We offer credit products to consumers and certain small and medium-sized merchants. We work with an independent chartered financial institution that extends credit to merchants using our credit products in the U.S. We purchase receivables related to credit extended to U.S. merchants by the independent chartered financial institution and are responsible for servicing functions related to that portfolio. During the three months ended March 31, 2020 and 2019, we purchased approximately $1.3 billion and $1.1 billion in merchant credit receivables, respectively.

We offer credit products to consumers who choose PayPal Credit at checkout. As of March 31, 2020 and December 31, 2019, the outstanding balance of consumer receivables, which primarily consisted of revolving loans and interest receivable due from international consumer accounts, was $1.4 billion and $1.3 billion, respectively.

We closely monitor the credit quality of our consumer loan 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 PayPal Credit products. 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 our determination of our allowance for consumer loans and interest receivable.

The following table presents the delinquency status of consumer loans and interest receivable at March 31, 2020 and December 31 2019. Since our consumer loans are primarily 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. The “current” category represents balances that are within 29 days of the billing date:



	March 31, 2020				December 31, 2019
	Amortized Cost Basis Revolving		Percent		Amortized Cost Basis Revolving		Percent
	(In millions, except percentages)
Current	$	1,327	96.4	%	$	1,279	96.7	%
30-59 days	18		1.3	%	15		1.1	%
60-89 days	11		0.8	%	9		0.7	%
90-179 days	21		1.5	%	19		1.5	%
Total consumer loans and interest receivable⁽¹⁾	$	1,377	100.0	%	$	1,322	100.0	%



	March 31, 2020									March 31, 2019
	Consumer Loans Receivable			Interest Receivable			Total Allowance⁽¹⁾			Consumer Loans Receivable			Interest Receivable			Total Allowance⁽¹⁾
	(In millions)
Beginning balance	$	49		$	8		$	57		$	27		$	3		$	30
Adjustment for adoption of credit losses accounting standard	24			4			28			—			—			—
Provisions	98			20			118			1			2			3
Charge-offs	(21		)	(4		)	(25		)	(9		)	(1		)	(10		)
Recoveries⁽²⁾	9			—			9			10			—			10
Ending balance	$	159		$	28		$	187		$	29		$	4		$	33

The provision for 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 due to interest earned on our consumer loans receivable portfolio is recognized in net revenues from other value added services as a reduction to revenue. Loans receivable past the payment due date continue to accrue interest until they are charged off.

We charge off consumer loan receivable balances in the month in which a customer’s balance becomes 180 days past the payment due date. Bankrupt accounts are charged off within 90 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 business financing solutions to certain small and medium-sized merchants through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products. As of March 31, 2020 and December 31, 2019, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $3.0 billion and $2.8 billion, respectively, net of the participation interest sold to an independent chartered financial institution of $132 million and $124 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, which targets an annual percentage rate 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 with access to short-term business financing for a fixed fee based on an evaluation of both 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 revenues included in accrued expenses and other current liabilities on our condensed consolidated balance sheets. The fixed interest or fee is amortized to revenues from other value added services based on the amount repaid over the repayment period. We estimate the repayment period 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.

We closely monitor credit quality for 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 business financing 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, and prior repayment history with the PayPal credit products where available, information sourced from consumer credit bureau and business credit bureau reports, and other information obtained during the application process. We use delinquency status and trends to assist in making ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in our determination of our allowance for these loans and advances.

The following table presents 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 billing date for loans with fixed repayment dates, or within 29 days of the expected repayment date.



March 31, 2020
(In millions, except percentages)
	2020		2019		2018		2017		2016		Total		Percentage
Current	$	1,388	$	1,266	$	28	$	—	$	—	$	2,682	89.6%
30 - 59 Days	17		90		13		—		—		120		4.0%
60 - 89 Days	3		56		8		—		—		67		2.2%
90 - 179 Days	—		94		15		—		—		109		3.6%
180+ Days	—		7		9		1		—		17		0.6%
Total	$	1,408	$	1,513	$	73	$	1	$	—	$	2,995	100%

The following table presents our estimate of the principal amount of merchant loans, advances, and interest and fees receivable past their original expected or contractual repayment period as of December 31, 2019, prior to the adoption of the new credit losses accounting guidance as described in “Note 1—Overview and Summary of Significant Accounting Policies.”



December 31, 2019
(In millions)
Within Original Expected Repayment Period			30 - 59 Days Greater			60 - 89 Days Greater			90 - 180 Days Greater			180+ Days			Total Past Original Expected Repayment Period			Total
$	2,523		$	115		$	61		$	100		$	17		$	293		$	2,816
89.6		%	4.1		%	2.1		%	3.6		%	0.6		%	10.4		%	100		%



	March 31, 2020									March 31, 2019
	Merchant Loans and Advances			Interest and Fees Receivable			Total Allowance			Merchant Loans and Advances			Interest and Fees Receivable			Total Allowance
	(In millions)
Beginning balance	$	171		$	20		$	191		$	115		$	15		$	130
Adjustment for adoption of credit losses accounting standard	165			17			182			—			—			—
Provisions	243			24			267			54			6			60
Charge-offs	(78		)	(8		)	(86		)	(37		)	(3		)	(40		)
Recoveries	3			—			3			3			—			3
Ending balance	$	504		$	53		$	557		$	135		$	18		$	153

Changes to the provision for the three months ended March 31, 2020 were primarily attributable to changes in current and projected macroeconomic conditions resulting in an increase of $159 million and our portfolio growth resulting in an increase of $85 million, both of which are used in estimating our expected credit losses. Changes to the charge-offs for the three months ended March 31, 2020 were primarily attributable to a significant expansion of the portfolio in 2019 and a decline in transaction processing volume on our Payments Platform for certain merchants which adversely impacted the delinquency of our merchant loans, advances, and interest and fees receivable portfolio.

For merchant loans and advances, the determination of delinquency, from current to 180 days past due, 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 due. 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 is recognized in transaction and credit losses, and the provisions for interest and fees receivable is recognized as a reduction of deferred revenues included in accrued 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.