In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of our eligible consumer installment receivables portfolio including those held on our balance sheet at closing of the transaction and a forward-flow arrangement for the sale of future originations. Loans and interest receivable, held for sale are recorded at the lower of cost or fair value, determined on an aggregate basis, with valuation changes and any associated charge-offs recorded in restructuring and other charges on our condensed consolidated statements of income (loss). Prior to the decision to sell, this portfolio was reported at outstanding principal balances, net of allowances, including unamortized deferred origination costs and estimated collectible interest and fees. At the time of reclassification, any previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease of approximately $33 million in transaction and credit losses in our condensed consolidated statements of income (loss). See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information.

During the six months ended June 30, 2023, we reclassified approximately $1.2 billion of eligible consumer installment receivables from loans and interest receivable, net to loans and interest receivable, held for sale. As of June 30, 2023, the total outstanding balance in our held for sale portfolio was $1.9 billion, including loans reclassified as held for sale and loans originated as held for sale.

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., which is made available to consumers as a funding source in their PayPal wallet once they are approved for credit. Additionally, we offer installment credit products at the time of checkout in various markets, including the U.S., several markets across Europe, Australia, and Japan. We offer non interest-bearing installment credit products in these markets as well as interest-bearing installment credit products in the U.S. and Germany. Beginning in June 2022, we have purchased receivables related to interest-bearing installment loans extended to U.S. consumers by an independent chartered financial institution (“partner institution”) and are responsible for the servicing functions related to that portfolio. During the six months ended June 30, 2023 and 2022, we purchased approximately $514 million and nil in consumer receivables, respectively. As of June 30, 2023 and December 31, 2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $4.5 billion and $5.9 billion, respectively, net of the participation interest sold to the partner institution of $26 million and $17 million, 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 interest-bearing installment loans in the U.S., to assist the partner 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 and gross charge-offs 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.


June 30, 2023
(In millions, except percentages)

	Revolving Loans Amortized Cost Basis		Installment Loans Amortized Cost Basis
			2023		2022		2021		2020		2019		Total		Percent
Consumer loans and interest receivable:
Current	$	2,009	$	1,631	$	613	$	42	$	—	$	—	$	4,295	95.5%
30 - 59 Days	28		26		9		1		—		—		64		1.5%
60 - 89 Days	15		20		9		1		—		—		45		1.0%
90 - 179 Days	37		22		31		2		—		—		92		2.0%
Total(1)	$	2,089	$	1,699	$	662	$	46	$	—	$	—	$	4,496	100%
Gross charge-offs for the six months ended June 30, 2023	$	61	$	4	$	101	$	3	$	—	$	—	$	169


December 31, 2022
(In millions, except percentages)

	Revolving Loans Amortized Cost Basis		Installment Loans Amortized Cost Basis
			2022		2021		2020		2019		2018		Total		Percent
Consumer loans and interest receivable:
Current	$	1,850	$	3,726	$	123	$	—	$	—	$	—	$	5,699	97.1%
30 - 59 Days	23		26		2		—		—		—		51		0.9%
60 - 89 Days	15		20		2		—		—		—		37		0.6%
90 - 179 Days	34		47		4		—		—		—		85		1.4%
Total(1)	$	1,922	$	3,819	$	131	$	—	$	—	$	—	$	5,872	100%


	June 30, 2023						June 30, 2022
	Consumer Loans Receivable		Interest Receivable		Total Allowance(1), (2)		Consumer Loans Receivable		Interest Receivable		Total Allowance(1)
	(In millions)
Beginning balance	$	322	$	25	$	347	$	243	$	43	$	286
Reversal of allowance due to reclassification of loans and interest receivable to held for sale	(33)		—		(33)		—		—		—
Provisions	182		13		195		118		4		122
Charge-offs	(154)		(15)		(169)		(92)		(15)		(107)
Recoveries	18		—		18		9		—		9
Other(3)	2		1		3		(24)		(4)		(28)
Ending balance	$	337	$	24	$	361	$	254	$	28	$	282

The provision for the six months ended June 30, 2023 was primarily attributable to growth in the U.S. installment loans and U.K. revolving loans within our consumer receivable portfolio. In the second quarter of 2023, we updated our expected credit loss models for the consumer receivables. The expected credit loss models utilize certain macroeconomic factors such as forecasted trends in household disposable income and retail e-commerce sales, and no longer consider unemployment. These changes did not have a material impact on our provision recorded in the period. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to 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, except for the U.S. consumer interest-bearing installment receivables, which are charged off 120 days past the 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 a partner institution and are responsible for the servicing functions related to that portfolio. During the six months ended June 30, 2023 and 2022, we purchased approximately $975 million and $1.4 billion in merchant receivables, respectively. As of June 30, 2023 and December 31, 2022, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $1.7 billion and $2.1 billion, respectively, net of the participation interest sold to the partner institution of $69 million and $97 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 the partner institution 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 and gross charge-offs 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.


June 30, 2023
(In millions, except percentages)
	2023		2022		2021		2020		2019		Total		Percent
Merchant loans, advances, and interest and fees receivable:
Current	$	918	$	451	$	7	$	38	$	26	$	1,440	86.5%
30 - 59 Days	23		37		3		2		2		67		4.0%
60 - 89 Days	9		26		2		1		2		40		2.4%
90 - 179 Days	11		92		3		2		2		110		6.6%
180+ Days	—		2		2		1		2		7		0.5%
Total	$	961	$	608	$	17	$	44	$	34	$	1,664	100%
Gross charge-offs for the six months ended June 30, 2023	$	—	$	109	$	10	$	10	$	3	$	132


December 31, 2022
(In millions, except percentages)
	2022		2021		2020		2019		2018		Total		Percent
Merchant loans, advances, and interest and fees receivable:
Current	$	1,826	$	20	$	57	$	42	$	2	$	1,947	90.7%
30 - 59 Days	63		7		3		4		—		77		3.6%
60 - 89 Days	34		4		4		2		—		44		2.0%
90 - 179 Days	55		9		3		3		—		70		3.3%
180+ Days	1		2		2		3		—		8		0.4%
Total	$	1,979	$	42	$	69	$	54	$	2	$	2,146	100%


	June 30, 2023						June 30, 2022
	Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance
	(In millions)
Beginning balance	$	230	$	18	$	248	$	192	$	9	$	201
Provisions	107		21		128		(3)		5		2
Charge-offs	(117)		(15)		(132)		(47)		(5)		(52)
Recoveries	12		—		12		19		—		19
Ending balance	$	232	$	24	$	256	$	161	$	9	$	170

The provision for the six months ended June 30, 2023 was primarily attributable to a deterioration in credit quality of loans outstanding. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty around the financial health of our borrowers including the effectiveness of loan modification programs made available to merchants.

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 after receipt of notification of bankruptcy. The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses on our condensed consolidated statements of income (loss), 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.