eBay 2009 Annual Report Download - page 42

example, the controlling joint venture partner in a joint venture investment may have business interests, strategies
or goals that are inconsistent with ours, and business decisions or other actions or omissions of the controlling
joint venture partner or the joint venture company may result in harm to our reputation or adversely affect the
value of our investment in the joint venture.
Bill Me Later’s operations expose us to new risks.
Risks associated with Bill Me Later’s reliance on CIT Bank are discussed in detail under the caption “Bill
Me Later’s operations depend on lending services provided by CIT Bank” above.
Bill Me Later relies on third-party merchant processors and payment gateways to process transactions using
the Bill Me Later service. For the year ended December 31, 2009, approximately 80% of all transaction volume
by dollar amount through the Bill Me Later service was settled through the facilities of a single vendor. Any
disruption to these third party payment processing and gateway services would adversely affect the Bill Me Later
service. The Bill Me Later service is offered to a wide range of consumers, and the financial success of this
business depends on CIT Bank, the chartered financial institution originating the loan, to manage credit risk. CIT
Bank extends credit using Bill Me Later’s proprietary segmentation and credit scoring algorithms and other
analytical techniques designed to analyze the credit risk of a specific transaction for a specific customer. 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. The accuracy of the
predictions and the ability of CIT Bank and Bill Me Later to manage credit risk may also be affected by legal or
regulatory changes (such as bankruptcy laws and minimum payment regulations), competitors’ actions, changes
in consumer behavior and other factors. CIT Bank may also incorrectly interpret the data produced by these
algorithms in setting its credit policies, which may impact Bill Me Later’s financial performance. 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 the transaction-based credit extended by CIT Bank to consumers
who use the Bill Me Later service, which could impair the growth and profitability of the Bill Me Later business.
We anticipate that the volume of loans extended by CIT Bank in connection with the Bill Me Later’s service
will increase as we begin to enable qualified buyers with a PayPal account to use Bill Me Later as a payment
funding option for transactions on eBay.com and on certain merchant websites that accept PayPal. Like other
businesses with significant exposure to losses from consumer loans, the Bill Me Later service faces the risk that
after Bill Me Later purchases the receivables related to consumer loans, certain account holders will default on
their payment obligations, making the receivables uncollectible and creating the risk of potential charge-offs. The
rate at which receivables were charged off as uncollectible, or the credit loss rate, was approximately 11.14% and
10.66% for the three months and fiscal year ended December 31, 2009, respectively. 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 the receivables related to 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. Also worsening economic conditions typically result in fewer
new loans and with fewer loans, the proportion of new loans will decrease and the rate of missed payments and
charge-offs in the portfolio will increase, which has historically been the case with Bill Me Later.
We currently fund the purchase of receivables related to Bill Me Later accounts through free cash flow
generated from our portfolio of businesses and from our existing credit agreement. Our existing credit agreement
may be adversely affected by the impact of current financial conditions on our counterparties. Our ability to
securitize receivables related to Bill Me Later accounts has been largely eliminated by disruptions in the credit
industry generally, and in the securitization markets particularly. If we are unable to fund receivables related to
the Bill Me Later business adequately or in a cost-effective manner, the growth and profitability of the Bill Me
Later business could be significantly and adversely affected.
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