PARTIV Note2—Revenue PayPalHoldings,Inc. NotestoConsolidatedFinancialStatements—(Continued) Note2—Revenue Weenableour customers to send and receive payments. We earn revenue primarily by completing payment transactions for our customers on our payments platform and from other value added services. Our revenues are classified into two categories:transactionrevenuesandrevenuesfromothervalueaddedservices. TransactionRevenues Weearntransaction revenues primarily from fees paid by our customers to receive payments on our platform. These fees mayhaveafixedandvariablecomponent.The variable component is generally a percentage of the value of the payment ANNU amountandisknownatthetimethetransactionis processed.For a portion of our transactions,the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. We estimate the amount of AL fee refunds that will be processed each quarter and record a provision against our transaction revenues. The volume of REPOR activity processed on our payments platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”). We earn additional fees from merchants and consumers on transactions where we perform currency conversion, T whenweenablecross-bordertransactions(i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their bank account or debit card, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from sellers that violate our contractual terms (for example, through fraud or counterfeiting), and other miscellaneous fees. Our transaction revenues are also reducedbycertainincentivesprovidedtoourcustomers. Our contracts with our customers are usually open-ended and can be terminated by either party without a termination penalty after the notice period has lapsed. Therefore, our contracts are defined at the transaction level and do not extend beyond the service already provided. Our contracts generally renew automatically without any significant material rights. Some of our contracts include tiered pricing, which are based primarily on volume. The fee charged per transaction is adjustedupordownifthevolumeprocessedforaspecifiedperiodisdifferentfrompriorperioddefinedvolumes.Wehave concludedthatthisvolume-basedpricingapproachdoesnotconstituteafuturematerialrightsincethediscountiswithina range typically offered to a class of customers with similar volume. We do not have any capitalized contract costs and we donotcarryanymaterialcontractbalances. Our primary service comprises a single performance obligation to complete payments on our payments platform for our customers. Using our risk assessment tools, we perform a transaction risk assessment on individual transactions to determine whether a transaction should be authorized for completion on our payments platform. When we authorize a transaction,webecomeobligatedtoourcustomertocompletethepaymenttransaction. Werecognizefeeschargedtoourcustomersprimarilyonagrossbasisastransactionrevenuewhenwearetheprincipalin respect of completing a payment transaction. As a principal to the transaction, we control the service of completing payments on our payments platform. We bear primary responsibility for the fulfillment of the payment service, contract directly with our customers, control the product specifications,and define the value proposal from our services. Further, we have full discretion in determining the fee charged to our customers, which is independent of the costs we incur in instances where we may utilize payment processors or other financial institutions to perform services on our behalf. We therefore bear full margin risk when completing a payment transaction. These fees paid to payment processors and other financial institutions are recognized as transaction expense. We are also responsiblefor providing customer support. Topromoteengagementandacquirenewusersonourplatform,wemayprovideincentivestomerchantsandconsumers in various forms including discounts on fees, rebates, rewards, and coupons. Evaluating whether an incentive is a payment to a customer requires judgment. Incentives that are determined to be consideration payable to a customer or paid on behalf of a customer are recognized as a reduction of revenue. Certain incentives paid to users that are not our customers are classified as sales and marketing expense. We provide merchants and consumers with protection programs for certain transactions completed on our payments platform. These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterpartyperformance.Theseprotectionprogramsdonotprovideaseparateservicetoourcustomersandweestimate andrecordassociatedcostsintransactionandcreditlossesduringtheperiodthepaymenttransactioniscompleted. RevenuesfromOtherValueAddedServices Weearnrevenuesfromothervalueaddedservices,whicharecomprisedprimarilyofrevenueearnedthroughpartnerships, referral fees, subscription fees, gateway fees, and other services that we provide to our merchants and consumers. These •2022AnnualReport 73