PayPal disclosed on October 27, 2026, that the US Federal Trade Commission sent it a demand in September to investigate whether the company engaged in deceptive, unfair or otherwise unlawful practices in the advertising, marketing, sale, issuance or management of fees and purchase protection on its financial products. The disclosure appears in PayPal's quarterly report for the three months ended September 30, 2026, in the same filing that shows payments to large merchants for co-marketing pulling down revenue from PayPal-branded products. The report contains no reference to PayPal Ads, the advertising unit PayPal has built since 2024 on purchase data from its consumer and merchant accounts.

In Short

The US consumer protection agency has asked PayPal for documents and answers to check whether the company misled people about fees and about the protection it offers when a purchase goes wrong. PayPal's quarterly report mentions this investigation but says nothing about the advertising business PayPal now runs for brands, so there is no figure for how much that business earns. If you buy ads from PayPal or promote PayPal at your checkout, the filing shows the money PayPal spends on merchant marketing and the legal scrutiny around it, not how its ad sales are doing.

What the FTC is asking

The quarterly report on Form 10-Q, filed with the SEC on October 27, lists the matter in its note on commitments and contingencies. The wording is short. "In September 2026, we received a CID from the FTC investigating whether PayPal engaged in deceptive, unfair, or otherwise unlawful practices in connection with the advertising, marketing, sale, issuance, or management of fees and purchase protection in connection with financial products and services," according to the filing.

A civil investigative demand is a pre-suit order. It obliges a company to hand over documents and answer written questions before the agency decides whether to bring a case. PayPal said the demands "request the production of documents and answers to written questions, as well as other information," and that it is cooperating. The filing names no product, no fee and no time period. It does not say whether the investigation concerns PayPal, Venmo or both, nor which financial products are in scope.

The September demand is the third from the FTC that PayPal lists. The first, in February 2022, related to commercial customers that submit charges on behalf of other merchants or sellers. The second, in August 2025, investigates whether deceptive schemes by merchants using PayPal's platform were facilitated by the company's onboarding and due diligence. The new one is the only one aimed at how PayPal presents its own products to consumers.

Demands of this kind can precede litigation by years, and a demand does not mean a case will follow. The FTC issued a civil investigative demand to JustAnswer in February 2023 and sued the company in January 2026, alleging that ads promising access for a $1 or $5 joining fee led to monthly subscriptions of $28 to $125. PayPal gave no indication of where its matter stands beyond receipt of the demand.

Accruals and what PayPal can estimate

PayPal did not put a figure on the matter. "Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of September 30, 2026," according to the filing. The company added that it is unable to estimate the possible loss from non-monetary remedies, such as orders that would require it to change business practices, for any of the matters in the note.

Purchase protection in the accounts

Purchase protection is not a marketing line item. It is a cost. PayPal's protection programmes reimburse consumers in certain circumstances, "such as not receiving their purchased eligible item in the condition significantly as described," and pay merchants who can establish proof of shipment or delivery, according to the filing. The company treats the programmes as assurance-type warranties and estimates their cost within its allowance for transaction losses.

The provision for those losses was $328 million in the third quarter, down from $397 million a year earlier. Realized losses and charge-offs were $394 million, against $371 million, and recoveries rose to $62 million from $41 million. Over nine months, the provision was $927 million, compared with $1,058 million. The risk factors state that PayPal incurs "substantial losses from our protection programs as a result of disputes filed by our customers." They also warn that regulators and card networks may change error resolution and chargeback rules in ways that widen PayPal's exposure.

The FTC demand concerns how fees and protection were advertised and managed, not the size of these losses. The filing does not connect the two.

An ad business the filing does not name

PayPal sells advertising. The 10-Q does not say so.

The term PayPal Ads does not appear in the quarterly report. It does not appear in any PayPal annual or quarterly report, and the word advertisers appears in none filed since January 2024, according to the SEC's EDGAR full-text search. The word advertising appears once in the third-quarter report, in the sentence describing the FTC demand.

That silence sits beside a run of product launches that PPC Land has followed. PayPal named Mark Grether to lead PayPal Ads in May 2024, with a brief to build an advertising platform on PayPal's user base. The company launched Offsite Ads on April 29, 2025, selling display and video placements on the open web targeted with transaction data, with Publicis Media as the first agency partner. Storefront Ads followed on June 16, 2025, turning display units on publisher sites such as Business Insider and Vox Media into shoppable storefronts. A PubMatic partnership in September 2025 made PayPal audience segments available across more than 2,000 publishers.

In 2026 the pitch shifted to measurement and identity. On January 6, PayPal launched Transaction Graph Insights & Measurement, offering advertisers cross-merchant purchase analytics with AppsFlyer, Experian, Kantar and LiveRamp among its certified partners. Two days later at CES, Grether said PayPal's data covered 30 million merchants, 400 million consumers and about 30% of global commerce. On April 27, PayPal introduced PayPal Ads ID, a deterministic identifier built on PayPal and Venmo accounts, with Magnite, PubMatic, Rokt and Taboola as launch partners and no software fees or CPM charges for commercial partners.

These are the ingredients of commerce media: advertising sold by a company that holds purchase records about its customers. PayPal's selling point is that it sees transactions across many retailers rather than within one store, which allows a closed loop between an ad exposure and a later purchase. None of those products, partners or claims appear in the filing.

Where ad revenue might sit

PayPal reports two revenue categories. Transaction revenues are fees charged on payment volume. Revenues from other value added services are "derived primarily from revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services we provide to our consumers and merchants," together with interest and fees on loans and interest on customer balances, according to the filing.

The 10-Q does not say which category, if either, captures advertising sales. PayPal reports a single segment, and its chief executive evaluates performance on consolidated net income. With one reportable segment and two revenue categories, the filing gives no view of individual product lines such as advertising.

Other value added services fell 2% to $873 million in the third quarter, from $895 million. The filing attributes the decline mainly to lower interest earned on assets underlying customer balances. Interest on customer balances was $289 million, down from $321 million, according to the earnings release. Excluding it, other value added services rose to about $584 million from about $574 million, a PPC Land calculation. That residual still includes interest and fees from loans and revenue shared by the partner bank behind PayPal's US credit products, so it says nothing direct about advertising.

Not on the call either

Advertising did not come up on the earnings call. The transcript published by Investing.com contains no reference to advertising, PayPal Ads or Honey in the prepared remarks of chief executive Enrique Lores or chief financial and operating officer Jamie Miller. None of the 11 analysts who asked questions raised it. The earnings release of October 27 is equally silent.

Paying merchants to promote PayPal

The marketing money that does show up in the filing flows the other way. PayPal funds co-marketing campaigns and incentives with large merchants, and those payments reduce reported revenue.

Transaction revenues rose 3% to $7,711 million in the third quarter. Braintree, PayPal's payment processing business for merchants, added about $270 million and Venmo about $100 million, and hedging contributed about $70 million. Against that, revenue from PayPal products and services fell by about $240 million "primarily attributable to unfavorable changes in product and geographic mix despite growth in TPV and number of payment transactions, higher co-marketing campaigns and incentives with large merchants, which are recorded as reductions to revenues, and lower foreign exchange fee revenue," according to the filing. Over nine months the PayPal products decline was about $230 million, attributed to co-marketing campaigns and merchant incentives and to lower foreign exchange fees.

The filing gives no split among those causes. It does not disclose how much PayPal spent on co-marketing, with how many merchants, or in which markets. The filing cites the same three factors to explain why transaction revenues grew 3% while total payment volume grew 6%.

The accounting resembles the treatment of trade promotion in consumer goods: money paid to a customer to win placement is deducted from revenue rather than booked as marketing expense. For PayPal, the aim is how prominently the PayPal button is presented, and chosen, at a merchant's checkout.

The merchant playbook

Lores described the approach on the call, saying that "across many of our largest U.S. merchants, we are improving the checkout experience, strengthening presentment, and partnering on consumer marketing to drive PayPal selection." He added: "Where we have implemented multiple elements of this playbook, we are beginning to see improvement in our checkout performance."

Asked by Sanjay Sakhrani of KBW how the playbook varies, Lores listed the parts. "Another element is to build co-marketing activities with the merchant," he said, adding that PayPal does not apply the same formula to every merchant and that the mix "depends on specific conditions of the merchant." He cited a leading US sports entertainment platform where PayPal is "seeing more than 40% growth in the last six months," and an omnichannel retailer where, after PayPal expanded its Pay Later offering, "growth of BNPL grew from 7% to 20%." He did not name either merchant.

Miller described the effect in accounting terms. Third-quarter revenue growth was "offset in part by higher contra revenue investments made in the quarter and the de minimis headwinds mentioned earlier," she said, referring to the removal of the EU's de minimis exemption for low-value imports, which she said created about 70 basis points of headwind in total.

The results are modest so far. "Branded checkout TPV growth has remained relatively stable in the 1%-2% range for four quarters, despite various headwinds," Lores said. Miller's fourth-quarter outlook assumes "similar 1%-2% online branded growth."

Presentment and the German case

Checkout presentation is also a regulatory matter. Since January 2023, Germany's Federal Cartel Office has run an administrative proceeding into terms in PayPal's German merchant contracts "prohibiting surcharging and requiring parity presentation of PayPal relative to other payment methods," according to the filing. PayPal says it is cooperating. In March 2026, PayPal received notices of investigations from the UK Financial Conduct Authority under the Competition Act 1998 into provisions in PayPal's agreements with Visa and Mastercard relating to funding and use of the PayPal wallet.

Sales and marketing spending

PayPal's own marketing budget shrank on paper. Sales and marketing expense was $508 million in the third quarter, down 2% from $521 million, and $1,572 million over nine months, down 1% from $1,592 million.

The decline was "due primarily to a decline in amortization expense for acquired intangible assets, partially offset by an increase in marketing-related expenses," according to the filing. In the non-GAAP reconciliation in the earnings release, which removes amortization of acquired intangibles and restructuring, sales and marketing was $485 million, against $482 million a year earlier. On that basis, amortization within the line fell from about $39 million to about $23 million, a PPC Land calculation. Stock-based compensation in sales and marketing fell to $24 million from $32 million.

The balance sheet points the same way. Marketing-related intangible assets had a gross carrying amount of $60 million and accumulated amortization of $59 million at September 30, leaving $1 million, down from $10 million at the end of 2025. The filing does not say which acquisitions those assets came from. Total amortization of intangibles was $33 million in the quarter, against $47 million.

Marketing is among the areas where PayPal says it is spending. "We intend to remain disciplined on costs while investing where we are seeing results, in places such as financial services, product growth, consumer lifecycle marketing, and specialized sales teams," Miller said. Looking ahead, she added: "We do expect further transaction margin dollar and OPEX investment in 2027." Neither executive gave figures. On 2027 guidance, Miller said: "We will do that at our next call in February."

The quarter in numbers

Net revenues rose 2% to $8,584 million, or 1% currency-neutral, according to the earnings release. That was below the $8.71 billion analysts expected, according to Investing.com, while adjusted earnings of $1.45 a share beat the $1.31 forecast. Before the market opened on October 27, the stock fell 2.64% to $53.54, the same report said.

Transaction margin dollars, the profit measure PayPal's management uses to evaluate activity on its platform, grew 2% to $3,950 million. Total payment volume rose 6% to $487.1 billion, and payment transactions rose 7% to 6.8 billion. Active accounts grew 0.6% to 440 million. GAAP operating income fell 8% to $1,402 million, net income fell 14% to $1,073 million, and diluted earnings per share fell to $1.25 from $1.30.

US revenue was $5,002 million, up from $4,753 million, while revenue from other countries fell to $3,582 million from $3,664 million. Customers outside the US accounted for about 42% of net revenues, down from 44% a year earlier.

PayPal raised its full-year non-GAAP earnings guidance to about $5.60 a share from about $5.38 in July, and reaffirmed its GAAP guidance, now given as about $5.07. "We are beginning to see our strategy translate into our financial results, with strong contributions from our key growth areas and increasing diversification," Lores said in the release.

Cuts and lawsuits

The third quarter carried $152 million of restructuring charges for a workforce reduction that removed organizational layers, a plan PayPal expects to save about $340 million a year in employee costs. It is part of a reorganization announced in April 2026 that targets at least $1.5 billion in gross annualized run-rate savings over two to three years, with "a significant portion" reinvested. "We have reduced headcount by more than 2,000 and removed three organizational layers across most areas of the company," Lores said on the call.

The filing also lists the branded checkout securities litigation. Shareholders allege that PayPal failed to disclose "impediments to its branded checkout growth strategy that impaired the Company's ability to meet its 2027 financial targets." The first complaint was filed on February 24, 2026. A consolidated case, In re PayPal Branded Checkout Securities Litigation, was formed on May 21, and an amended complaint of August 10 added PayPal's President, Global Markets, as a defendant. Five derivative suits based on the same allegations have been stayed.

Honey and agents

The legal note does not mention Honey. PayPal's coupon extension has faced a creators' class action over affiliate commissions since December 2024, and a federal judge in San Jose let all claims proceed on June 22, 2026. The note describes regulatory investigations and securities cases one by one, and covers other disputes, including consumer and merchant class actions, only in general terms. The creators' case is not named.

On AI shopping, Lores offered direction rather than detail. "We are building for what comes next, collaborating with Meta and other AI companies to integrate PayPal into AI for personal agents and bring our trusted value proposition to agentic commerce," he said. He named no product or launch date. PayPal had already joined Microsoft's Copilot Checkout in January. Asked by Timothy Chiodo of UBS what advantage PayPal would have, Lores said: "We really see agentic commerce as a great opportunity for the company." He returned to the company's origins: "When PayPal started, the key value proposition was around trust and security."

Why this matters for the marketing community

PayPal now plays two roles in advertising, and the filing touches only one.

As a seller of media, PayPal has spent two years pitching brands and agencies on purchase data from hundreds of millions of accounts, competing for budgets with retail media networks and with payment rivals such as Mastercard, which launched its own commerce media network in October 2025. Buyers of that inventory have had partner names, case studies and identity claims, and no revenue figure. The third-quarter report does not change that. Because PayPal books no line for advertising and reports a single segment, there is no public way to tell whether PayPal Ads is a material business or a small one.

As a buyer of marketing, PayPal is spending more. Co-marketing campaigns with large merchants were large enough to be named among the reasons revenue from PayPal-branded products and services fell by about $240 million in a quarter. Lores presents co-marketing as part of the playbook he credits with improving checkout performance at large merchants, and Miller listed consumer lifecycle marketing among the areas where PayPal is investing.

The FTC demand concerns PayPal as an advertiser of its own financial products. It is not about PayPal Ads. It is, however, a federal investigation framed around how PayPal advertised and marketed fees and purchase protection, features PayPal promotes to consumers. The outcome is unknown, and PayPal has said nothing beyond receipt of the demand and its cooperation.

What the documents do not say

  • No revenue, advertiser count or growth figure for PayPal Ads, Offsite Ads, Storefront Ads or PayPal Ads ID.
  • Which products, fees, programmes or periods the FTC demand covers, or whether Venmo is included.
  • How much PayPal spent on co-marketing and merchant incentives, or how the $240 million decline splits among its three causes.
  • Which acquisitions the marketing-related intangible assets came from, and which business PayPal bought for $134 million in the first quarter of 2026.
  • Any status for the Honey creators' litigation.

Timeline

Summary

Who: PayPal Holdings, its chief executive Enrique Lores and chief financial and operating officer Jamie Miller, and the US Federal Trade Commission. The disclosures matter to advertisers and agencies buying PayPal Ads inventory, to merchants that run co-marketing with PayPal, and to consumers who pay PayPal fees or rely on its purchase protection.

What: PayPal's 10-Q discloses a September 2026 civil investigative demand from the FTC into whether PayPal engaged in deceptive, unfair or otherwise unlawful practices in the advertising, marketing, sale, issuance or management of fees and purchase protection. The same filing attributes part of a roughly $240 million decline in PayPal products revenue to co-marketing campaigns and incentives with large merchants, and contains no reference to PayPal Ads. Sales and marketing expense fell 2% to $508 million.

When: The FTC demand was received in September 2026. PayPal reported results, held its earnings call and filed the 10-Q on October 27, 2026, for the quarter ended September 30, 2026.

Where: The FTC investigation is a US federal matter. Germany's Federal Cartel Office and the UK Financial Conduct Authority are running separate proceedings on PayPal's merchant terms and card network agreements. Co-marketing described on the call concerns PayPal's largest US merchants.

Why: PayPal is building an advertising business on its purchase data while disclosing nothing about it to investors, and it is paying merchants to market PayPal at checkout to revive branded checkout growth stuck at 1% to 2%. The FTC demand adds federal scrutiny of how PayPal advertises its own financial products. None of the documents say when the investigation might conclude or how much PayPal's ad business earns.