We offer revolving and installment credit products as a funding option for consumers in certain checkout transactions on our payments platform. Our revolving credit product consists of PayPal Credit in the U.K. Once a consumer is approved for credit, it is made available to them as a funding source in their PayPal wallet. Additionally, we offer installment credit products at the time of checkout in various markets, including the U.S., Europe, Australia, and Japan. The majority of the installment loans allow consumers to pay for purchases over periods of 12 months or less. Beginning in June 2022, we purchase receivables related to long-term installment loans extended to U.S. consumers by an independent chartered financial institution and are responsible for servicing functions related to that portfolio. During the nine months ended September 30, 2022, we purchased approximately $106 million in credit receivables. As of September 30, 2022 and December 31, 2021, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $4.4 billion and $3.8 billion, respectively, net of the participation interest sold to the independent chartered financial institution of $5 million and nil, respectively.

We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk. Credit risk management begins with initial underwriting and continues through the full repayment of a loan. To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal data, including the consumer’s prior repayment history with our credit products where available. We use delinquency status and trends to assist in making (or, for long-term installment loans in the U.S., to assist the independent chartered financial institution in making) new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable.

The following tables present the delinquency status of consumer loans and interest receivable by year of origination. The amounts are based on the number of days past the billing date for revolving loans or contractual repayment date for installment loans. The “current” category represents balances that are within 29 days of the billing date or contractual repayment date, as applicable.


September 30, 2022
(In millions, except percentages)

Installment Loans Amortized Cost Basis
	Revolving Loans Amortized Cost Basis		2022		2021		2020		2019		2018		Total		Percent
Current	$	1,567	$	2,543	$	169	$	—	$	—	$	—	$	4,279	96.3%
30 - 59 Days	24		23		2		—		—		—		49		1.1%
60 - 89 Days	17		19		2		—		—		—		38		0.8%
90 - 179 Days	33		40		5		—		—		—		78		1.8%
Total(1)	$	1,641	$	2,625	$	178	$	—	$	—	$	—	$	4,444	100%


December 31, 2021
(In millions, except percentages)

Installment Loans Amortized Cost Basis
	Revolving Loans Amortized Cost Basis		2021		2020		2019		2018		2017		Total		Percent
Current	$	1,790	$	1,939	$	3	$	—	$	—	$	—	$	3,732	97.0%
30 - 59 Days	18		16		—		—		—		—		34		0.9%
60 - 89 Days	12		13		—		—		—		—		25		0.6%
90 - 179 Days	27		28		1		—		—		—		56		1.5%
Total(1)	$	1,847	$	1,996	$	4	$	—	$	—	$	—	$	3,847	100%


	September 30, 2022						September 30, 2021
	Consumer Loans Receivable		Interest Receivable		Total Allowance(1)		Consumer Loans Receivable		Interest Receivable		Total Allowance(1)
	(In millions)
Beginning balance	$	243	$	43	$	286	$	299	$	53	$	352
Provisions	198		9		207		(52)		—		(52)
Charge-offs	(149)		(22)		(171)		(78)		(13)		(91)
Recoveries	14		—		14		25		—		25
Other(2)	(41)		(6)		(47)		—		—		—
Ending balance	$	265	$	24	$	289	$	194	$	40	$	234

The provision for the nine months ended September 30, 2022 was primarily attributable to originations in the consumer receivable portfolio. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to macroeconomic conditions and the financial health of our borrowers.

The provision for current expected credit losses relating to our consumer receivable portfolio is recognized in transaction and credit losses on our condensed consolidated statements of income (loss). The provision for interest receivable for interest earned on our consumer receivable portfolio is recognized in revenues from other value added services as a reduction to revenue. Loans receivable continue to accrue interest until they are charged off.

We charge off consumer receivable balances in the month in which a customer’s balance becomes 180 days past the billing date or contractual repayment date. Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy. Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable.

We offer access to merchant finance products for certain small and medium-sized businesses through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products, which we collectively refer to as our merchant finance offerings. We purchase receivables related to credit extended to U.S. merchants by WebBank and are responsible for servicing functions related to that portfolio. During the nine months ended September 30, 2022 and 2021, we purchased approximately $2.3 billion and $1.3 billion in credit receivables, respectively. As of September 30, 2022 and December 31, 2021, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $2.0 billion and $1.4 billion, respectively, net of the participation interest sold to WebBank of $91 million and $63 million, respectively.

Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant. Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes. Through our PPBL product, we provide merchants access to short-term business financing for a fixed fee based on an evaluation of the applying business as well as the business owner. PPBL repayments are collected through periodic payments until the balance has been satisfied.

The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets. The fixed interest or fee is amortized into revenues from other value added services based on the amount repaid over the repayment period. We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal. For PPWC, there is a general requirement that at least 10% of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days. We calculate the repayment rate of the merchant’s future payment volume so that repayment of the loan or advance and fixed fee is expected to generally occur within 9 to 12 months from the date of the loan or advance. On a monthly basis, we recalculate the repayment period based on the repayment activity on the receivable. As such, actual repayment periods are dependent on actual merchant payment processing volumes. For PPBL, we receive fixed periodic payments over the contractual term of the loan, which generally ranges from 3 to 12 months.

We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period, as well as the credit quality of our merchant loans and advances that we extend or purchase, so that we can evaluate, quantify, and manage our credit risk exposure. To assess a merchant seeking a loan or advance, we use, among other indicators, risk models developed internally which utilize information obtained from multiple internal and external data sources to predict the likelihood of timely and satisfactory repayment by the merchant of the loan or advance amount and the related interest or fee. Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, prior repayment history with PayPal’s credit products where available, information sourced from consumer and business credit bureau reports, and other information obtained during the application process. We use delinquency status and trends to assist in making (or, in the U.S., to assist WebBank in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans, advances, and interest and fees receivable.

The following tables present the delinquency status of merchant loans, advances, and interest and fees receivable by year of origination. The amounts are based on the number of days past the expected or contractual repayment date for amounts outstanding. The “current” category represents balances that are within 29 days of the expected repayment date or contractual repayment date, as applicable.


September 30, 2022
(In millions, except percentages)
	2022		2021		2020		2019		2018		Total		Percent
Current	$	1,691	$	57	$	70	$	52	$	3	$	1,873	93.4%
30 - 59 Days	35		10		5		4		—		54		2.7%
60 - 89 Days	16		7		3		3		—		29		1.4%
90 - 179 Days	21		13		4		4		—		42		2.1%
180+ Days	—		2		2		4		—		8		0.4%
Total	$	1,763	$	89	$	84	$	67	$	3	$	2,006	100%


December 31, 2021
(In millions, except percentages)
	2021		2020		2019		2018		2017		Total		Percent
Current	$	1,100	$	129	$	95	$	3	$	—	$	1,327	91.8%
30 - 59 Days	24		12		12		1		—		49		3.4%
60 - 89 Days	10		8		7		—		—		25		1.7%
90 - 179 Days	10		11		11		1		—		33		2.3%
180+ Days	—		4		7		1		—		12		0.8%
Total(1)	$	1,144	$	164	$	132	$	6	$	—	$	1,446	100%


	September 30, 2022						September 30, 2021
	Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance
	(In millions)
Beginning balance	$	192	$	9	$	201	$	440	$	43	$	483
Provisions	31		9		40		(87)		(19)		(106)
Charge-offs	(75)		(6)		(81)		(145)		(11)		(156)
Recoveries	27		—		27		31		—		31
Ending balance	$	175	$	12	$	187	$	239	$	13	$	252

The provision for the nine months ended September 30, 2022 was primarily attributable to originations in the merchant portfolio. Qualitative adjustments were made to account for historical loss rates and uncertainty around the effectiveness of loan modification programs made available to merchants, as described further below.

The decrease in the charge-offs for the nine months ended September 30, 2022 compared to the same period in the prior year was due to the charge-off of accounts that experienced financial difficulties as a result of the COVID-19 pandemic in the prior period and improved credit quality of our merchant loan portfolio due to modifications in the acceptable risk parameters, which included stricter eligibility requirements.

In the third quarter of 2022, our expected credit loss models for the merchant receivables were updated. The expected credit loss models utilize certain macroeconomic factors such as forecasted trends in unemployment and retail sales, and no longer consider benchmark credit card charge-off rates. These changes did not have a material impact on our provision recorded in the period.

For merchant loans and advances, the determination of delinquency is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period. We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date. We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment in the last 60 days. Bankrupt accounts are charged off within 60 days of receiving notification of bankruptcy. The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses, and the provision for interest and fees receivable is recognized as a reduction of deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets. Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable.

In certain instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loan or advance and the related interest or fee receivable for which it is probable that, without modification, we would be unable to collect all amounts due. These modifications are intended to provide merchants with financial relief, and help enable us to mitigate losses.

These modifications include an increase in term by approximately 1 to 5.5 years while moving the delinquency status to current. The fee on certain of these loans or advances remains unchanged over the extended term. Alternatively, certain loans and advances have been modified to replace the initial fixed fee structure at the time the loan or advance was extended with a fixed annual percentage rate applied over the amended remaining term, which will continue to accrue interest at the fixed rate until the earlier of maturity or charge-off. These modifications had a de minimis impact on our condensed consolidated statements of income (loss) in the nine months ended September 30, 2022 and 2021.

Allowances for TDRs are assessed separately from other loans and advances within our portfolio and are determined by estimating current expected credit losses utilizing the modified term and interest rate assumptions. Historical loss estimates are utilized in addition to macroeconomic assumptions to determine expected credit loss rates. Further, we may include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

During the three and nine months ended September 30, 2022, merchant loans, advances, and interest and fees receivables which have been modified as TDRs were de minimis. The following table shows merchant loans, advances and interest and fees receivables which were modified as TDRs in the three and nine months ended September 30, 2021: