We offer revolving and installment credit products as a funding option for consumers in certain checkout transactions on our Payments Platform. The majority of the installment loans allow consumers to pay for a product over periods of 12 months or less. As of September 30, 2021 and December 31, 2020, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $2.8 billion and $2.2 billion, 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 to 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 historical experience, including the consumer’s prior repayment history with our credit products where available. We use delinquency status and trends to assist 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 table presents the delinquency status of consumer loans and interest receivable at September 30, 2021 and December 31, 2020. Since the majority of our consumer loans are revolving in nature, they are disclosed in the aggregate and not 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, 2021				December 31, 2020
	Amortized Cost Basis Revolving		Percent		Amortized Cost Basis Revolving		Percent
	(In millions, except percentages)
Current	$	2,706	96.8	%	$	2,124	97.9	%
30-59 days	28		1.0	%	15		0.7	%
60-89 days	20		0.7	%	11		0.5	%
90-179 days	41		1.5	%	19		0.9	%
Total consumer loans and interest receivable(1), (2), (3)	$	2,795	100.0	%	$	2,169	100.0	%


	September 30, 2021						September 30, 2020
	Consumer Loans Receivable		Interest Receivable		Total Allowance(1)		Consumer Loans Receivable		Interest Receivable		Total Allowance(1)
	(In millions)
Beginning balance	$	299	$	53	$	352	$	49	$	8	$	57
Adjustment for adoption of credit losses accounting standard	—		—		—		24		4		28
Provisions	(52)		—		(52)		227		47		274
Charge-offs	(78)		(13)		(91)		(57)		(10)		(67)
Recoveries(2)	25		—		25		21		—		21
Other(3)	—		—		—		7		1		8
Ending balance	$	194	$	40	$	234	$	271	$	50	$	321

The benefit for the nine months ended September 30, 2021 was primarily attributable to improvements in the credit quality of the consumer portfolio and current and projected macroeconomic conditions. This was partially offset by provisions for originations in the portfolio and the impact of qualitative adjustments to account for limitations in our current expected credit loss models due to a high degree of uncertainty around the financial health of our consumer borrowers and continued volatility with respect to macroeconomic conditions.

The provision for current expected credit losses relating to our consumer loans receivable portfolio is recognized in transaction and credit losses on our condensed consolidated statements of income. The provision for interest receivable for interest earned on our consumer loans 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 that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

We offer access to credit products for certain small and medium-sized merchants through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products, which we collectively refer to as our merchant lending offerings. We purchase receivables related to credit extended to U.S. merchants by an independent chartered financial institution and are responsible for servicing functions related to that portfolio. During the nine months ended September 30, 2021 and 2020, we purchased approximately $1.3 billion and $1.5 billion in credit receivables, respectively. As of both September 30, 2021 and December 31, 2020, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $1.4 billion, net of the participation interest sold to an independent chartered financial institution of $59 million.

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, where available. 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 the independent chartered financial institution in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans and advances.

The following tables present the delinquency status of the principal amount 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 contractual repayment dates or expected repayment date, as applicable.


September 30, 2021
(In millions, except percentages)
	2021		2020		2019		2018		2017		Total		Percent
Current	$	939	$	172	$	120	$	4	$	—	$	1,235	90.5%
30 - 59 Days	17		17		17		1		—		52		3.8%
60 - 89 Days	7		10		9		1		—		27		2.0%
90 - 179 Days	5		14		15		1		—		35		2.6%
180+ Days	—		6		8		1		—		15		1.1%
Total(1)	$	968	$	219	$	169	$	8	$	—	$	1,364	100%


December 31, 2020
(In millions, except percentages)
	2020		2019		2018		2017		2016		Total		Percent
Current	$	786	$	250	$	6	$	—	$	—	$	1,042	75.4%
30 - 59 Days	55		47		3		—		—		105		7.6%
60 - 89 Days	27		32		3		—		—		62		4.5%
90 - 179 Days	57		78		7		—		—		142		10.3%
180+ Days	6		20		5		—		—		31		2.2%
Total(1)	$	931	$	427	$	24	$	—	$	—	$	1,382	100%


	September 30, 2021						September 30, 2020
	Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance
	(In millions)
Beginning balance	$	440	$	43	$	483	$	171	$	20	$	191
Adjustment for adoption of credit losses accounting standard	—		—		—		165		17		182
Provisions	(87)		(19)		(106)		298		27		325
Charge-offs	(145)		(11)		(156)		(197)		(20)		(217)
Recoveries	31		—		31		13		—		13
Ending balance	$	239	$	13	$	252	$	450	$	44	$	494

The benefit for the nine months ended September 30, 2021 was primarily attributable to improvements in current and projected macroeconomic conditions. This was partially offset by provisions for originations during the period and the impact of qualitative adjustments to account for varying degrees of expected merchant performance in the current environment and in future periods, including continued volatility with respect to macroeconomic conditions and uncertainty around the effectiveness of loan modification programs made available to merchants, as described further below.

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 within 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 included in accrued expenses and other current liabilities on our condensed consolidated balance sheets. Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

In instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loans or advances and the related interest or fee receivable for which it is probable that, without modification, we will 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 in the nine months ended September 30, 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 include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

A merchant is considered in payment default after a modification when the merchant’s payment becomes 60 days past their expected or contractual repayment date. For loans that have defaulted after being modified, the increased estimate of current expected credit loss is factored into overall expected credit losses. In the three and nine months ended September 30, 2021, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments was de minimis.