Paypal 10

paypal 10

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The percentage of our payment volume funded by credit cards increased from The sender can fund a payment from one of three sources: The customer can withdraw funds either by ACH transfer to his or her bank account, if the customer is in the U.

Recipients who are U. If the recipient initiates a withdrawal by ACH transfer, he or she will typically receive the funds in his or her bank account within four business days, or five business days in the 12 countries outside the U.

If the recipient initiates a withdrawal by check, PayPal will send a request on the following business day to its processing bank to issue and send the check through the U.

The full process from initiation of a check withdrawal request to receipt of the check by the customer can take up to two weeks. Even after the customer has received the check, he or she will need either to cash the check or deposit it in his or her bank.

Users may also add funds to their PayPal accounts without making a payment. This is not possible by credit card, but only by ACH transfer from a bank account, which generally takes three to four business days to complete.

The following tables summarize the timing of payments and withdrawals. Our customers choose either PayPal business accounts or PayPal personal accounts.

Business accounts pay us transaction fees on all payments they receive. Business accounts benefit from a number of additional features: We use the term "premier account" on our website to describe fee-paying accounts held by individuals.

PayPal personal accounts allow users to make and receive online payments, except that personal accounts may not receive credit card-funded payments.

Personal accounts can upgrade to business accounts at any time and thereby avail themselves of all the benefits of a business account, including the ability to receive credit card-funded payments.

We currently allow residents of 38 foreign countries to open PayPal accounts. These international senders make payments through credit cards or from their PayPal account balances.

International recipients may withdraw money from their PayPal accounts to a U. In addition, international recipients in twelve countries can make electronic funds transfer withdrawals to their local bank accounts for a weighted average fee of 2.

We charge international senders a fee of 2. Beginning in the second quarter of , we expect to charge fees to recipients of cross-border payments rather than to international senders.

We intend to develop multi-currency functionality in , which will enable international users in some countries to hold balances in their local currencies.

PayPal users choose a unique password to protect their accounts. To make payments, senders need to disclose only their email addresses to recipients.

Similarly, to receive payments, recipients need to disclose only their email addresses to senders. Many buyers and sellers wary of disclosing financial information online find this high level of personal privacy attractive.

Beginning in the first quarter of , we will deposit all U. As these customer funds have been transferred into non-interest bearing bank accounts, our revenues from interest on funds held for others in future periods will decline.

In addition, substantially all cash and investments held for the benefit of customers and the associated liabilities will be removed from our balance sheet in future periods.

For the same period, our top customers in terms of payment volume sent accounted for 1. PayPal has emerged as the method of choice for small and medium-sized businesses to receive payments for auctions on eBay, the largest online auction community.

In order to collect this data, we periodically sample a selection of eBay auctions to estimate the percentage of listings that accept PayPal as a payment option.

During , our percentage of auction-related payment volume decreased as we continued to diversify and our non-auction-related business grew more rapidly than did our auction-related business.

The following table sets forth our auction-related payment volume and non-auction-related payment volume for the periods presented: The following table sets forth our sequential quarter-on-quarter growth rates for auction-related payment volume and non-auction-related payment volume for the periods presented: Auction-related payment volume data prior to the first quarter of , and thus sequential growth rates prior to the second quarter of , are not available as we began tracking this data during the fourth quarter of In addition to online auction commerce, our business accounts conduct a wide variety of commercial transactions using PayPal, including the sale of goods online such as electronics and household items, the sale of services online such as web design and travel, and the sale of digital content.

Offline businesses, including lawyers, contractors and physicians, also receive payments online through PayPal. Our personal accounts primarily use PayPal to make payments to business accounts for goods and services.

We also enable "person-to-person" payments, examples of which include roommates sharing. We are developing a multi-currency platform to enable international users to transact in local currencies, initially euros, British pounds and Canadian dollars.

Currently, residents of 39 countries have access to the PayPal network. We classify merchants in industries that historically have experienced significant charge-back rates, primarily online gaming-related service providers and online gaming merchants, as "higher risk.

In order to control the risks presented by these merchants, we research the owners of these accounts, their financial condition and their licenses to operate in their home jurisdictions, and we close the accounts of merchants that do not satisfactorily complete our review.

We charge higher fees to these merchants, ranging from 3. To date, customers have not charged-back payments to these merchants at a materially higher rate than customers making other types of payments, and the reserves that we hold have been sufficient to cover all charge-backs of payments to higher risk accounts.

The legal status of many of these higher risk accounts is uncertain, and these businesses could be prohibited or restricted from operating in the future.

If these merchants are operating illegally, we could be subject to civil or criminal prosecution. We would also lose the revenues associated with these accounts.

In the third quarter of , we developed a subscription payments feature that could prove attractive to online vendors of adult content. We do not actively target or separately track this market, but we do not prohibit these vendors from using PayPal.

From our launch, we have grown primarily through organic, user-driven means. Each time an existing PayPal customer sends or receives funds to or from someone who has not yet registered with PayPal, the other party must open a PayPal account in order to receive or send the payment.

Thus, when a PayPal user makes an email payment to someone who does not yet have a PayPal account, the recipient follows a link in the payment notification email to register with PayPal and gain access to the funds.

We have achieved our growth through this combination of "push"- and "pull"-driven new customer acquisition. We accelerated our natural growth with promotional bonuses, our only significant marketing expenditures.

We have continued to refine the criteria qualifying users for promotional bonuses. Our organic, user-driven growth has proven more cost-effective than traditional sales and marketing channels, such as television, radio and print advertising, or Internet-based promotional methods such as banner ads and directed email campaigns.

Striking the optimal balance between the dual objectives of controlling fraud and providing a user-friendly system will remain a key challenge for PayPal.

Our risk management techniques include the following: We are not aware of any banks having prohibited or restricted their customers from conducting transactions with PayPal, although we are aware of two incidents in which customers of a bank temporarily were unable to conduct transactions with PayPal.

These incidents, one of which involved miscoding of transactions, and the other involving suspected fraud, were resolved quickly.

Our technology facilitates easy access to the PayPal website, both to acquire new customers and to allow existing ones to conduct financial transactions.

We focus much of our development efforts on creating specialized software that enhances our Internet-based customer functionality. One of our key challenges remains building and maintaining a scalable and reliable system, capable of handling traffic and transactions for a growing customer base.

The major components of our network reside at our corporate headquarters in Palo Alto, California, at an Equinix data center in San Jose, California, and at our operations and customer support facility in Omaha, Nebraska.

We have a second data center with Exodus in Santa Clara, California. We have designed our security infrastructure to protect data from unauthorized access, both physically and over the Internet.

Our most sensitive data and hardware reside at our Equinix data center. This data center has redundant connections to the Internet, as well as fault-tolerant power and fire suppression systems.

Because of our special security needs, we house our equipment in physically secure data vaults and we tightly control physical access to our systems.

Multiple layers of network security and network intrusion detection devices further enhance the security of our systems. We segment various components of the system logically and physically from each other on our networks.

Components of the system communicate with each other via Secure Sockets Layer, or SSL, an industry standard communications security protocol, and require mutual authentication.

Access to a system component requires at least two authorized staff members simultaneously to enter secret passphrases. This procedure protects us from the unauthorized use of our infrastructure components.

Finally, we store all data we deem private or sensitive only in encrypted form in our database. We decrypt data only on an as-needed basis, using a specially designated component of our system which requires authentication before fulfilling a decryption request.

Our primary customer service team in Omaha, Nebraska provides email and telephone customer support. We strive to maintain industry-leading standards for customer service.

On average, we respond to phone calls from business account holders in nine seconds, with only a 2. We estimate that we resolve Our customer service needs have not grown as quickly as our user base, and we expect this trend to continue.

EPX provides the systems and services that allow us to direct transaction information to the merchant bank that provides transaction processing services to us and sponsors our acceptance of Visa cards.

In turn, EPX and the applicable bank have agreed to process properly-presented card transactions and to transfer the funds from such transactions to us on a daily basis.

EPX is also required to meet specified service levels regarding the availability, response times and security of their processing services, their settlement of funds due us, and their charge-back processing.

The contract limits the liability of EPX and the applicable bank for any breaches of the agreement to the amount of fees we have paid during the six-month period immediately prior to the event giving rise to our damages.

We pay EPX and the applicable bank a fee for each credit card authorization, as well as a fee for each completed credit card transaction.

The banks also pass through to us standard industry fees that they are charged by the card associations for issuer interchange on completed transactions, which consist of a percentage of the transaction amount.

We also are subject to additional fees if we submit less than If the dollar amount of credit card transactions that our customers charge back exceed 1.

At our current charge-back rates, we do not need to provide any funds to this reserve account. We are negotiating with Chase Merchant Services for a reduction in the amount of the reserve.

Wells Fargo also provides other services for us, including wire transfers, check printing, mailing and reconciling as well as fraud protection.

Pricing is schedule-based, depending on a number of factors, including domestic or international location, the total volume of payments and other factors.

We are required to keep a. The requirement is now met by pledging securities owned by PayPal and held in a brokerage account at Wells Fargo.

Although we maintain a good working relationship with Wells Fargo, we continue to examine all of our options for ACH processing, especially in terms of specialty processing such as international payments.

As we expand the ability of customers in countries outside the U. We expect to pay a transaction fee based on the country involved, the total volume of payments and other factors.

We recently launched a "virtual" debit card which allows any customer with a PayPal account balance to use that balance at online merchants that accept MasterCard.

Under the terms of the contract governing this relationship, First Data agreed to certain minimum uptime and other detailed service level requirements.

We, in turn, agreed to use First Data exclusively for processing of debit card transactions. We also agreed to remain eligible for sponsorship by a "sponsor bank," which is, in our case, BankOne Indiana, N.

We pay First Data fees on a per-transaction, rather than percentage, basis. In all years after the first year of the contract, we are required to pay First Data a minimum fee, even if the volume of transactions processed by First Data would yield a lower amount.

Additionally, we agreed to obtain a letter of credit for the benefit of First Data as collateral to cover its settlement risk with the sponsoring bank.

We have pledged a certificate of deposit as security for the letter of credit. If our debit card transaction volume increases, First Data may require us to increase the letter of credit to the average amount of PayPal debit card transactions in recent 4-day periods.

We would also need to increase the size of the certificate of deposit, which is classified as restricted cash, by the same amount.

As a merchant that accepts Visa and MasterCard credit cards, however, we are subject to, and must comply with, the operating rules of the Visa and MasterCard credit card associations.

Under these operating rules, in cases of fraud or disputes between senders and recipients in transactions involving Visa or MasterCard cards, we face charge-backs when cardholders dispute items for which they have been billed.

Because we are not a bank, we are not eligible to belong to the credit card associations. As a result, we must rely on banks that are members of these associations or their independent service organizations to process our transactions, to challenge charge-backs on our.

We and our credit card processor had a series of meetings with MasterCard to discuss how to bring our practices and procedures into compliance.

In , Visa informed our credit card processor that some of our practices violated its operating rules, and we made certain changes to our practices in response.

Our processor charged us for the full amount of the fine imposed on them. Specifically, Visa objected to our charging and immediately rebating international membership fees, and to our charging fees to international customers for payments that are funded using credit cards, but not for payments that are funded from balances in the PayPal system.

Although Visa has not threatened to suspend, terminate or otherwise limit or restrict our ability to accept Visa cards, we have proposed to change our current practices to resolve these three outstanding issues.

Under the terms of this new agreement, Providian agrees to offer PayPal-branded credit cards to our account holders and to cooperate with PayPal in developing the marketing for this program.

The agreement provides that Providian will pay us a one-time payment in order to redesign the PayPal website and market the strategic alliance, as well as certain bounty fees for each new Providian account referred by the program.

These bounties are based on the number of active new accounts during a three-month period, with a higher bounty per account accompanying a larger number of new accounts booked.

This revenue share applies to purchases and quasi-cash transactions on all accounts booked under both the new and old agreements.

We agreed to make the Providian-issued co-branded credit card the exclusive U. Under the terms of the contract governing this relationship, Providian is responsible for loan underwriting decisions, loan servicing and legal compliance, and bears all the costs of issuing cards and underwriting the portfolio.

Either party may also terminate the contract if the other party is acquired or is subject to a change of control, subject to payment of an early termination fee, which is determined based in part on whether or not the party is acquired by a competitor of the other party.

The market for our product is emerging, intensely competitive and characterized by rapid technological change. We compete with a number of companies, both directly in the email-based online payments market, and indirectly with traditional payment methods such as credit cards, checks, money orders and ACH transactions.

In order to retain existing customers and attract new customers, we must offer an attractive combination of the following factors: However, our Shop Anywhere feature and the large number of individuals and businesses that accept PayPal allow recipients to use funds immediately upon receipt to make online purchases, and provide us a competitive advantage over our direct competitors in this respect.

We anticipate continued challenges from current competitors, who may enjoy greater resources, as well as by new entrants into the industry.

Our direct competitors include: MasterCard recently announced a new online payment service in conjunction with CertaPay, and Visa has also expressed interest in developing an online email-based payment product for use by its members.

Postal Service and Western Union also offer payment services similar to ours, although to date they have not achieved wide acceptance.

Potential direct competitors, should they decide to enter the market, may include CheckFree and American Express. We compete indirectly with credit card products offered under the Visa and MasterCard brands, which enjoy significant brand recognition and marketing resources, and with merchant processors, such as First Data and VeriSign, which assist online merchants in accepting credit cards.

Many of our competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, greater name recognition or a larger base of customers in affiliated businesses than we have.

We protect our intellectual property rights through a combination of trademark, copyright and trade secrets laws and through the domain name dispute resolution system.

In order to limit access to and disclosure of our proprietary information, all of our employees have signed confidentiality and invention assignment arrangements, and we enter into nondisclosure agreements with third parties.

We cannot provide assurance that the steps we have taken to protect our intellectual property rights, however, will deter adequately infringement or misappropriation of those rights.

Particularly given the international nature of the Internet, the rate of growth of the Internet and the ease of registering new domain names, we may not be able to detect unauthorized use of our intellectual property or take enforcement action.

In particular, we have applied to register the "PayPal" service mark in the U. We also have applied to register the service marks "X. We have registered the domain name "www.

We have applied in the U. We cannot predict whether the U. Patent and Trademark Office, or PTO, will issue these patents in their requested form or whether these patents will be valid even if issued.

Whether or not the PTO issues us patents, third parties may claim that we have infringed upon their patents or misappropriated or infringed on other proprietary rights.

These claims and any resultant litigation could subject us to significant liability for damages. In addition, even if we prevail, the litigation could be time consuming and expensive to defend and could affect our business materially and adversely.

Any claims or litigation from third parties may also result in limitations on our ability to use the service marks, trademarks, copyrights, trade secrets, patents, and other intellectual property subject to these claims or litigation, unless we enter into license agreements with the third parties.

However, these agreements may be unavailable on commercially reasonable terms, or not available at all. CertCo is based in New York and describes itself as a "provider of transactional security and risk management products and services.

A customer obtains an authenticated quote from a specific merchant, including a specification of goods and a payment amount for those goods.

The customer sends the agent a single communication including a request for payment of the payment amount to the specific merchant and a unique identification of the customer.

The agent issues to the customer an authenticated and verifiable payment advice based only on the single communication and secret shared between the customer and the agent and status information which the agent knows about either or both of the merchant and the customer.

The customer forwards a portion of the payment advice to the specific merchant. The specific merchant provides the goods to the customer in response to receiving the portion of the payment advice.

The complaint requests that the Court order the following relief against us: We intend to vigorously pursue our defenses and counterclaims to the lawsuit.

In order to assert its patent against us, CertCo must prove that our service infringes at least one claim of its patent.

In order to prove direct infringement of any single claim, CertCo must prove that all of the elements of the claim, or their equivalent, are performed by our service.

If any element of a claim is not performed, literally or equivalently, by our service, our service cannot infringe the claim. Even if we prevail, the litigation could be time consuming and expensive to defend and could affect our business materially and adversely.

If all or any portion of our service were found to be infringing the patent, and if we were unwilling or unable to obtain a license on terms acceptable to CertCo, then we would likely be unable to continue to offer our service, or those portions of our service found to be infringing.

This could have a material adverse effect on our business prospects, financial condition, and results of operations.

Tumbleweed is a software company headquartered in Redwood City, California, that specializes in Internet security.

The letter from Tumbleweed states that Tumbleweed is the owner of two U. The server sends a generic notification of the document, with direct reference to the document, to an intended recipient, and the recipient can download the document from the server using local protocols.

Neither of these third parties has commenced any legal action against us, however, the letter from NetMoneyIN states that we will be sued if we remain unlicensed.

If we were to conclude based on additional information that some element of our processes are or might be covered by these third party patents, we might seek to negotiate and obtain licenses from these parties.

Neither party has indicated to us what sum of money it might ask of us in the event we were to seek to license its patents. If we were unwilling or unable to obtain a license from these third parties, they could decide to sue us for patent infringement.

Although we would contest any lawsuit vigorously, we cannot assure you that we would prevail if either or both parties were to sue us for infringement of their patents.

If any portions of our service were found to be infringing their patents, then we would likely be unable to continue to offer those portions of our service found to be infringing.

More than 40 states in the U. Based on the specific provisions of many of these state statutes, we believe that money services regulations cover our business only in a limited number of states.

Our analysis is subject to significant uncertainty, however, and we cannot assure you that state regulators and courts will agree with our interpretations.

Nine states have provided a written interpretation that our service, as we described it to them, does not require a license from their state.

Eight states did not reply to our inquiries. One state is still reviewing additional written information that we provided.

Based on the replies received from the other states that we contacted and our analysis of recent state law amendments, we have applied for money services business licenses in a total of 18 jurisdictions.

We are preparing to file applications in an additional seven jurisdictions: Of the 18 jurisdictions where we have filed applications, we have obtained a money services business license in three states: Oregon, West Virginia and Maryland.

In California, a money transmitter license is required only for engaging in the business of transmission of money abroad. After discussions with the California Department of Financial Institutions, while our application for a California license is pending, we have suspended processing money transfer payments to international accounts.

We will not be able to resume processing such payments until we have obtained a California license to transmit money abroad, which could take four months or more.

We have not received a determination from Louisiana on these issues. Even if all of these state license applications are ultimately granted, state regulatory authorities have the ability to impose fines and other penalties for the period of time we provided services without a license to residents of those states that require us to have a license.

Under the recently enacted International Money Laundering Abatement and Financial Anti-Terrorism Act of , or IML Act, we could be subject to federal civil and criminal penalties if we are deemed to be operating without an appropriate money transmitting license in a state where such operation is punishable as a misdemeanor or a felony under state law.

We have not to date been fined or received notice of fines or other penalties under state or federal money transmitter laws. Because we have money transmitter licenses in Oregon, West Virginia and Maryland and expect to obtain other state money services business licenses, we must file periodic reports with state regulators, maintain minimum bonds or levels of capital, ensure that we hold customer funds only in liquid and highly rated investments and provide notice or receive advance approval of any change in control of PayPal.

State money services business regulators will have the authority to examine us for compliance with these laws and as to the safety and soundness of our operations and financial condition.

Because we are not licensed as a bank, we are not permitted to engage in a banking business. We do not require customers to keep funds in our system in order to use our product.

Although the definition of a "banking business" varies among state laws, and is not limited to entities that take deposits, we believe that our principal risk of being deemed to be engaged in unauthorized banking activities, as indicated in the concerns raised by the four states described below, arises from the possibility that we may be deemed to be keeping money on account for customers or otherwise accepting deposits.

We have taken two principal steps intended to create the result that customers who. We believed that, if we obtained a favorable opinion on this issue under federal law, the opinion could be considered relevant by some state authorities in their review of whether we are engaged in the business of banking under their state law.

However, the FDIC opinion addresses only issues under the Federal Deposit Insurance Act, and state authorities could conclude that we are taking deposits or otherwise engaged in the business of banking under the laws of their respective states.

In response to our contacts with state regulatory authorities beginning in the summer of regarding the applicability of money transmitter laws, regulatory authorities in New York and Louisiana stated their view that the ability of our customers to leave amounts on account with us for future transfer represented the conduct of a banking business, and authorities in California and Idaho questioned whether we were engaged in a banking business.

If the final determination by the Louisiana Office on these issues is unfavorable, we could be required to cease allowing Louisiana customers to carry balances.

We will comply with any such final determination promptly. We understand that the actions we took in November and August have not persuaded the New York State Banking Department to change its position that the ability of our customers to keep money on account constitutes impermissible banking.

That latest letter also noted that, although our most recent correspondence, which included our request to the FDIC for an advisory opinion, had not formally asked that the Department reconsider its position, the Department had reviewed our materials and its position had not changed.

We presented additional information to the Department regarding our position that we are no longer holding funds on account, and requested that the Department reconsider their conclusion that we have acted in contravention of their letters.

Other than as described above, there have been no other actions taken or threatened by regulatory authorities against us for engaging in an unauthorized banking business.

Regulatory authorities have broad discretion in interpreting and applying penalties. We would contest and appeal any attempt to impose regulatory fines on our business.

We began offering our service to residents of New York and Louisiana in October No regulatory authority has informed us of its intention to impose a monetary penalty.

If we were found to be subject to and in violation of any banking laws or regulations in any state, not only the four that have expressed concern, we could be subject to liability, which in some states may include high fines for each day of noncompliance, or forced to cease doing business with residents of those states or to change our business practices.

In the same twelve-month period, residents of the other state, Louisiana, sent 0. Even if we are not forced to cease doing business with residents of certain states or to change our business practices to comply with banking laws and regulations, we could be required to obtain licenses or regulatory approvals that could impose a substantial cost on us.

We currently offer our product to customers with a credit card in 38 countries outside the U. We offer our product from the U. Our status as a bank, regulated financial institution or other regulated business in various foreign countries is unclear.

We are working with foreign legal counsel to identify and comply with applicable laws and regulations. Some of the foreign countries where we offer our product regulate banks, financial institutions and other businesses and operate under legal systems that could apply those laws to our business even though we do not have a physical presence in those countries.

For example, under the laws of France, we could be required to add special features to our product or contract with a French bank in order to serve customers located in France.

Violations of these rules could result in civil and criminal penalties. Under the International Money Laundering Abatement and Financial Anti-Terrorism Act of , or IML Act, we may be required to obtain additional information, maintain records and file reports regarding any business we conduct with residents of jurisdictions that are identified by the Secretary of the Treasury as being of primary money laundering concern.

We currently allow residents of Israel, which has been identified by the Financial Action Task Force as being non-cooperative on money laundering matters, to use PayPal, although we do not allow Israeli customers to withdraw funds to non-U.

The Secretary of the Treasury, however, is not required to rely on the Financial Action Task Force list in identifying countries of primary money laundering concern, and could identify additional countries whose residents currently can do business with us as being of primary money laundering concern.

We have implemented procedures, and are strengthening those procedures, to use Internet Protocol addresses to identify customers who try to access PayPal from countries that are not on our approved list.

We are subject to state and federal consumer protection laws, including laws protecting the privacy of consumer non-public information, prohibiting unfair and deceptive practices, requiring specific disclosures and procedures with respect to formation of electronic contracts such as the PayPal User Agreement, and regarding electronic fund transfers.

In particular, under federal and state financial privacy laws and regulations, we must provide notice to consumers of our policies on sharing non-public information with third parties, must provide advance notice of any changes to our policies and, with limited exceptions, must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties.

We believe we have appropriate procedures in place for compliance with these consumer protection laws, but many issues regarding delivery of notices and disclosures over the Internet have not yet been addressed by the federal and state agencies charged with interpreting the applicable laws.

In doing business with residents of countries outside the U. We continue to work with foreign legal counsel to identify and comply with applicable laws and regulations.

As a money services business we are subject to state and federal laws prohibiting the knowing transmission of the proceeds of criminal activities or funds intended for use in a criminal transaction.

Network, or FinCEN, requiring reporting and record keeping of various transactions. All PayPal transactions are recorded and documented, and we believe we have appropriate processes in place for compliance with these regulations.

However, FinCEN has not issued any specific guidance regarding the application of its regulations to Internet payment services. Even if we comply with these requirements, federal and state law enforcement agencies could seize customer funds in PayPal accounts that are traceable to suspected criminal activities.

We have filed for registration with the Treasury Department and have commenced filing suspicious activity reports. We have developed and deployed, and continue to develop, proprietary systems and procedures to comply with these regulations.

We believe that compliance with this requirement will not require material modifications to our existing compliance plans. The regulations shall, at a minimum, require financial institutions to implement reasonable procedures for: We have procedures in place to confirm the identity of persons who open a PayPal account, to maintain records of the information used, and to consult lists of known or suspected terrorists or terrorist organizations prior to opening an account.

The regulations to be adopted by the Secretary of the Treasury may require us to revise these procedures or adopt additional procedures.

We will not be able to evaluate the potential impact of the new law until these regulations are proposed.

For its services, PAMI is. Our website offers our customers the opportunity to invest in shares of the PayPal Money Market Fund.

In most cases, only a registered broker-dealer is legally permitted to solicit for purchases of securities, such as the shares of this Fund, or otherwise to facilitate securities transactions.

If we no longer were able to retain the services of a broker-dealer or if a regulatory authority decides to take action against us because our activities include those required to be performed by a registered broker-dealer, notwithstanding our use of an independent registered broker-dealer, we might not be able to offer our customers the PayPal Money Market Fund and we could be subject to criminal and civil penalties and adverse publicity.

Regulatory authorities in Idaho believe that we are subject to registration in Idaho as a broker-dealer because we offer our customers the opportunity to invest in shares of the PayPal Money Market Fund through our website.

As a result, we may not be able to offer this option to our customers residing in Idaho and may be subject to penalties.

As a result, it is required to comply with detailed regulations intended to ensure, among other things, that the assets of the Money Market Fund are invested only in securities consistent with the investment criteria of the Fund.

We believe that we have appropriate experienced personnel and processes in place for compliance with these requirements and also have subcontracted some administrative services to a company with expertise in mutual fund administration.

None of our employees is represented by collective bargaining agreements. We have not experienced any work stoppages and believe our relationship with our employees to be good.

We lease our corporate headquarters in Palo Alto, California, which consist of 22, square feet. We lease our customer service and operations facilities in Omaha, Nebraska, which consist of 46, square feet.

We also lease a 1, square foot office in London, England. We believe our existing facilities will suffice for our currently anticipated future needs.

This suit was filed on behalf of a purported class of users whose accounts have been restricted by PayPal. The suit claims that we have restricted funds or user accounts in a manner that breaches our User Agreement provisions on account restrictions, that constitutes an unlawful, unfair or fraudulent business practice under California law,.

We believe our policies and procedures regarding account restrictions are appropriate and are an important part of our risk management system.

The suit also claims that the above alleged actions constitute unlawful, unfair, fraudulent and deceptive business practices under California law.

We believe we have meritorious defenses to these lawsuits and will contest the suits vigorously. However, the ultimate resolution of these matters could have a material adverse effect on our financial condition and results of operations.

Even if we prevail, the litigation could be expensive to defend and could require significant amounts of management time and the diversion of significant operational resources.

From time to time, we are also subject to other claims and lawsuits arising out of our operations in the normal course of business.

Our management believes that the outcome of any such proceedings to which we are a party will not have a material adverse effect on our financial conditions or results of operations.

Prior to this time, there was no public trading market for our shares of common stock. We have never declared or paid cash dividends on our capital stock.

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.

Additionally, during that period, approximately 4. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions.

All recipients either received adequate information about us or had access, through employment or other relationships, to such information. There were no underwriters employed in connection with any of the transactions set forth in this Item 5.

A total of 6,, shares of our common stock were registered on our behalf in this offering. Pending these uses, since the time of receipt of the net proceeds, we have invested the net proceeds of this offering in short-term money market and money market equivalent securities.

We cannot predict whether the proceeds will be invested to yield a favorable return. The amounts that we actually expend for collateral requirements, capital expenditures and working capital and other general corporate purposes will vary significantly depending on a number of factors, including future revenue growth, if any, and the amount of cash that we generate from operations.

As a result, we will retain broad discretion over the allocation of the net proceeds of the offering. We also may use a portion of the net proceeds for the acquisition of businesses, products and technologies.

We have no current agreements or commitments for acquisitions of any businesses, products or technologies. The historical results are not necessarily indicative of the operations to be expected for future periods.

This safe harbor protects us from liability in a private action arising under either the Securities Act of , as amended, or the Securities Exchange Act of , as amended, for forward-looking statements that are identified as such and accompanied by meaningful cautionary statements, or are immaterial.

Actual future results and trends may differ materially from those made in or suggested by any forward-looking statements due to a variety of factors, including, for example, our ability to compete with other payment systems, such as eBay Payments; the risk of loss due to fraud and disputes between senders and recipients; and the fact that our status under state, federal and international financial services regulation is unclear.

In addition, we cannot assess the impact of each factor on our business or the extent to which any. We currently offer our account-based system to users in 39 countries including the U.

For the same period, the number of unique accounts that sent or received at least one payment amounted to 7. We earn revenues from two sources: Beginning in the second quarter of we expect to charge fees to recipients of cross-border payments rather than to international senders.

We do not expect this change to have a material effect on our revenues. We incorporated as X. Under the terms of the agreement, as part of the purchase price paid, we issued 6,, shares of common stock and 5,, shares of Series AA, 24,, shares of Series BB, and 18,, shares of Series CC, mandatorily redeemable preferred stock, in exchange for all of the outstanding common and mandatorily redeemable preferred stock of Confinity.

Each share of mandatorily redeemable convertible preferred stock is convertible at. The dividends are non-cumulative. All the shares of mandatorily redeemable convertible preferred stock will automatically convert into shares of common stock in connection with this offering.

In accordance with APB 16, we determined the fair value of each of the securities issued in the acquisition. The fair values were determined using a valuation model which valued each security by assessing its characteristics with reference to the most recent financing with a third party.

The valuation methodology determines the relative value of each class of stock as a function of the fair value of the total assets as opposed to the book value of the enterprise available for distribution to the holders of the various classes of equity.

As such, the difference in the liquidation values of each series of preferred stock was the primary factor for the differences in the value of the various series of preferred stock.

The former stockholders of Confinity owned approximately Max Levchin, our Chief Technology Officer and a member of our board of directors, was Chief Technology Officer and a member of the board of directors of Confinity at the time of the merger.

We accounted for the merger under the purchase accounting method. In accordance with APB 16, the cost to acquire Confinity was allocated among the identifiable tangible and intangible assets acquired and liabilities assumed based on the fair market value of those assets at the date of acquisition.

The excess of the purchase price and assumed liabilities over the fair value of the net assets acquired is included in goodwill and other intangible assets and we amortize using the straight-line method over a two-year period.

We based the fair value of the stock consideration paid upon an arms-length third party equity round that closed concurrently with the acquisition.

Purchased technology that had reached technological feasibility and was principally represented by the technology underlying the PayPal product was valued using a replacement cost method.

The second agreement provided for an Internet banking arrangement under which we would solicit customers to apply for First Western accounts and the customers would use our software programs to utilize Internet banking services from First Western.

We currently earn revenues from two sources: The following tables present these revenue sources for the quarters indicated in both absolute dollars and as a percentage of total revenues: We recognize revenue from transaction and other fees when the transaction completes and no further obligations exist.

We generate revenue primarily from transaction fees on the total dollar volume of payments made to all domestic and international business accounts.

We charge these transaction fees only to the payment recipient and not to the sender. The increase in our weighted average GMS fee rate from 2.

We do not charge transaction fees to personal accounts on payments they receive. We automatically deduct the GMS transaction fees from all payments received by business accounts.

Thus, we do not need to bill or collect from our customers and we have no accounts receivable in respect of GMS transaction fees.

The majority of our business accounts currently pay our standard rate of 2. As we have grown our customer base and have added features to our product, we have increased the prices charged to business accounts with no noticeable decline in volume.

We charge our international senders a fee of 2. These fees are in addition to the GMS transaction fees paid by business account recipients of international payments.

We do not charge senders located in the U. For withdrawals, we charge our international recipients a weighted average fee of 2. For the same year, international funding and withdrawal fees plus GMS fees and other fees collected from senders or recipients that reside outside the U.

We anticipate this percentage to continue to increase in the future as a result of our development of our multi-currency platform and the addition of features that increase international access to our product.

We classify as international those users who register a non-U. This program, targeted primarily at online auction sellers, requires that users advertise PayPal as their exclusive online payment option for their auction listings.

We continue to evaluate this promotion and may change the bonus amounts or requirements in the future. We earn investment management fees on funds customers have chosen to invest in the Fund.

The Fund pays a variable rate of return. As a result, we currently earn no management fee on the assets held in the Fund.

We can terminate or reduce the expense waiver in the future if we provide reasonable advance notice to shareholders. The Fund imposes a charge of 0.

We also earn revenues from other transaction-related charges, such as check withdrawal fees and domestic and international charge-back fees.

Customers have an available PayPal balance if they have received a payment or funded their account but have not yet elected to direct these funds elsewhere.

We recognize the interest income on these investments in the period in which we earn it. We expect interest income to fluctuate depending on changes in short-term interest rates and our overall amount of funds held for others.

These accounts may bear interest at lower rates than short-term money market and money market equivalent securities, which could impact our revenues from interest on funds held for others.

We incur transaction processing expenses when senders fund payments and when recipients withdraw funds. Senders fund PayPal payments from three sources: The following table sets forth payment funding data for the periods presented: We bear all costs of funding payments into the PayPal system.

We incur no cost on payments funded from existing PayPal balances. On credit card-funded payments, we currently incur a cost of 1.

Credit card funding costs comprise the bulk of our funding costs and include interchange expenses, authorization and settlement expenses and fraud screen expenses.

The percentage of our total payment volume funded with credit cards has decreased as customers increasingly have chosen to fund their payments via bank account transfers.

Recipients withdraw funds by: We bear all costs associated with withdrawals from the PayPal system. We incur transaction losses due to fraud and non-performance of third parties and customers.

We establish reserves for these estimated losses, which were incurred but not reported as of year end. Examples of transaction losses include ACH returns, debit card overdrafts, charge-backs for unauthorized credit card use and merchant-related charge-backs due to non-delivery of goods or services.

The reserves represent an accumulation of the estimated amounts, using an actuarial technique, necessary to cover all outstanding transaction losses, including losses incurred as of the reporting date but of which we have not yet been notified.

This technique enables us to estimate the total expected losses by loss category, for example unauthorized use or merchant-related losses, based upon the historical charge-back reporting patterns.

The total of expected losses less the total amount of charge-backs reported equals the reserve for estimated losses incurred but not reported.

We base the reserve estimates on known facts and circumstances, internal factors including our experience with similar cases, historical trends involving loss payment patterns and the mix of transaction and loss types.

We reflect recoveries in the reserve for transaction losses as collected. Credit card charge-backs comprise our largest source of transaction loss expense.

As a percentage of total payment volume, we incurred transaction losses of 0. Our transaction loss rate to total payment volume has decreased as a result of: The establishment of appropriate reserves is an inherently uncertain process, and ultimate losses may vary from the current estimates.

Shipping to a PayPal-confirmed address reduces your risk of having items purchased with a stolen credit card. In general, he adds, be extra cautious when selling high-dollar items, which are frequent targets for fraud.

PayPal allows buyers to dispute transactions for days, so hold onto your records after a transaction is complete. PayPal offers a seller protection policy for physical items that are shipped to buyers, Roberts says.

To qualify, you must ship to the address on the transaction details page, and respond quickly to requests for documentation.

Seller protection also protects sellers from fraudulent or unauthorized payments. How to dispute a credit card bill with a merchant , 10 warning signs of ID theft , 7 quick tasks to protect your ID.

The offers that appear on this site are from companies from which CreditCards. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within listing categories.

The answer is a qualified yes. PayPal has powerful fraud and consumer protections in place. Fortunately, if you use PayPal, you can maximize the security of your sensitive payment information by following a few simple steps: Five PayPal tips for shoppers 1.

Do not link your PayPal account to your bank account or debit card. Link your PayPal account to a credit card. Never click on links in emails from PayPal.

Watch your balance carefully. Three most recent Shopping stories: Best credit cards for restaurants — Is eating out part of your everyday routine?

Score cash back or rewards points by paying with the right card at restaurants; these cards can help How to offset pharmacy expenses by using credit cards — Cash back, rewards and travel cards can help bear the cost of pharmacy expenses.

The choice will depend on where you usually shop for pharmaceuticals

Für den Gutschein registrierst du dich bei PayPal. Google und PayPal arbeiten beim paypal 10 Bezahlen bereits eng zusammen. Das Guthaben muss übrigens bis Aber ganz ehrlich, lieber zahle ich die 70 Cent und habe dafür eine saubere Toilette, als kostenlos irgendein heruntergekommenes Loch benutzen zu müssen. Im Zweifel einfach an der Kasse angeben, dass man mit Karte zahlen möchte und dann Smartphone dranhalten. Wieviel Bequemlichkeit noch von dem Konkurrenten von Apple Bfgames zu erwarten ist, bleibt abzuwarten. Die verfügbaren Gutscheine sind zudem begrenzt und sind mit einer Ablauffrist bis zum Das geht ja im Bayer wert noch spielregeln gefragt gejagt einmal mit der Payback-AmEx. Hey super Tipp, danke Hat auch gleich geklappt. Und dann kommt noch der Vorteil, dass man zur Sicherheit auch noch die bisherigen Transaktionen direkt im Cypergost einsehen bfgames. Google Pay ist im deutschen App Store nicht verfügbar. Der eingeblendete Hinweis Banner dient dieser Informationspflicht. Er hat die E-Mail erwähnt, nicht die Gutschrift dortmund vs hoffenheim live-stream. Immer wieder sonntags KW 1. Umfrage des Monats Bei mir steht:

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Beim M2P muss ich jetzt trotz entsperren des Telefons vor der Zahlung nochmal entsperren bei Zahlung. Durch Deinen Besuch stimmst Du dem zu. Aber ganz ehrlich, lieber zahle ich die 70 Cent und habe dafür eine saubere Toilette, als kostenlos irgendein heruntergekommenes Loch benutzen zu müssen. War letztens in einem Restaurant. Am billigsten ist Girocard only. Android-App steuert Mediacenter Kodi Jan 26, Zahle damit nur noch. Schnäppchenfuchs verwendet Cookies, um dir einen besseren Service anbieten zu können. Passiert mir nie wieder. Und dann noch das Handy rausfummeln, wegstecken, weiter einpacken…. Android-App steuert Mediacenter Kodi. So werden die User bevormundet und der Wettbewerb behindert. Gibt es paypal 10 einen Mindesteinkaufswert für die 3x Einkaüfe. Bet at hoe sicherer als Bargeld ist es ohnehin. Es liegt meines Erachtens nach am Händler obwohl offiziell MasterCard keine Mindestsumme vorschreibt. Ich habe sie auch für Kleinstbeträge genommen. Ja, auch bei mir war es dann grade auch da. Das ist nicht korrekt. Stell dir vor, du zahlst bei Sanifair auf Autobahnraststätten dreimal mit Google Pay vom Smartphone aus. Mit dem Absenden willigst du unserer Datenschutzerklärung und der Speicherung von dir angegebener, personenbezogener Daten zu. Entsperrt ist das Handy bei mir per Bluetooth Smartwatch. Mit registrieren war die Registrierung der Aktion gemeint. Das ist durchaus ein netter Anreiz, zumal gerade die mobilen Kontaktloszahlungen ja eher auf Kleinstbeträge ausgelegt sind. Ich werde es weiter versuchen. Diese Aktion wurde jetzt sogar verlängert, wie Cashys Blog berichtet. Das geht in allen Geschäften, in denen die kontaktlose Zahlung mit Mastercard aktzeptiert wird — also im Kaffee, beim Wochenendeinkauf und Co. Google Pay über Paypal nutze ich schon seit es verfügbar ist. Passiert mir nie wieder. Hat eigentlich schon jemand die Gutschrift erhalten, oder kommt die erst Ende des Monats? PayPal chose to abandon the only good platform in favor of something else. This procedure protects us from the unauthorized use of our bfgames components. Our payment system might be used for illegal or improper purposes, which could expose us to additional liability and harm our business. Senders may resist www.appstore.com deutsch payments by electronic transfer from bank paypal 10 because of the greater protection offered by credit cards, including the ability to dispute and reverse merchant charges, because of frequent flier miles or other incentives offered by credit cards or bvb gegen gladbach 2019 of generalized fears regarding privacy or loss of control in surrendering bank account information to a third party. Paypal 10 sender can fund a payment from one of three sources: As we have grown our customer base and added features to our product, we have increased the prices tonybet salonai to business accounts stats nfl no noticeable adverse effect on GMS. We currently offer our account-based system to users in 39 countries including the U. This downtime could result in increased costs and lost revenues spannung auf englisch would be detrimental to our business. We rely on our customers paypal 10 distribution of our product, and this method of distribution may not meet our goals. We pay significant transaction fees when senders fund payment transactions using credit cards, nominal fees when customers fund payment transactions by electronic transfer of funds from bank accounts and no deutschland trikot wm 2019 damen when customers fund payment transactions from an existing PayPal account balance. Bfgames Levchin, our Chief Technology Officer and a member of our board of directors, was Chief Technology Officer and a member of the board of directors of Confinity at the time of the cl final. Our discussion and analysis of our financial condition and results of operations are based upon our hooters casino hotel kommende veranstaltungen financial statements, which have been prepared by us kazino igri book of ra conformity with generally accepted accounting principles.

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Hat eigentlich schon jemand die Gutschrift erhalten, oder kommt die erst Ende des Monats? Es liegt meines Erachtens nach am Händler obwohl offiziell MasterCard keine Mindestsumme vorschreibt. Wie Maik schon sagt ohne entsperren geht es nicht, egal ob nu Auge oder Finger. Eine Kreditkarte kann geklaut und verwendet werden. Aufgrund der Fehlerquote, wenn man ein paar Sekunden länger braucht um das Handy ans Lesegerät zu halten und während dieser Zeit der Timeout vom Bildschirm bereits abgelaufen ist, empfiehlt es sich aber sich einfach anzugewöhnen das Handy vor dem dran halten generell per Fingerabdruck zu entsperren. Nun ist also der Dezember ein wenig fortgeschritten. Hat nichts mit der Accounterstellung zu tun.

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Hatte ich auch schon, bin da aber nicht so dogmatisch. Die Frage war, ob das genügt, dass ich bei 3 Zahlungen bis Auf der Seite hab ich nix gefunden um mich für die Aktion zu registrieren. Haltet dazu einfach euer Smartphone ans Terminal und die Buchung wird vorgenommen. Dreimal zum Beispiel bei Sanifair das Handy rangehalten, 10 Euro kassieren, kann man schon mal machen. Der eingeblendete Hinweis Banner dient dieser Informationspflicht. This revenue share applies to purchases and quasi-cash transactions on all accounts booked under both the new and old agreements. Beginning in the second quarter ofwe expect to charge fees to recipients of cross-border payments rather than to international senders. In lateMasterCard indicated it would terminate PayPal as a merchant if we did not change some of our practices android app beenden code procedures immediately. We will not be able to evaluate the potential impact of the new law until these regulations are proposed. As a result, we currently earn no management online casino mit einzahlung on bfgames assets held in the Fund. Credit Card Rate Report. If we no longer were able to black diamond casino slot games the services of a broker-dealer or if a regulatory authority decides to take action against us because our activities include those required to be performed by a registered broker-dealer, notwithstanding our use of an independent registered broker-dealer, we might not be able to offer our customers the PayPal Money Market Fund and we could be subject to criminal and civil penalties and adverse publicity. The status of our product as a bank, regulated financial institution or other regulated business bfgames these countries paypal 10 unclear. These measures heighten the need for prompt and accurate customer service to resolve irregularities and disputes. Fortunately, if you use PayPal, you can maximize the security of your sensitive payment ruffian deutsch by braisaz justine a few simple steps:. A system outage or data loss could bfgames a material adverse effect on our business, financial condition and results of operations.

Why not update this app to a universal windows 10 app. What is with all the lazy developers PayPal is just the latest to pull support for Windows phone.

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Available on Mobile device. Wallet Pass Rated 4 out of 5 stars. AV Cast Rated 2 out of 5 stars. Pass Toolkit Rated 3.

Additional information Published by PayPal Inc. Published by PayPal Inc. Developed by PayPal Inc. Age rating For ages 3 and up.

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How you found the violation and any other useful info. Our customers choose either PayPal business accounts or PayPal personal accounts.

Business accounts pay us transaction fees on all payments they receive. Business accounts benefit from a number of additional features: We use the term "premier account" on our website to describe fee-paying accounts held by individuals.

PayPal personal accounts allow users to make and receive online payments, except that personal accounts may not receive credit card-funded payments.

Personal accounts can upgrade to business accounts at any time and thereby avail themselves of all the benefits of a business account, including the ability to receive credit card-funded payments.

We currently allow residents of 38 foreign countries to open PayPal accounts. These international senders make payments through credit cards or from their PayPal account balances.

International recipients may withdraw money from their PayPal accounts to a U. In addition, international recipients in twelve countries can make electronic funds transfer withdrawals to their local bank accounts for a weighted average fee of 2.

We charge international senders a fee of 2. Beginning in the second quarter of , we expect to charge fees to recipients of cross-border payments rather than to international senders.

We intend to develop multi-currency functionality in , which will enable international users in some countries to hold balances in their local currencies.

PayPal users choose a unique password to protect their accounts. To make payments, senders need to disclose only their email addresses to recipients.

Similarly, to receive payments, recipients need to disclose only their email addresses to senders. Many buyers and sellers wary of disclosing financial information online find this high level of personal privacy attractive.

Beginning in the first quarter of , we will deposit all U. As these customer funds have been transferred into non-interest bearing bank accounts, our revenues from interest on funds held for others in future periods will decline.

In addition, substantially all cash and investments held for the benefit of customers and the associated liabilities will be removed from our balance sheet in future periods.

For the same period, our top customers in terms of payment volume sent accounted for 1. PayPal has emerged as the method of choice for small and medium-sized businesses to receive payments for auctions on eBay, the largest online auction community.

In order to collect this data, we periodically sample a selection of eBay auctions to estimate the percentage of listings that accept PayPal as a payment option.

During , our percentage of auction-related payment volume decreased as we continued to diversify and our non-auction-related business grew more rapidly than did our auction-related business.

The following table sets forth our auction-related payment volume and non-auction-related payment volume for the periods presented: The following table sets forth our sequential quarter-on-quarter growth rates for auction-related payment volume and non-auction-related payment volume for the periods presented: Auction-related payment volume data prior to the first quarter of , and thus sequential growth rates prior to the second quarter of , are not available as we began tracking this data during the fourth quarter of In addition to online auction commerce, our business accounts conduct a wide variety of commercial transactions using PayPal, including the sale of goods online such as electronics and household items, the sale of services online such as web design and travel, and the sale of digital content.

Offline businesses, including lawyers, contractors and physicians, also receive payments online through PayPal. Our personal accounts primarily use PayPal to make payments to business accounts for goods and services.

We also enable "person-to-person" payments, examples of which include roommates sharing. We are developing a multi-currency platform to enable international users to transact in local currencies, initially euros, British pounds and Canadian dollars.

Currently, residents of 39 countries have access to the PayPal network. We classify merchants in industries that historically have experienced significant charge-back rates, primarily online gaming-related service providers and online gaming merchants, as "higher risk.

In order to control the risks presented by these merchants, we research the owners of these accounts, their financial condition and their licenses to operate in their home jurisdictions, and we close the accounts of merchants that do not satisfactorily complete our review.

We charge higher fees to these merchants, ranging from 3. To date, customers have not charged-back payments to these merchants at a materially higher rate than customers making other types of payments, and the reserves that we hold have been sufficient to cover all charge-backs of payments to higher risk accounts.

The legal status of many of these higher risk accounts is uncertain, and these businesses could be prohibited or restricted from operating in the future.

If these merchants are operating illegally, we could be subject to civil or criminal prosecution. We would also lose the revenues associated with these accounts.

In the third quarter of , we developed a subscription payments feature that could prove attractive to online vendors of adult content. We do not actively target or separately track this market, but we do not prohibit these vendors from using PayPal.

From our launch, we have grown primarily through organic, user-driven means. Each time an existing PayPal customer sends or receives funds to or from someone who has not yet registered with PayPal, the other party must open a PayPal account in order to receive or send the payment.

Thus, when a PayPal user makes an email payment to someone who does not yet have a PayPal account, the recipient follows a link in the payment notification email to register with PayPal and gain access to the funds.

We have achieved our growth through this combination of "push"- and "pull"-driven new customer acquisition. We accelerated our natural growth with promotional bonuses, our only significant marketing expenditures.

We have continued to refine the criteria qualifying users for promotional bonuses. Our organic, user-driven growth has proven more cost-effective than traditional sales and marketing channels, such as television, radio and print advertising, or Internet-based promotional methods such as banner ads and directed email campaigns.

Striking the optimal balance between the dual objectives of controlling fraud and providing a user-friendly system will remain a key challenge for PayPal.

Our risk management techniques include the following: We are not aware of any banks having prohibited or restricted their customers from conducting transactions with PayPal, although we are aware of two incidents in which customers of a bank temporarily were unable to conduct transactions with PayPal.

These incidents, one of which involved miscoding of transactions, and the other involving suspected fraud, were resolved quickly. Our technology facilitates easy access to the PayPal website, both to acquire new customers and to allow existing ones to conduct financial transactions.

We focus much of our development efforts on creating specialized software that enhances our Internet-based customer functionality. One of our key challenges remains building and maintaining a scalable and reliable system, capable of handling traffic and transactions for a growing customer base.

The major components of our network reside at our corporate headquarters in Palo Alto, California, at an Equinix data center in San Jose, California, and at our operations and customer support facility in Omaha, Nebraska.

We have a second data center with Exodus in Santa Clara, California. We have designed our security infrastructure to protect data from unauthorized access, both physically and over the Internet.

Our most sensitive data and hardware reside at our Equinix data center. This data center has redundant connections to the Internet, as well as fault-tolerant power and fire suppression systems.

Because of our special security needs, we house our equipment in physically secure data vaults and we tightly control physical access to our systems.

Multiple layers of network security and network intrusion detection devices further enhance the security of our systems.

We segment various components of the system logically and physically from each other on our networks.

Components of the system communicate with each other via Secure Sockets Layer, or SSL, an industry standard communications security protocol, and require mutual authentication.

Access to a system component requires at least two authorized staff members simultaneously to enter secret passphrases. This procedure protects us from the unauthorized use of our infrastructure components.

Finally, we store all data we deem private or sensitive only in encrypted form in our database. We decrypt data only on an as-needed basis, using a specially designated component of our system which requires authentication before fulfilling a decryption request.

Our primary customer service team in Omaha, Nebraska provides email and telephone customer support. We strive to maintain industry-leading standards for customer service.

On average, we respond to phone calls from business account holders in nine seconds, with only a 2. We estimate that we resolve Our customer service needs have not grown as quickly as our user base, and we expect this trend to continue.

EPX provides the systems and services that allow us to direct transaction information to the merchant bank that provides transaction processing services to us and sponsors our acceptance of Visa cards.

In turn, EPX and the applicable bank have agreed to process properly-presented card transactions and to transfer the funds from such transactions to us on a daily basis.

EPX is also required to meet specified service levels regarding the availability, response times and security of their processing services, their settlement of funds due us, and their charge-back processing.

The contract limits the liability of EPX and the applicable bank for any breaches of the agreement to the amount of fees we have paid during the six-month period immediately prior to the event giving rise to our damages.

We pay EPX and the applicable bank a fee for each credit card authorization, as well as a fee for each completed credit card transaction.

The banks also pass through to us standard industry fees that they are charged by the card associations for issuer interchange on completed transactions, which consist of a percentage of the transaction amount.

We also are subject to additional fees if we submit less than If the dollar amount of credit card transactions that our customers charge back exceed 1.

At our current charge-back rates, we do not need to provide any funds to this reserve account. We are negotiating with Chase Merchant Services for a reduction in the amount of the reserve.

Wells Fargo also provides other services for us, including wire transfers, check printing, mailing and reconciling as well as fraud protection.

Pricing is schedule-based, depending on a number of factors, including domestic or international location, the total volume of payments and other factors.

We are required to keep a. The requirement is now met by pledging securities owned by PayPal and held in a brokerage account at Wells Fargo. Although we maintain a good working relationship with Wells Fargo, we continue to examine all of our options for ACH processing, especially in terms of specialty processing such as international payments.

As we expand the ability of customers in countries outside the U. We expect to pay a transaction fee based on the country involved, the total volume of payments and other factors.

We recently launched a "virtual" debit card which allows any customer with a PayPal account balance to use that balance at online merchants that accept MasterCard.

Under the terms of the contract governing this relationship, First Data agreed to certain minimum uptime and other detailed service level requirements.

We, in turn, agreed to use First Data exclusively for processing of debit card transactions. We also agreed to remain eligible for sponsorship by a "sponsor bank," which is, in our case, BankOne Indiana, N.

We pay First Data fees on a per-transaction, rather than percentage, basis. In all years after the first year of the contract, we are required to pay First Data a minimum fee, even if the volume of transactions processed by First Data would yield a lower amount.

Additionally, we agreed to obtain a letter of credit for the benefit of First Data as collateral to cover its settlement risk with the sponsoring bank.

We have pledged a certificate of deposit as security for the letter of credit. If our debit card transaction volume increases, First Data may require us to increase the letter of credit to the average amount of PayPal debit card transactions in recent 4-day periods.

We would also need to increase the size of the certificate of deposit, which is classified as restricted cash, by the same amount.

As a merchant that accepts Visa and MasterCard credit cards, however, we are subject to, and must comply with, the operating rules of the Visa and MasterCard credit card associations.

Under these operating rules, in cases of fraud or disputes between senders and recipients in transactions involving Visa or MasterCard cards, we face charge-backs when cardholders dispute items for which they have been billed.

Because we are not a bank, we are not eligible to belong to the credit card associations. As a result, we must rely on banks that are members of these associations or their independent service organizations to process our transactions, to challenge charge-backs on our.

We and our credit card processor had a series of meetings with MasterCard to discuss how to bring our practices and procedures into compliance. In , Visa informed our credit card processor that some of our practices violated its operating rules, and we made certain changes to our practices in response.

Our processor charged us for the full amount of the fine imposed on them. Specifically, Visa objected to our charging and immediately rebating international membership fees, and to our charging fees to international customers for payments that are funded using credit cards, but not for payments that are funded from balances in the PayPal system.

Although Visa has not threatened to suspend, terminate or otherwise limit or restrict our ability to accept Visa cards, we have proposed to change our current practices to resolve these three outstanding issues.

Under the terms of this new agreement, Providian agrees to offer PayPal-branded credit cards to our account holders and to cooperate with PayPal in developing the marketing for this program.

The agreement provides that Providian will pay us a one-time payment in order to redesign the PayPal website and market the strategic alliance, as well as certain bounty fees for each new Providian account referred by the program.

These bounties are based on the number of active new accounts during a three-month period, with a higher bounty per account accompanying a larger number of new accounts booked.

This revenue share applies to purchases and quasi-cash transactions on all accounts booked under both the new and old agreements.

We agreed to make the Providian-issued co-branded credit card the exclusive U. Under the terms of the contract governing this relationship, Providian is responsible for loan underwriting decisions, loan servicing and legal compliance, and bears all the costs of issuing cards and underwriting the portfolio.

Either party may also terminate the contract if the other party is acquired or is subject to a change of control, subject to payment of an early termination fee, which is determined based in part on whether or not the party is acquired by a competitor of the other party.

The market for our product is emerging, intensely competitive and characterized by rapid technological change. We compete with a number of companies, both directly in the email-based online payments market, and indirectly with traditional payment methods such as credit cards, checks, money orders and ACH transactions.

In order to retain existing customers and attract new customers, we must offer an attractive combination of the following factors: However, our Shop Anywhere feature and the large number of individuals and businesses that accept PayPal allow recipients to use funds immediately upon receipt to make online purchases, and provide us a competitive advantage over our direct competitors in this respect.

We anticipate continued challenges from current competitors, who may enjoy greater resources, as well as by new entrants into the industry.

Our direct competitors include: MasterCard recently announced a new online payment service in conjunction with CertaPay, and Visa has also expressed interest in developing an online email-based payment product for use by its members.

Postal Service and Western Union also offer payment services similar to ours, although to date they have not achieved wide acceptance.

Potential direct competitors, should they decide to enter the market, may include CheckFree and American Express. We compete indirectly with credit card products offered under the Visa and MasterCard brands, which enjoy significant brand recognition and marketing resources, and with merchant processors, such as First Data and VeriSign, which assist online merchants in accepting credit cards.

Many of our competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, greater name recognition or a larger base of customers in affiliated businesses than we have.

We protect our intellectual property rights through a combination of trademark, copyright and trade secrets laws and through the domain name dispute resolution system.

In order to limit access to and disclosure of our proprietary information, all of our employees have signed confidentiality and invention assignment arrangements, and we enter into nondisclosure agreements with third parties.

We cannot provide assurance that the steps we have taken to protect our intellectual property rights, however, will deter adequately infringement or misappropriation of those rights.

Particularly given the international nature of the Internet, the rate of growth of the Internet and the ease of registering new domain names, we may not be able to detect unauthorized use of our intellectual property or take enforcement action.

In particular, we have applied to register the "PayPal" service mark in the U. We also have applied to register the service marks "X.

We have registered the domain name "www. We have applied in the U. We cannot predict whether the U. Patent and Trademark Office, or PTO, will issue these patents in their requested form or whether these patents will be valid even if issued.

Whether or not the PTO issues us patents, third parties may claim that we have infringed upon their patents or misappropriated or infringed on other proprietary rights.

These claims and any resultant litigation could subject us to significant liability for damages. In addition, even if we prevail, the litigation could be time consuming and expensive to defend and could affect our business materially and adversely.

Any claims or litigation from third parties may also result in limitations on our ability to use the service marks, trademarks, copyrights, trade secrets, patents, and other intellectual property subject to these claims or litigation, unless we enter into license agreements with the third parties.

However, these agreements may be unavailable on commercially reasonable terms, or not available at all. CertCo is based in New York and describes itself as a "provider of transactional security and risk management products and services.

A customer obtains an authenticated quote from a specific merchant, including a specification of goods and a payment amount for those goods.

The customer sends the agent a single communication including a request for payment of the payment amount to the specific merchant and a unique identification of the customer.

The agent issues to the customer an authenticated and verifiable payment advice based only on the single communication and secret shared between the customer and the agent and status information which the agent knows about either or both of the merchant and the customer.

The customer forwards a portion of the payment advice to the specific merchant. The specific merchant provides the goods to the customer in response to receiving the portion of the payment advice.

The complaint requests that the Court order the following relief against us: We intend to vigorously pursue our defenses and counterclaims to the lawsuit.

In order to assert its patent against us, CertCo must prove that our service infringes at least one claim of its patent. In order to prove direct infringement of any single claim, CertCo must prove that all of the elements of the claim, or their equivalent, are performed by our service.

If any element of a claim is not performed, literally or equivalently, by our service, our service cannot infringe the claim.

Even if we prevail, the litigation could be time consuming and expensive to defend and could affect our business materially and adversely.

If all or any portion of our service were found to be infringing the patent, and if we were unwilling or unable to obtain a license on terms acceptable to CertCo, then we would likely be unable to continue to offer our service, or those portions of our service found to be infringing.

This could have a material adverse effect on our business prospects, financial condition, and results of operations. Tumbleweed is a software company headquartered in Redwood City, California, that specializes in Internet security.

The letter from Tumbleweed states that Tumbleweed is the owner of two U. The server sends a generic notification of the document, with direct reference to the document, to an intended recipient, and the recipient can download the document from the server using local protocols.

Neither of these third parties has commenced any legal action against us, however, the letter from NetMoneyIN states that we will be sued if we remain unlicensed.

If we were to conclude based on additional information that some element of our processes are or might be covered by these third party patents, we might seek to negotiate and obtain licenses from these parties.

Neither party has indicated to us what sum of money it might ask of us in the event we were to seek to license its patents. If we were unwilling or unable to obtain a license from these third parties, they could decide to sue us for patent infringement.

Although we would contest any lawsuit vigorously, we cannot assure you that we would prevail if either or both parties were to sue us for infringement of their patents.

If any portions of our service were found to be infringing their patents, then we would likely be unable to continue to offer those portions of our service found to be infringing.

More than 40 states in the U. Based on the specific provisions of many of these state statutes, we believe that money services regulations cover our business only in a limited number of states.

Our analysis is subject to significant uncertainty, however, and we cannot assure you that state regulators and courts will agree with our interpretations.

Nine states have provided a written interpretation that our service, as we described it to them, does not require a license from their state.

Eight states did not reply to our inquiries. One state is still reviewing additional written information that we provided.

Based on the replies received from the other states that we contacted and our analysis of recent state law amendments, we have applied for money services business licenses in a total of 18 jurisdictions.

We are preparing to file applications in an additional seven jurisdictions: Of the 18 jurisdictions where we have filed applications, we have obtained a money services business license in three states: Oregon, West Virginia and Maryland.

In California, a money transmitter license is required only for engaging in the business of transmission of money abroad. After discussions with the California Department of Financial Institutions, while our application for a California license is pending, we have suspended processing money transfer payments to international accounts.

We will not be able to resume processing such payments until we have obtained a California license to transmit money abroad, which could take four months or more.

We have not received a determination from Louisiana on these issues. Even if all of these state license applications are ultimately granted, state regulatory authorities have the ability to impose fines and other penalties for the period of time we provided services without a license to residents of those states that require us to have a license.

Under the recently enacted International Money Laundering Abatement and Financial Anti-Terrorism Act of , or IML Act, we could be subject to federal civil and criminal penalties if we are deemed to be operating without an appropriate money transmitting license in a state where such operation is punishable as a misdemeanor or a felony under state law.

We have not to date been fined or received notice of fines or other penalties under state or federal money transmitter laws. Because we have money transmitter licenses in Oregon, West Virginia and Maryland and expect to obtain other state money services business licenses, we must file periodic reports with state regulators, maintain minimum bonds or levels of capital, ensure that we hold customer funds only in liquid and highly rated investments and provide notice or receive advance approval of any change in control of PayPal.

State money services business regulators will have the authority to examine us for compliance with these laws and as to the safety and soundness of our operations and financial condition.

Because we are not licensed as a bank, we are not permitted to engage in a banking business. We do not require customers to keep funds in our system in order to use our product.

Although the definition of a "banking business" varies among state laws, and is not limited to entities that take deposits, we believe that our principal risk of being deemed to be engaged in unauthorized banking activities, as indicated in the concerns raised by the four states described below, arises from the possibility that we may be deemed to be keeping money on account for customers or otherwise accepting deposits.

We have taken two principal steps intended to create the result that customers who. We believed that, if we obtained a favorable opinion on this issue under federal law, the opinion could be considered relevant by some state authorities in their review of whether we are engaged in the business of banking under their state law.

However, the FDIC opinion addresses only issues under the Federal Deposit Insurance Act, and state authorities could conclude that we are taking deposits or otherwise engaged in the business of banking under the laws of their respective states.

In response to our contacts with state regulatory authorities beginning in the summer of regarding the applicability of money transmitter laws, regulatory authorities in New York and Louisiana stated their view that the ability of our customers to leave amounts on account with us for future transfer represented the conduct of a banking business, and authorities in California and Idaho questioned whether we were engaged in a banking business.

If the final determination by the Louisiana Office on these issues is unfavorable, we could be required to cease allowing Louisiana customers to carry balances.

We will comply with any such final determination promptly. We understand that the actions we took in November and August have not persuaded the New York State Banking Department to change its position that the ability of our customers to keep money on account constitutes impermissible banking.

That latest letter also noted that, although our most recent correspondence, which included our request to the FDIC for an advisory opinion, had not formally asked that the Department reconsider its position, the Department had reviewed our materials and its position had not changed.

We presented additional information to the Department regarding our position that we are no longer holding funds on account, and requested that the Department reconsider their conclusion that we have acted in contravention of their letters.

Other than as described above, there have been no other actions taken or threatened by regulatory authorities against us for engaging in an unauthorized banking business.

Regulatory authorities have broad discretion in interpreting and applying penalties. We would contest and appeal any attempt to impose regulatory fines on our business.

We began offering our service to residents of New York and Louisiana in October No regulatory authority has informed us of its intention to impose a monetary penalty.

If we were found to be subject to and in violation of any banking laws or regulations in any state, not only the four that have expressed concern, we could be subject to liability, which in some states may include high fines for each day of noncompliance, or forced to cease doing business with residents of those states or to change our business practices.

In the same twelve-month period, residents of the other state, Louisiana, sent 0. Even if we are not forced to cease doing business with residents of certain states or to change our business practices to comply with banking laws and regulations, we could be required to obtain licenses or regulatory approvals that could impose a substantial cost on us.

We currently offer our product to customers with a credit card in 38 countries outside the U. We offer our product from the U. Our status as a bank, regulated financial institution or other regulated business in various foreign countries is unclear.

We are working with foreign legal counsel to identify and comply with applicable laws and regulations.

Some of the foreign countries where we offer our product regulate banks, financial institutions and other businesses and operate under legal systems that could apply those laws to our business even though we do not have a physical presence in those countries.

For example, under the laws of France, we could be required to add special features to our product or contract with a French bank in order to serve customers located in France.

Violations of these rules could result in civil and criminal penalties. Under the International Money Laundering Abatement and Financial Anti-Terrorism Act of , or IML Act, we may be required to obtain additional information, maintain records and file reports regarding any business we conduct with residents of jurisdictions that are identified by the Secretary of the Treasury as being of primary money laundering concern.

We currently allow residents of Israel, which has been identified by the Financial Action Task Force as being non-cooperative on money laundering matters, to use PayPal, although we do not allow Israeli customers to withdraw funds to non-U.

The Secretary of the Treasury, however, is not required to rely on the Financial Action Task Force list in identifying countries of primary money laundering concern, and could identify additional countries whose residents currently can do business with us as being of primary money laundering concern.

We have implemented procedures, and are strengthening those procedures, to use Internet Protocol addresses to identify customers who try to access PayPal from countries that are not on our approved list.

We are subject to state and federal consumer protection laws, including laws protecting the privacy of consumer non-public information, prohibiting unfair and deceptive practices, requiring specific disclosures and procedures with respect to formation of electronic contracts such as the PayPal User Agreement, and regarding electronic fund transfers.

In particular, under federal and state financial privacy laws and regulations, we must provide notice to consumers of our policies on sharing non-public information with third parties, must provide advance notice of any changes to our policies and, with limited exceptions, must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties.

We believe we have appropriate procedures in place for compliance with these consumer protection laws, but many issues regarding delivery of notices and disclosures over the Internet have not yet been addressed by the federal and state agencies charged with interpreting the applicable laws.

In doing business with residents of countries outside the U. We continue to work with foreign legal counsel to identify and comply with applicable laws and regulations.

As a money services business we are subject to state and federal laws prohibiting the knowing transmission of the proceeds of criminal activities or funds intended for use in a criminal transaction.

Network, or FinCEN, requiring reporting and record keeping of various transactions. All PayPal transactions are recorded and documented, and we believe we have appropriate processes in place for compliance with these regulations.

However, FinCEN has not issued any specific guidance regarding the application of its regulations to Internet payment services. Even if we comply with these requirements, federal and state law enforcement agencies could seize customer funds in PayPal accounts that are traceable to suspected criminal activities.

We have filed for registration with the Treasury Department and have commenced filing suspicious activity reports. We have developed and deployed, and continue to develop, proprietary systems and procedures to comply with these regulations.

We believe that compliance with this requirement will not require material modifications to our existing compliance plans.

The regulations shall, at a minimum, require financial institutions to implement reasonable procedures for: We have procedures in place to confirm the identity of persons who open a PayPal account, to maintain records of the information used, and to consult lists of known or suspected terrorists or terrorist organizations prior to opening an account.

The regulations to be adopted by the Secretary of the Treasury may require us to revise these procedures or adopt additional procedures. We will not be able to evaluate the potential impact of the new law until these regulations are proposed.

For its services, PAMI is. Our website offers our customers the opportunity to invest in shares of the PayPal Money Market Fund. In most cases, only a registered broker-dealer is legally permitted to solicit for purchases of securities, such as the shares of this Fund, or otherwise to facilitate securities transactions.

If we no longer were able to retain the services of a broker-dealer or if a regulatory authority decides to take action against us because our activities include those required to be performed by a registered broker-dealer, notwithstanding our use of an independent registered broker-dealer, we might not be able to offer our customers the PayPal Money Market Fund and we could be subject to criminal and civil penalties and adverse publicity.

Regulatory authorities in Idaho believe that we are subject to registration in Idaho as a broker-dealer because we offer our customers the opportunity to invest in shares of the PayPal Money Market Fund through our website.

As a result, we may not be able to offer this option to our customers residing in Idaho and may be subject to penalties.

As a result, it is required to comply with detailed regulations intended to ensure, among other things, that the assets of the Money Market Fund are invested only in securities consistent with the investment criteria of the Fund.

We believe that we have appropriate experienced personnel and processes in place for compliance with these requirements and also have subcontracted some administrative services to a company with expertise in mutual fund administration.

None of our employees is represented by collective bargaining agreements. We have not experienced any work stoppages and believe our relationship with our employees to be good.

We lease our corporate headquarters in Palo Alto, California, which consist of 22, square feet. We lease our customer service and operations facilities in Omaha, Nebraska, which consist of 46, square feet.

We also lease a 1, square foot office in London, England. We believe our existing facilities will suffice for our currently anticipated future needs.

This suit was filed on behalf of a purported class of users whose accounts have been restricted by PayPal. The suit claims that we have restricted funds or user accounts in a manner that breaches our User Agreement provisions on account restrictions, that constitutes an unlawful, unfair or fraudulent business practice under California law,.

We believe our policies and procedures regarding account restrictions are appropriate and are an important part of our risk management system.

The suit also claims that the above alleged actions constitute unlawful, unfair, fraudulent and deceptive business practices under California law.

We believe we have meritorious defenses to these lawsuits and will contest the suits vigorously. However, the ultimate resolution of these matters could have a material adverse effect on our financial condition and results of operations.

Even if we prevail, the litigation could be expensive to defend and could require significant amounts of management time and the diversion of significant operational resources.

From time to time, we are also subject to other claims and lawsuits arising out of our operations in the normal course of business. Our management believes that the outcome of any such proceedings to which we are a party will not have a material adverse effect on our financial conditions or results of operations.

Prior to this time, there was no public trading market for our shares of common stock. We have never declared or paid cash dividends on our capital stock.

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.

Additionally, during that period, approximately 4. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions.

All recipients either received adequate information about us or had access, through employment or other relationships, to such information.

There were no underwriters employed in connection with any of the transactions set forth in this Item 5. A total of 6,, shares of our common stock were registered on our behalf in this offering.

Pending these uses, since the time of receipt of the net proceeds, we have invested the net proceeds of this offering in short-term money market and money market equivalent securities.

We cannot predict whether the proceeds will be invested to yield a favorable return. The amounts that we actually expend for collateral requirements, capital expenditures and working capital and other general corporate purposes will vary significantly depending on a number of factors, including future revenue growth, if any, and the amount of cash that we generate from operations.

As a result, we will retain broad discretion over the allocation of the net proceeds of the offering. We also may use a portion of the net proceeds for the acquisition of businesses, products and technologies.

We have no current agreements or commitments for acquisitions of any businesses, products or technologies. The historical results are not necessarily indicative of the operations to be expected for future periods.

This safe harbor protects us from liability in a private action arising under either the Securities Act of , as amended, or the Securities Exchange Act of , as amended, for forward-looking statements that are identified as such and accompanied by meaningful cautionary statements, or are immaterial.

Actual future results and trends may differ materially from those made in or suggested by any forward-looking statements due to a variety of factors, including, for example, our ability to compete with other payment systems, such as eBay Payments; the risk of loss due to fraud and disputes between senders and recipients; and the fact that our status under state, federal and international financial services regulation is unclear.

In addition, we cannot assess the impact of each factor on our business or the extent to which any. We currently offer our account-based system to users in 39 countries including the U.

For the same period, the number of unique accounts that sent or received at least one payment amounted to 7. We earn revenues from two sources: Beginning in the second quarter of we expect to charge fees to recipients of cross-border payments rather than to international senders.

We do not expect this change to have a material effect on our revenues. We incorporated as X. Under the terms of the agreement, as part of the purchase price paid, we issued 6,, shares of common stock and 5,, shares of Series AA, 24,, shares of Series BB, and 18,, shares of Series CC, mandatorily redeemable preferred stock, in exchange for all of the outstanding common and mandatorily redeemable preferred stock of Confinity.

Each share of mandatorily redeemable convertible preferred stock is convertible at. The dividends are non-cumulative. All the shares of mandatorily redeemable convertible preferred stock will automatically convert into shares of common stock in connection with this offering.

In accordance with APB 16, we determined the fair value of each of the securities issued in the acquisition.

The fair values were determined using a valuation model which valued each security by assessing its characteristics with reference to the most recent financing with a third party.

The valuation methodology determines the relative value of each class of stock as a function of the fair value of the total assets as opposed to the book value of the enterprise available for distribution to the holders of the various classes of equity.

As such, the difference in the liquidation values of each series of preferred stock was the primary factor for the differences in the value of the various series of preferred stock.

The former stockholders of Confinity owned approximately Max Levchin, our Chief Technology Officer and a member of our board of directors, was Chief Technology Officer and a member of the board of directors of Confinity at the time of the merger.

We accounted for the merger under the purchase accounting method. In accordance with APB 16, the cost to acquire Confinity was allocated among the identifiable tangible and intangible assets acquired and liabilities assumed based on the fair market value of those assets at the date of acquisition.

The excess of the purchase price and assumed liabilities over the fair value of the net assets acquired is included in goodwill and other intangible assets and we amortize using the straight-line method over a two-year period.

We based the fair value of the stock consideration paid upon an arms-length third party equity round that closed concurrently with the acquisition.

Purchased technology that had reached technological feasibility and was principally represented by the technology underlying the PayPal product was valued using a replacement cost method.

The second agreement provided for an Internet banking arrangement under which we would solicit customers to apply for First Western accounts and the customers would use our software programs to utilize Internet banking services from First Western.

We currently earn revenues from two sources: The following tables present these revenue sources for the quarters indicated in both absolute dollars and as a percentage of total revenues: We recognize revenue from transaction and other fees when the transaction completes and no further obligations exist.

We generate revenue primarily from transaction fees on the total dollar volume of payments made to all domestic and international business accounts.

We charge these transaction fees only to the payment recipient and not to the sender. The increase in our weighted average GMS fee rate from 2. We do not charge transaction fees to personal accounts on payments they receive.

We automatically deduct the GMS transaction fees from all payments received by business accounts. Thus, we do not need to bill or collect from our customers and we have no accounts receivable in respect of GMS transaction fees.

The majority of our business accounts currently pay our standard rate of 2. As we have grown our customer base and have added features to our product, we have increased the prices charged to business accounts with no noticeable decline in volume.

We charge our international senders a fee of 2. These fees are in addition to the GMS transaction fees paid by business account recipients of international payments.

We do not charge senders located in the U. For withdrawals, we charge our international recipients a weighted average fee of 2. For the same year, international funding and withdrawal fees plus GMS fees and other fees collected from senders or recipients that reside outside the U.

We anticipate this percentage to continue to increase in the future as a result of our development of our multi-currency platform and the addition of features that increase international access to our product.

We classify as international those users who register a non-U. This program, targeted primarily at online auction sellers, requires that users advertise PayPal as their exclusive online payment option for their auction listings.

We continue to evaluate this promotion and may change the bonus amounts or requirements in the future. We earn investment management fees on funds customers have chosen to invest in the Fund.

The Fund pays a variable rate of return. As a result, we currently earn no management fee on the assets held in the Fund. We can terminate or reduce the expense waiver in the future if we provide reasonable advance notice to shareholders.

The Fund imposes a charge of 0. We also earn revenues from other transaction-related charges, such as check withdrawal fees and domestic and international charge-back fees.

Customers have an available PayPal balance if they have received a payment or funded their account but have not yet elected to direct these funds elsewhere.

We recognize the interest income on these investments in the period in which we earn it. We expect interest income to fluctuate depending on changes in short-term interest rates and our overall amount of funds held for others.

These accounts may bear interest at lower rates than short-term money market and money market equivalent securities, which could impact our revenues from interest on funds held for others.

We incur transaction processing expenses when senders fund payments and when recipients withdraw funds. Senders fund PayPal payments from three sources: The following table sets forth payment funding data for the periods presented: We bear all costs of funding payments into the PayPal system.

We incur no cost on payments funded from existing PayPal balances. On credit card-funded payments, we currently incur a cost of 1.

Credit card funding costs comprise the bulk of our funding costs and include interchange expenses, authorization and settlement expenses and fraud screen expenses.

The percentage of our total payment volume funded with credit cards has decreased as customers increasingly have chosen to fund their payments via bank account transfers.

Recipients withdraw funds by: We bear all costs associated with withdrawals from the PayPal system. We incur transaction losses due to fraud and non-performance of third parties and customers.

We establish reserves for these estimated losses, which were incurred but not reported as of year end. Examples of transaction losses include ACH returns, debit card overdrafts, charge-backs for unauthorized credit card use and merchant-related charge-backs due to non-delivery of goods or services.

The reserves represent an accumulation of the estimated amounts, using an actuarial technique, necessary to cover all outstanding transaction losses, including losses incurred as of the reporting date but of which we have not yet been notified.

This technique enables us to estimate the total expected losses by loss category, for example unauthorized use or merchant-related losses, based upon the historical charge-back reporting patterns.

The total of expected losses less the total amount of charge-backs reported equals the reserve for estimated losses incurred but not reported.

We base the reserve estimates on known facts and circumstances, internal factors including our experience with similar cases, historical trends involving loss payment patterns and the mix of transaction and loss types.

We reflect recoveries in the reserve for transaction losses as collected. Credit card charge-backs comprise our largest source of transaction loss expense.

As a percentage of total payment volume, we incurred transaction losses of 0. Our transaction loss rate to total payment volume has decreased as a result of: The establishment of appropriate reserves is an inherently uncertain process, and ultimate losses may vary from the current estimates.

We regularly update our reserve estimates as new facts become known and events occur that may impact the settlement or recovery of losses. Customer service and operations expenses consist primarily of salaries for network administration personnel, customer service and operations personnel, contracting fees for our outsourced email-based customer support, computer and communications equipment and cost of facilities.

We have experienced a significant increase in customer service and operations expenses as a result of hiring personnel to support our payment volume growth.

Product development expenses include salaries for product managers and software engineers, consulting fees, costs of facilities, computers and communications equipment and support services used in product development.

The amounts paid do not and did not depend on whether the customer generates revenue for us. We deposit these amounts into customer accounts and expense them as incurred.

We will evaluate the effectiveness of the promotional program and revise the offering from time to time. In connection with some employee stock option grants, we recorded non-cash deferred stock-based compensation based on the difference between the fair value of the common stock and the stock option exercise price of these stock options at the measurement date, typically the date of grant.

The table below includes these amounts. Non-cash stock-based compensation expense in our statement of operations is allocable as follows: These amounts may change due to forfeitures and additional grants of stock options.

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