PARTII Item7. ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations A quantitative sensitivity analysis is provided where information is reasonably available, can be reliably estimated, and provides material information to investors. The amounts used to assess sensitivity are included to allow users of this report to understand a general directional cause and effect of changes in the estimates and do not represent managements predictions of variability. For all of these estimates, it should be noted that future events rarely develop exactly as forecasted,andsuchestimatesrequireregularreviewandadjustment. AllowanceforTransactionandCreditLosses Transaction and credit losses include the expense associated with our customer protection programs, fraud, chargebacks, and credit losses associated with our loans receivable balances. Our transaction and credit losses fluctuate depending on many factors, including: total TPV, product mix, current and projected macroeconomic conditions, merchant insolvency events, changes to and usage of our customer protection programs, the impact of regulatory changes, and the credit quality of loans receivable arising from transactions funded with our credit products, which include revolving and ANNU installment credit products offered to consumers at checkout, and merchant loans and advances arising from the PayPal WorkingCapitalandPayPalBusinessLoanproducts. AL We establish allowances for negative customer balances and estimated transaction losses arising from processing REPOR 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, account takeovers, and T Automated Clearing House returns. Additions to the allowance, in the form of provisions, are reflected in transaction and credit losses on our consolidated statements of income (loss). The allowances are based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving collection and write-off patterns, and the mix of transaction and loss types, as well as current and projected macroeconomic factors, as appropriate. Wealsoestablish an allowance for loans and interest receivable, which represents our estimate of current expected credit losses inherent in our portfolio of loans and interest receivable. This evaluation process is subject to numerous estimates and judgments. The allowance is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomicforecastsappliedtotheportfolio.Thelossmodelsincorporatevariousportfolioattributesincluding geographicregion,first borrowing versus repeat borrowing, delinquency, loan term, internally developed risk ratings, credit rating, and vintage, which vary by portfolio. The loss models also incorporate macroeconomic factors such as forecasted trends in unemployment, retail e-commerce sales, and household disposable income (and through the second quarter of 2022, benchmark credit card charge-off rates), which are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period. Projected loss rates, inclusive of historical loss data and macroeconomicfactors,are applied to the principal amount of our merchant and consumer receivables.Our consumer receivables consist of revolving products, which do not have a contractual term, and installment products. The reasonable and supportable forecast period for revolving products, installment products, and merchant products that we have included in our projected loss rates for 2022, which approximates the estimated life of the loans, is approximately 2 years, approximately 7 months to 3.5 years, and approximately 2.5 to 3.5 years, respectively. In 2021, the reasonable and supportable forecast periods were consistent with 2022 except for installment products, which had an estimated life of 7 months to 2.5 years. We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses. The allowance for current expected credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and periodoforigination,amongotherfactors. Determiningappropriatecurrentexpectedcreditlossallowancesforloansandinterestreceivableisaninherentlyuncertain process and ultimate losses may vary from the current estimates. We regularly update our allowance estimates as new facts become known and events occur that may impact the settlement or recovery of losses. The allowances are maintained at a level we deem appropriate to adequately provide for current expected credit losses at the balance sheet date after incorporating the impact of externally sourced macroeconomic forecasts. As of December 31, 2022, we utilized externally published projections of the U.S. and U.K. forecasted unemployment rates, forecasted U.S. retail e-commerce sales, and forecasted U.K. household disposable income, among others, over the reasonable and supportable forecast period. As of December31, 2021, we utilized externally published projectionsof the U.S. and U.K. forecastedunemployment rates over the reasonable and supportable forecast period. The overall principal and interest coverage ratio as of December 31, 2022 and 2021 was approximately 7% and 9%, respectively. A significant change in the forecasted macroeconomicfactors could result in a material change in our allowances. Our allowance as of December 31, 2022 took into account uncertainty with respect to macroeconomic conditions, and uncertainty around the financial health of our borrowers and effectiveness of loan modification programs made available to merchants. Our allowance as of December 31, 2021 took into account continued volatility with respect to macroeconomic conditions and uncertainty around the financial health of our merchant borrowers, including uncertainty around the effectiveness of loan modification programs made available to merchants. An increase of 1% in the principal and interest coverage ratio would increase our •2022AnnualReport 47