Good morning, and welcome to PayPal's Second Quarter 2025 Earnings Conference Call. My name is Regina, and I will be your conference operator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker, Chief Investor Relations Officer. Please go ahead.

Thanks, Regina. Welcome to PayPal's Second Quarter Earnings Call. I'm joined by CEO, Alex Chriss; and Chief Financial and Operating Officer, Jamie Miller. Our remarks today include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses as we see them today. As described in our earnings press release, SEC filings and on our website, those elements may change as the world changes. Over to you, Alex.

Thank you, Steve. We had a strong quarter, delivering profitable growth and building momentum in transforming PayPal from a payments company into a dynamic commerce platform. Fintech is in its infancy, and we believe the next 5 years are likely to see more change in how people shop than the last 2 decades combined. As the largest 2-sided open platform in the world, we have the unique advantage of connecting hundreds of millions of consumers and merchants of every size to unlock entirely new deeply personalized shopping experiences. With PayPal's unmatched scale and trusted brands, our strategy is laser-focused on anticipating and fulfilling what customers need today and what they'll expect tomorrow, whether they're buying online, in-store or through AI agents. Our execution is fast and focused. We are strengthening PayPal's value proposition to bring in new customers, increase engagement and create strong partnerships with merchants. We are also attracting top brands and developers as we innovate and shape the future of commerce. The traction we are seeing across our initiatives continues to give us confidence that PayPal's growth will accelerate in line with our 3-year outlook. Turning to our second quarter performance. We delivered our sixth consecutive quarter of profitable growth despite the macro uncertainty. Transaction margin dollars grew 8%, excluding interest on customer balances. Success across many of our strategic initiatives contributed to that growth, including online and off-line branded experiences, payment services and Venmo. This highlights a healthy business with multiple avenues to sustain and accelerate growth, and non-GAAP earnings per share increased 18% year- over-year. We continue to build upon our broad reach and strong engagement. Both total active accounts and monthly active accounts grew 2% in the quarter. Transactions per active account ex PSP grew 4% as more people use PayPal and Venmo more often.…

Thanks, Alex. Moving to Slide 10. PayPal delivered another quarter of profitable growth. Transaction margin dollars grew 8%, excluding interest on customer balances. This was a continuation of last quarter's momentum and a meaningful improvement compared to the past 3 years. I'll walk through the key drivers and a few puts and takes momentarily. While we are pleased with our progress, what's even more exciting is the foundation we are building to sustain and accelerate this growth in the years ahead. TM dollars growth had multiple sources in the quarter, including strong credit performance, branded checkout flow-through, improvements in PSP profitability and Venmo. We drove operating leverage through a combination of top line growth and cost discipline as we remix less productive spend into product, tech and marketing. Taken together, non-GAAP operating income grew 13%. Share buyback and a favorable tax rate more than offset headwinds from lower interest rates, contributing to 18% growth in non-GAAP earnings per share. Adjusted free cash flow, which excludes the net timing impact between originating and selling European buy now, pay later receivables was $656 million. Adjusted free cash flow was negatively impacted by timing shifts in working capital, which we expect to reverse in the second half of the year. We continue to expect full year free cash flow of $6 billion to $7. Turning to Slide 11. Account and engagement trends are healthy. Active accounts and transactions per account, excluding PSP, both continue to grow. Total active accounts increased by nearly 2 million from the first quarter to 438 million. Monthly active accounts also continued to show steady progress, up 2% year-over-year to 226 million. Transactions per active account, excluding PSP processing, grew 4%. Moving to Slide 12. Total payment volume grew 6% at spot and 5% on a currency-neutral basis to…

Thanks, Jamie. We had a great second quarter and are confident that our strategy is working as our momentum builds. We are executing on everything we said we would do 12 to 18 months ago. We are building out and improving our branded experiences and giving consumers many more reasons to choose PayPal and Venmo. We are capitalizing on untapped opportunities in PSP and SMB. At the same time, we are actively shaping the future of commerce through our work in AI, ads and crypto. And our velocity of innovation is only accelerating. I am more excited than ever about the future we're building. Steve, let's go to Q&A.

[Operator Instructions] Regina, please open the line.

[Operator Instructions] Our first question will come from the line of Ramsey El-Assal with Barclays.

Great to see your strategic plan really gaining momentum this quarter. I wanted to ask about branded online checkout TPV, which decelerated just a bit quarter-over-quarter to remain pretty stable for a few quarters. Sounds like tariffs are offsetting some of your own efforts like modern checkout, and Will Ferrell to accelerate branded online TPV growth. How meaningful was the tariff headwind on branded online checkout TPV in Q2? And in July, are you seeing a stable tariff-related headwind there? Or is that a metric -- on that same metric, or could we see the headwind change and potentially intensify?

Ramsey, thank you for the question, and I appreciate the comments on branded checkout. Look, we're excited as well. I think our execution on the global rollout, the U.S. rollout is exactly what we were looking for. And really, the cohorts that we now have live in market are delivering exactly the way we expected. To the comment on these platforms from Asia, the way we think about it is, without that pressure, our branded checkout really would have been at 6%. And so it's a small amount, but we've started to see it stabilize a little bit as we get into this month. Jamie, anything you'd add?

Yes. No, I would just say that our trends underlying all this really have been broadly consistent. There's puts and takes in any given quarter. And like Alex said, we did see a slight deceleration really in those Chinese to U.S. corridors. In July, I would say it's still early, but seeing a bit less pressure in that space. We plan the full year with branded checkout at mid-single digits. We are on track for that. And the watchout that I really am looking at is we still have a fair amount of policy and macro uncertainty. So we're obviously monitoring that. But we're very focused on our execution around our strategic initiatives. And bending the curve takes time, and we expect to accelerate as we move through the next couple of quarters and the next couple of years.

Our next question comes from the line of Tien-Tsin Huang with JPMorgan.

I want to ask about all the initiatives, Alex, that you went through upfront. There's a lot going on, a lot to study. Specifically, I want to ask on Pay with Crypto and PayPal World. Because when you think about this, I can make the case that both are TAM expanding, but potentially at a lower take rate. We've been getting a lot of these questions on both sides. So how do you see it? And are you confident that both will be revenue and profit accretive as you push towards -- I think you call it, interoperability quite a bit in some of the releases.

Thanks, Tien-Tsin. So yes, we're very excited, and hopefully, you're seeing the pace of our innovation just continue to accelerate and sort of you're starting to see our whole strategy and the system that we're building together really play out. Let me take each of those. So PayPal World, I think the easiest way to think about it in the short term is, a, what I'm really excited about is the interoperability between PayPal and Venmo. So now you've got a huge amount of Venmo customers that can click on the PayPal branded checkout and make their purchase online. Then we've opened it up to almost 2 billion additional users, and that will just continue to grow. And the best way to think about it is that's branded checkout. And the way that we've orchestrated the agreements on PayPal World as a platform is the merchants maintain their branded checkout economics. And so if you're a user and I've gotten a lot of really fun notes in from LinkedIn UPI users that are now thrilled to be able to click on the PayPal button anywhere in the world and be able to make a checkout. And for us, that's just expansion of TAM at the existing economics that we have. And then on top of that, you've got P2P economics and all sorts of other things that will play out over time. So that's on PayPal World. It really is an expansion of the TAM. On Pay with Crypto, we really do see this as, again, expansion of TAM at pretty attractive economics. The expenses come down significantly with crypto. This is still early days in consumers really using crypto to pay, but we want to make sure that our merchants are enabled and have the ability to take the payment when they need to. So if you look at the net take rate on Pay with Crypto, it's actually quite attractive. And we'll see how it ramps up over time from a volume perspective. But again, to your question, both are expansion of TAM for us.

Our next question comes from the line of Timothy Chiodo with UBS.

I want to talk a little bit about a topic that's becoming more important to investors, which is the promises of prominent placement of the branded checkout button in your merchant negotiations. So when sitting down with merchants and renegotiating contracts, whether it's Braintree or PayPal or other, you're looking at the relationship holistically across products, the take rates or pricing, the use of BNPL and the list goes on. But maybe most importantly, there's that potential contractual agreement or kind of a promise of a prominent placement of the branded checkout button. And I was hoping you could give a little bit more context on how those conversations work and how things may or may not be changing on that particular aspect of the renegotiations.

Yes, Tim, thanks for the question. So let me paint the picture. So what's exciting is when we sit down with these merchants, and I'll sit down with the CEO as an example, we're really working merchant back about what's most important to them. And a lot of the time it starts with their ability to get access to more customers and then obviously, conversion matters. But how do they find the right customer? How do they make sure that they're bringing the right customer to their site. And so now we have a full suite of offerings, and it can go from ads to some of our commerce APIs to drive personalization, and it really runs the gamut. And so the conversations start with, hey, what are you trying to solve? We've got obviously unbranded. We've got buy now, pay later. We've got branded opportunities in PayPal, in Venmo. What demographic do you want? What are some of the value-added services that you want? So we really run the end-to-end spectrum. I think a couple of things that I would highlight that are exciting and sort of changing when it comes to branded in particular. First, because we are really pushing on buy now, pay later right now, we're pushing on our new branded experiences that brings everything together, we really can be that one-stop shop for a merchant to be able to have one button, a very powerful button that brings them the right demographic and the right services for their customers. The second that I'd highlight is we're really changing the game from what has occurred in the past, which is with our payment-ready API, we're now able to really identify who that customer is upfront. So instead of having to negotiate, hey, we need presented at this number of buttons or this type of thing in certain areas, what we're really spending time talking about is, hey, accept our API, paying our API first, and we're going to tell you exactly what this customer wants. And so that is driving increase in conversion, increase in merchant adoption, because we really get to personalize the experience for the customer. So I think we're leaning into the future, and I'm really excited about not having to create sort of the 15 different buttons on a checkout, but just being able to give a merchant the ability to ping our payment API and serve the consumer exactly what they want to be able to increase conversion.

Our next question comes from the line of Darrin Peller with Wolfe Research.

Can we touch on how the European rollout of the modern checkout initiatives are coming along now? Just what's the time line on it? When do you anticipate seeing measurable results? And then just overall looking at branded, maybe a little more color on international growth versus U.S. And just revisiting whether you still expect to exit the year at an accelerated rate for branded versus the beginning of the year?

Yes. Thanks, Darrin. So again, just to highlight, we were very deliberate in our strategy to start our rollout of our new branded experiences in the U.S. We're up over 60% now in the U.S. And again, the cohorts that we've rolled out are continuing to operate in the way that we wanted and showing the uplift that we expected, that we talked about in the past. We've now started to roll that out in the U.K. and Germany. As I mentioned previously, those integrations typically are on newer integrations throughout Europe. And so I actually think we're going to continue to accelerate our adoption over the coming quarters across Europe. So very, very excited there. We're mid-teens overall on global TPV, and we want to see that continue to increase over the next few quarters.

Yes. I can jump in here and talk about non-U.S. growth, which I think, Darrin, is where you were taking the second part of this. If you look at outside the U.S., again, we're really seeing largely consistent trends here. We continue to take share in Europe, including Germany. And as Alex mentioned, our broad push around our latest innovation, it's not just the latest experience, but it is buy now, pay later. It is the new app and app upgrades and the experience around that. It's in its NFC, which we had a really successful rollout in the second quarter in Germany around that. So it's all around branded checkout, really driving the habituation and the resulting halo that comes with that. And the teams are really focused on scaling that and pushing that as they go through. With respect to accelerated rate, what I would tell you is that we are laser-focused on branded checkout. And I think as we talk about all of this, that focus on execution, the focus on the strategic initiatives, we fully expect to see an accelerated rate of growth over the next few quarters and the next few years.

Our next question comes from the line of James Faucette with Morgan Stanley.

I wanted to touch on your efforts to expand the brands to offline and some of the initiatives that you have, including debit, expansion of BNPL and credit. How should we think about that road map on a go-forward basis? It seems like you're driving really good engagement. But just wondering about expansion into other geographies and then product expansion beyond. And it seems like there's an opportunity to become kind of a full suite of financial services that you're pursuing, but I'd just like to get the milepost we should be tracking on those initiatives.

Yes. Thank you, James. So I think you're hitting on what we've really been laying out in our strategy when it comes to branded experiences. And the best way to think about it is we just want to meet our customers where they are. The more they think about it, they are not delineating between online, off-line, agentic, commerce. They just think about buying. And the way they see product placement, the way they're buying potentially online and picking up in-store, like customers are just choosing commerce the way they want to choose it. And PayPal aims to be that choice for them wherever they want to buy. And so you've seen us obviously continue to accelerate our branded checkout experience as we just talked about online, but really leaning into that omnichannel strategy. And in less than a year, I'm really proud of the team. We're at 5 million new PayPal debit card users since our launch, TPV growth for PayPal debit card up 75% in Q2 with really good economics. And then that creates the habituated flywheel where for those debit card users, we see 6x transaction activity, 3x increase in average revenue per account for these debit card users. Then you look at the strategy that we just rolled out in Germany. And so again, as a reminder, this is our first real end-to-end wallet that includes not just, obviously, online checkout, but NFC tap to pay, a rewards system, buy now, pay later built into offline purchasing and really seeing exciting growth there. So 3 million NFC enrollments since launch with engaged users that are transacting 16x per month. That is showing that we can resonate in online, in offline world and really enable customers to use us for every purchase, every time, everywhere. And so that is the strategy. I think you're going to see us continue to roll that out globally. We said next up is the U.K., but we have great brand prominence across Europe and believe we can take this platform across the rest of our markets. So continue to see that roll out. And again, it's a full system of online, offline, BNPL and all of this coming together.

Our next question comes from the line of Harshita Rawat with Bernstein.

I want to follow up on PayPal World and some announcement. Now historically, we have seen challenges with regards to user experience, awareness, different priorities when it comes to interoperability across wallets. And I know in the past, it was kind of hard to create interoperability between PayPal and Venmo. So Alex, I think my question to you is like what could be different this time as you try and scale this across PayPal and Venmo and also international payment systems?

Yes. Thanks, Harshita. Look, I think we've created a platform that really simplifies the user experience, and have created a framework for all of the different wallets to be able to come together. So let me just talk about what we're in control of, obviously, which is that PayPal experience. So for an online checkout, whether it's a Venmo user, whether it's a UPI user, whether it's a Mercado Pago user or a WeChat user, you will be able to go to any PayPal button that you see on any merchant anywhere in the world, click that button and be able to check out with your native wallet. So we want no integration required by the merchant. The merchant already has PayPal integrated. They are accepted into the PayPal World ecosystem and now have access to billions of consumers. No change from the consumer. They just have to click on the PayPal button, and they'll see -- if we can identify them through their phone number, we'll actually, at some point, change the button to be their home button, so they can see it. If not, we'll be able to have them using some of the technology that we've already been building, things like Fastlane, things like being able to identify users upfront, be able to auto create that experience, so that it looks like a home experience for that native wallet. So again, I think we've really focused, and this was a big conversation that I had personally with the CEOs of these other wallets is, this has to feel native. This has to feel like it's a common experience. There will be go-to-market commitments from all the different wallets to train users and show them that the PayPal World experience is right for them. But this is going…

Our next question comes from the line of Sanjay Sakhrani with KBW.

Alex, Jamie, I appreciate the comments on a couple of points of e-com deceleration factored into the low end of guidance. I guess as we dig into the key drivers of growth in transaction margin dollar growth in the second half, can we unpack that a little bit? Like how much visibility do you have into the new initiatives and sort of the specific growth drivers? And just maybe a quick related question on transaction losses, which ticked up. Is this the new run rate? How should we think about that on a go-forward basis?

Sanjay, with respect to transaction margin, what we're really seeing this year, and I would say are durable, consistent drivers between branded checkout, PSP and VaaS, Venmo and credit. We saw credit as a strong driver in the first half. When you get into the second half, those drivers really continue very consistently. There is a couple of dynamics I would maybe call out. One is that in the second half, we expect about a 2-point interest rate headwind in third quarter and in fourth quarter, about $125 million. Just as you get into the second half, we had rate cuts in the last half of last year. We're expecting a couple of rate cuts in the second half of this year. So that we expect to decel, which will impact transaction margin dollars. The other thing is we expect slightly less contribution from credit just with tougher comps in the second half of last year. So that is the TM dollars piece of it. The other part -- oh, TL. With respect to transaction loss, yes, we saw an uptick in transaction loss this quarter. It was about 9 bps. And I'd say there's 2 things that are happening here. Number one, and we talked about this, I think, when we have given our guidance at a couple of points earlier this year. Number one is normalization in transaction loss rates after what was a strong year last year. And second was as we've been implementing and launching new products, we're just seeing a little bit of an uptick there and things we have to work out and put more rules around and get those back into the flow. We expect the full year run rate to be about 8 bps, so up from last year, but not as high as the second quarter. And the other thing I would just mention is some of these other products that we've been launching and scaling just come with naturally higher loss rates, things like debit. So all of this, it's an important area. We continue to be very focused on optimizing through AI, through the team and through automation, but that's really how we're thinking about TL.

Our next question comes from the line of Colin Sebastian with Baird.

Maybe just quickly, would be curious, any update on Fastlane in terms of the rollout and adoption there? And if you're able to measure any uplift in volumes from that so far?

Yes. Thanks, Colin. Quick update on Fastlane. We continue to roll it out. Our focus is on the largest merchants, which, again, excitement and adoption is strong. It just takes time for us to move through. They've not really invested in their guest checkout. But the improvement for these merchants is continuing to hold and be very strong. So we're seeing conversion uplift of 50% and consumers continuing to opt in. I think, again, I would highlight, as we continue to roll it out, 75% of users that are coming into Fastlane are really new or were dormant PayPal users that are now coming back in. So the strategy is strong for us. The biggest next inflection will be as we roll out multiprocessor, because many of our largest merchants really need, Adyen as an example, to be able to support Fastlane, which they've committed to do. So that will come out in the next couple of quarters. And then this is a long game, and we're excited about the momentum, but just continuing to move along.

Our next question will come from the line of Trevor Williams with Jefferies.

I just wanted to ask on the news over the past few weeks with certain banks starting to charge for access to consumer data. Just anything you can share on where within the business you rely on aggregators? And with what you know today on the pricing that's been floated, just how you guys are thinking about the potential impact?

Yes, Trevor, thank you. I'll keep this one simple. We're big supporters of open banking, and we've looked at this end-to-end throughout the business, and the changes are just immaterial to us. We're not going to be impacted by this really at all.

Regina, let's make time for one more question, please.

Our final question will come from the line of Dan Dolev with Mizuho Securities.

So can we talk about any benefits you're getting from the upgraded checkout experience? Obviously, there should be an uplift in the second half. Is there any way to quantify that, that would be great.

Yes, Dan, what I'd say is, from the cohorts that we've rolled this out to, and remember, this is 15% of global TPV, we're continuing to see the uplift that we've talked about, call it, 1 point of uplift. So that is going to continue. We just need to roll this out to more. And so our expectation is if you look at branded checkout overall, it's this new branded experiences, it's the momentum that we've got in buy now, pay later, which we're seeing over 20% year-over-year growth. It's the improvement in Pay with Venmo, which we're seeing 45% year-over-year growth. All of those coming together, we continue to see momentum on. And so as we exit this year, I expect that we're going to start to see real improvement in branded checkout overall and then as we move into '26. So this is a big shift. It takes time to move. I'm excited about the momentum we have across all 3 of those elements, the new experiences, buy now, pay later and Pay with Venmo. And I think we're going to start to see this thing turn as we get through the next few quarters and into '26.

Alex, any final thoughts before we wrap?

Again, thank you for the questions today. I'm very proud of the quarter the team delivered. We did not get any questions on Venmo, and I want to highlight that we usually get a lot of questions on Venmo, and the team is just really killing it. And so there's something magical happening with Venmo right now, and I'm excited about where we're heading there as well. So overall, I appreciate the team's urgency and innovation. We're executing well and excited to update you all along the way. So thank you, everyone. Take care.

This concludes today's conference. Thank you for participating. You may now disconnect.