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These excerpts taken from the EBAY 10-K filed Feb 20, 2009. Bill
Me Later will expose us to new risks.
We acquired Bill Me Later, a company that provides
transaction-based credit, in late 2008. Upon acquiring Bill Me
Later, we became exposed to new risks.
Bill Me Later is not a chartered financial institution, and
relies on CIT Bank to extend credit to Bill Me Later customers
in order to offer the Bill Me Later service. When a consumer
makes a purchase using the Bill Me Later service, CIT Bank funds
the consumer loan at the point of sale and advances funds to the
merchant, and Bill Me Later subsequently purchases the
receivable related to the consumer loan extended by CIT Bank.
Although CIT Bank continues to own each customer account, Bill
Me Later owns the related receivable and is responsible for all
servicing functions related to the account. Any termination or
interruption of CIT Bank’s services to us, including due to
the suspension or termination of CIT Bank’s banking
charter, a regulatory challenge to the relationship between CIT
Bank and Bill Me Later or the termination of our commercial
relationship with CIT Bank for any reason, could materially and
adversely affect our ability to offer the Bill Me Later service.
Under those circumstances, we would likely be required to either
reach a similar arrangement with another chartered financial
institution, which may not be available on favorable terms, if
at all, or to obtain our own bank charter, which would be a
time-consuming and costly process and would subject us to a
number of additional laws and regulations. Bill Me Later also
relies on third-party merchant processors and payment gateways
to process transactions using the Bill Me Later service. Most of
the transaction volume by dollar amount through the Bill Me
Later service is currently settled through the facilities of a
single vendor. Any disruption to our payment processing and
gateway services would adversely affect the Bill Me Later
service.
We currently fund the origination of receivables related to Bill
Me Later accounts through free cash flow generated from our
portfolio of businesses and from our existing line of credit. As
a result of the bankruptcy of Lehman Brothers Holdings Inc., our
available line of credit was effectively reduced by Lehman
Brothers Commercial Bank’s $160 million commitment. If
other financial institutions that have extended credit
commitments to us are adversely affected by U.S. and global
economic conditions, they may become unable to fund borrowings
under their credit commitments to us. Our ability to securitize
receivables related to Bill Me Later accounts is dependent upon,
among other things, conditions in the structured finance
markets, which have been subject to recent disruptions in the
credit industry, resulting in very limited liquidity for
securitization purposes. If
Table of Contents
we are unable to fund receivables related to the Bill Me Later
business in a cost-effective manner, the growth and
profitability of the Bill Me Later business could be
significantly and adversely affected.
The Bill Me Later service is offered to a wide range of
consumers, and the profitability of this business depends on our
ability to manage credit risk while attracting new consumers
with profitable usage patterns. Bill Me Later approves loans
using proprietary segmentation and credit scoring algorithms and
other analytical techniques designed to analyze the credit risk
of the specific transaction. These algorithms and techniques may
not accurately predict the creditworthiness of a consumer due
to, among other factors, inaccurate assumptions about a
particular consumer or the economic environment. Bill Me Later
may also incorrectly interpret the data produced by these
algorithms in setting its credit policies. Bill Me Later’s
ability to manage credit risk may also be adversely affected by
economic conditions, legal or regulatory changes (such as
bankruptcy laws and minimum payment regulations),
competitors’ actions and consumer behavior and other
factors. In addition, the credit crisis and current recession in
the U.S. may affect consumer confidence levels and reduce
consumers’ ability or willingness to use credit, including
our transaction-based credit product, which could impair the
growth of the Bill Me Later business.
As of December 31, 2008, Bill Me Later had an aggregate
consumer loan portfolio of approximately $597.6 million.
Like other businesses with significant exposure to losses from
consumer loans, the Bill Me Later service faces the risk that
account holders will default on their payment obligations,
resulting in accounts becoming uncollectible, and the risk of
potential charge-offs related to the loan portfolio. The
nonpayment rate among Bill Me Later users may increase due to,
among other things, worsening economic conditions, such as the
current recession in the U.S., and higher unemployment rates.
Consumers who miss payments on their loans often fail to repay
them, and consumers who file for protection under the bankruptcy
laws generally do not repay their loans. The age and rate of
growth of a consumer loan portfolio also affects the rate of
missed payments and loans charged off as uncollectible.
Consumers are less likely to miss their payments within the
first 12 to 18 months of a loan’s term. When a lender
makes fewer loans than it has in the past, the proportion of new
loans in its portfolio will decrease and the rate of missed
payments and charge-offs in the portfolio will increase.
In addition, Bill Me Later faces other risks similar to those
faced by PayPal, including the risk of systems failures,
security breaches or other loss of customer data, fraud,
intellectual property claims, compliance failures, and changes
to regulations relating to credit offerings described in these
Risk Factors, including under the captions “Government
inquiries may lead to charges or penalties” and “If
our Payments business is found to be subject to or in violation
of any laws or regulations, including those governing money
transmission, electronic funds transfer, money laundering,
banking and lending, it could be subject to liability, licensure
and regulatory approval and may be forced to change its business
practices.”
Bill Me Later will expose us to new risks. We acquired Bill Me Later, a company that provides transaction-based credit, in late 2008. Upon acquiring Bill Me Later, we became exposed to new risks. Bill Me Later is not a chartered financial institution, and relies on CIT Bank to extend credit to Bill Me Later customers in order to offer the Bill Me Later service. When a consumer makes a purchase using the Bill Me Later service, CIT Bank funds the consumer loan at the point of sale and advances funds to the merchant, and Bill Me Later subsequently purchases the receivable related to the consumer loan extended by CIT Bank. Although CIT Bank continues to own each customer account, Bill Me Later owns the related receivable and is responsible for all servicing functions related to the account. Any termination or interruption of CIT Bank’s services to us, including due to the suspension or termination of CIT Bank’s banking charter, a regulatory challenge to the relationship between CIT Bank and Bill Me Later or the termination of our commercial relationship with CIT Bank for any reason, could materially and adversely affect our ability to offer the Bill Me Later service. Under those circumstances, we would likely be required to either reach a similar arrangement with another chartered financial institution, which may not be available on favorable terms, if at all, or to obtain our own bank charter, which would be a time-consuming and costly process and would subject us to a number of additional laws and regulations. Bill Me Later also relies on third-party merchant processors and payment gateways to process transactions using the Bill Me Later service. Most of the transaction volume by dollar amount through the Bill Me Later service is currently settled through the facilities of a single vendor. Any disruption to our payment processing and gateway services would adversely affect the Bill Me Later service. We currently fund the origination of receivables related to Bill Me Later accounts through free cash flow generated from our portfolio of businesses and from our existing line of credit. As a result of the bankruptcy of Lehman Brothers Holdings Inc., our available line of credit was effectively reduced by Lehman Brothers Commercial Bank’s $160 million commitment. If other financial institutions that have extended credit commitments to us are adversely affected by U.S. and global economic conditions, they may become unable to fund borrowings under their credit commitments to us. Our ability to securitize receivables related to Bill Me Later accounts is dependent upon, among other things, conditions in the structured finance markets, which have been subject to recent disruptions in the credit industry, resulting in very limited liquidity for securitization purposes. If
Table of Contentswe are unable to fund receivables related to the Bill Me Later business in a cost-effective manner, the growth and profitability of the Bill Me Later business could be significantly and adversely affected. The Bill Me Later service is offered to a wide range of consumers, and the profitability of this business depends on our ability to manage credit risk while attracting new consumers with profitable usage patterns. Bill Me Later approves loans using proprietary segmentation and credit scoring algorithms and other analytical techniques designed to analyze the credit risk of the specific transaction. These algorithms and techniques may not accurately predict the creditworthiness of a consumer due to, among other factors, inaccurate assumptions about a particular consumer or the economic environment. Bill Me Later may also incorrectly interpret the data produced by these algorithms in setting its credit policies. Bill Me Later’s ability to manage credit risk may also be adversely affected by economic conditions, legal or regulatory changes (such as bankruptcy laws and minimum payment regulations), competitors’ actions and consumer behavior and other factors. In addition, the credit crisis and current recession in the U.S. may affect consumer confidence levels and reduce consumers’ ability or willingness to use credit, including our transaction-based credit product, which could impair the growth of the Bill Me Later business. As of December 31, 2008, Bill Me Later had an aggregate consumer loan portfolio of approximately $597.6 million. Like other businesses with significant exposure to losses from consumer loans, the Bill Me Later service faces the risk that account holders will default on their payment obligations, resulting in accounts becoming uncollectible, and the risk of potential charge-offs related to the loan portfolio. The nonpayment rate among Bill Me Later users may increase due to, among other things, worsening economic conditions, such as the current recession in the U.S., and higher unemployment rates. Consumers who miss payments on their loans often fail to repay them, and consumers who file for protection under the bankruptcy laws generally do not repay their loans. The age and rate of growth of a consumer loan portfolio also affects the rate of missed payments and loans charged off as uncollectible. Consumers are less likely to miss their payments within the first 12 to 18 months of a loan’s term. When a lender makes fewer loans than it has in the past, the proportion of new loans in its portfolio will decrease and the rate of missed payments and charge-offs in the portfolio will increase. In addition, Bill Me Later faces other risks similar to those faced by PayPal, including the risk of systems failures, security breaches or other loss of customer data, fraud, intellectual property claims, compliance failures, and changes to regulations relating to credit offerings described in these Risk Factors, including under the captions “Government inquiries may lead to charges or penalties” and “If our Payments business is found to be subject to or in violation of any laws or regulations, including those governing money transmission, electronic funds transfer, money laundering, banking and lending, it could be subject to liability, licensure and regulatory approval and may be forced to change its business practices.” | EXCERPTS ON THIS PAGE:
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