eBay 2011 Annual Report Download - page 34

to liability, licensure and regulatory approval and may be forced to change its business practices.”
Changes in PayPal's funding mix could adversely affect PayPal's results.
PayPal pays significant transaction fees when customers fund payment transactions using credit cards, lower fees when customers fund
payments with debit cards, nominal fees when customers fund payment transactions by electronic transfer of funds from bank accounts, and no
fees when customers fund payment transactions from an existing PayPal account balance or through the Bill Me Later service, or use buyer credit
issued by GE Money Bank. Customers fund a significant portion of PayPal's payment volume using credit and debit cards, and PayPal's financial
success will remain highly sensitive to changes in the rate at which its senders fund payments using credit and debit cards. Customers may prefer
funding payment transactions using credit cards or debit cards rather than bank account transfers for a number of reasons, including the ability to
dispute and reverse charges directly with their payment card provider if merchandise is not delivered or is not as described, the ability to earn
frequent flier miles, cash rebates, or other incentives offered by payment card issuers, the ability to defer payment, or a reluctance to provide bank
account information to PayPal. In addition, some of PayPal's offerings, including the ability for buyers to make a limited number of payments
without opening a PayPal account, have a higher rate of payment card funding than PayPal's basic product offering.
PayPal's failure to manage customer funds properly could harm its business.
PayPal's ability to manage and account accurately for customer funds requires a high level of internal controls. In some of the markets that
PayPal serves and currencies that PayPal offers, PayPal has a limited operating history and limited management experience in managing these
internal controls. As PayPal's business continues to grow, it must continue to strengthen its internal controls accordingly. PayPal's success requires
significant public confidence in its ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to
maintain necessary controls or to manage customer funds accurately could severely diminish customer use of PayPal's products.
Systems failures and resulting interruptions in the availability of our websites or services could harm our business.
We have experienced system failures from time to time, and any interruption in the availability of our websites will reduce our current
revenues and profits, could harm our future revenues and profits and could subject us to regulatory scrutiny. Our eBay.com website has been
interrupted for periods of up to 22 hours. In November 2009, technical systems issues resulted in eBay.com users being unable to search for listed
items for a period of several hours. Our PayPal website has suffered intermittent unavailability for periods as long as five days, including
unavailability for approximately three hours affecting payments primarily on our ebay.co.uk site in May 2011. Other of our websites (e.g.,
StubHub, Milo and others), as well as websites of GSI clients and hosted services offered by GSI's interactive marketing services business, have
experienced intermittent unavailability from time to time. Any unscheduled interruption in our services results in an immediate, and possibly
substantial, loss of revenues, as well as potential service credits or other payments by GSI to its clients. Frequent or persistent interruptions in our
services could cause current or potential users to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our
sites, and could permanently harm our reputation and brands. Reliability is particularly critical for PayPal, especially as it seeks to expand its
Merchant Services business and faces increased expectations on the part of users and merchants regarding the full-time availability of PayPal's
services. Because PayPal is a regulated financial institution, frequent or persistent site interruptions could lead to fines, penalties, or mandatory
and costly changes to PayPal's business practices, and ultimately could cause PayPal to lose existing licenses it needs to operate or prevent it from
obtaining additional licenses that it needs to expand. Finally, because our customers may use our products for critical transactions, any system
failures could result in damage to our customers' businesses. These customers could seek significant compensation from us for their losses. Even if
unsuccessful, this type of claim likely would be time-consuming and costly for us to address.
Although our systems have been designed around industry-
standard architectures to reduce downtime in the event of outages or catastrophic
occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist
attacks, cyber attacks, computer viruses, computer denial-of-
service attacks, human error, hardware or software defects or malfunctions (including
defects or malfunctions of components of our systems that are supplied by third-party service providers), and similar events or disruptions. Some
of our systems, including our Shopping.com website and the systems related to the Bill Me Later business, are not fully redundant, and our
disaster recovery planning is not sufficient for all eventualities. Our systems are also subject to break-ins, sabotage, and intentional acts of
vandalism. Despite any precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting providers to
close a facility we use without adequate notice for financial or other reasons, or other unanticipated problems at our hosting facilities could cause
system interruptions and delays, and result in loss of critical data and lengthy interruptions in our services. We do not carry business interruption
insurance sufficient to compensate us for losses that may result from interruptions in our service
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