provided actual revenue amounts, you have nonetheless disclosed transaction product-specific revenue information outside the financial statements and determined it useful in explaining results, which under ASC 606-10-55-90a is a factor that must be considered when selecting disaggregation categories. Please advise. Regarding the above referenced Xoom negative revenue trend in Q1 2024 and the decline in Braintree revenue and increase in Venmo/PayPal revenue in Q1 2025, please explain to us why you believe these are not examples of transaction revenue products being differently affected by economic factors and, therefore, subject to different uncertainty than other products comprising transaction revenue. Refer to ASC 606-10-50-5.

As discussed in our response to question 2 above, the nature of each product within transaction revenues is payment processing, and these products broadly share similar characteristics and are similarly impacted by economic factors. In determining the appropriate categories for disaggregating revenue, we considered how revenue information is presented for other purposes, including earnings calls and investor presentations, in accordance with ASC 606-10-55-90a.

Rest of the answer

References to individual revenue components in MD&A and outside our financial statements are provided to give context to our investors and insight into how material changes in that period contribute to the performance of our consolidated revenues. In certain cases, we provided this information in compliance with Item 303 of SEC Regulation S-K, which requires us to describe the underlying reasons for material changes in our results of operations in both quantitative and qualitative terms. Revenue information is provided predominantly to update investors on our strategic initiatives and give insight into the impact that management’s strategy to drive consolidated profitable growth (i.e., our consolidated non-GAAP transaction margin dollars and non-GAAP EPS) may have on consolidated revenues in certain periods. Product-specific revenue is primarily impacted by the Company’s strategic decisions and not impacted differently by economic factors. Explanations of product-specific revenue variances, such as the examples cited for Braintree, Xoom, and Venmo, are not primarily related to economic factors, but rather to changes in management’s focus to drive profitable growth across our entire suite of products. Management’s strategic imperatives focus on accelerating profitable growth and may be executed through pricing model changes, cost reductions, and product innovation and refinements. The Company does not intend to provide product-specific revenue information for all products on a consistent basis. Additionally, such information is limited to relative indicators such as directional revenue trends or revenue growth percentages, and the Company has not and does not intend to provide total revenue amounts by product.

We have concluded that the presentation of certain product-specific revenue information to explain our consolidated results and the presentation of our strategic imperatives to explain how we plan to drive profitable growth does not signify or imply that the associated products carry materially different risks, or that they differ significantly in terms of nature, amount, timing or uncertainty of revenues and cash flows. The nature of each product within transaction revenues is payment processing, and these products broadly share similar characteristics and are similarly impacted by economic factors. As such, we have concluded that the products within transaction revenues do not meet the disaggregated revenue disclosure requirements according to ASC 606-10-50-5.

We regularly evaluate the requirements of ASC 606 to determine the appropriate level of revenue disaggregation. If in the future our products become distinctly affected by unique economic factors, or if the nature, amount, timing, or uncertainty of revenues and cash flows materially diverge, we will update our disclosures accordingly.

Read in the reply ↗

We note your response to comment 2. In response to our comment asking whether your CODM regularly reviews transaction revenue by product, at the end of the first paragraph you state “Revenue information...[provided to the CODM] may include product...information.” Please directly tell us whether it does or does not include transaction revenue by product.

Rest of the question

In the first sentence of that paragraph, you state the "CODM...does not evaluate performance or make decisions on the basis of separate products.” Please clarify whether this means solely on the basis of separate products or that the CODM does not review product revenue at all when evaluating the performance of your operating/reporting segment.

The financial information provided to our Chief Operating Decision Maker (CODM) includes additional product revenue information, typically presented to provide further granularity on our customer business (i.e., Consumer Group, Small Business & Financial Services (“SMB”), and Large Enterprise) revenue fluctuations, given that our products often span across our customer businesses, or to provide oversight on the performance of our strategic initiatives, as explained in our prior response to comment 2 and comment 3.

Rest of the answer

Our CODM does not evaluate performance or make decisions solely on the basis of separate products.

We have considered ASC 606-10-55-90 when analyzing how information about our revenue has been presented for other purposes, including our CODM’s evaluation of financial performance of our operating segment, to select the type of categories used for revenue disaggregation. The guidance does not require disaggregation of revenue definitively when information about our revenue is presented for other purposes, but rather, requires that we analyze any revenue information presented for other purposes to determine if those categories are affected differently by economic factors to achieve the objective in ASC 606-10-50-5 for disaggregating revenue. The products within transaction revenues pertain to payment processing, and these products share similar nature, timing of revenue recognition, uncertainty of future cash flows, and contract structure, and are similarly impacted by economic factors. As such, we have concluded that the products within transaction revenues do not require disclosure of disaggregated revenue categories according to ASC 606-10-50-5.

Read in the reply ↗