PayPal Holdings, Inc. (PYPL) Earnings Call Transcript & Summary

Well, thanks to everyone joining us live on the webcast, and good afternoon. My name is Dan Perlin. I head up the payments, processing and IT services practice here at RBC. And I'm delighted to have joining us today, Jim Magats, who's the Senior Vice President, Omnipayments for PayPal. Jim, thank you so much for taking time out of what I'm sure is a very busy schedule, and I appreciate you being back at the conference this year.

Thank you, Dan. Great to be here and welcome the opportunity to talk about PayPal and what's going on in the world right now.

Excellent. So at a high level, maybe we could just start. You've been at the firm for more than 16 years, I believe. So maybe you could just start, for people who maybe are not as familiar with you in your role, kind of how you've progressed throughout the organization? And then also, in parallel, how you've seen PayPal evolve during that same time period.

Great. And I won't go through 16 years, but I'll try to keep it [indiscernible] as we work through this. But thinking of it this way, the role that I currently have right now is I look after something called omnipayments, which is a combination of our merchant product capabilities as well as our payment services that we offer into our merchant product capabilities and our branded product capabilities. And so probably the easiest way to think about it is around product experiences like Braintree, iZettle, Hyperwallet, things that we're calling our PayPal commerce platform, our unbranded payment acceptance as well as the payment services that underpin those as well as PayPal wallet, Venmo wallet, the Xoom capabilities and whatnot. And so things along the line -- ways of how people pay into PayPal, take money out, our transaction expense or our approval rates, basically the underlying payment systems and services that exist there. And so together, really, what we're looking at right now is in conjunction with John Kunze and our branded team, we're really looking at how we can create the best payment service capabilities for our merchants, our 25 million merchants that we have globally. And in doing so, being the best place for those merchants to get our branded product experiences. And so what we firmly believe is that we've got great assets across the board in terms of if you look at what Braintree offers or Hyperwallet or our risk management capabilities through Simility, et cetera, as we go through this, and the job with the team right now is how do we bring that together into a single platform that gives our customers the best place to get PayPal products as well as just get payments in general. And that evolution, basically started, as you mentioned, 16 years ago, really just focused on enabling PayPal to go geographically outside the U.S. And so focused on our work in Europe and then Lat Am, China and wider within Asia. I spent a few years in Luxembourg, came back to the U.S. and really have been focused on sort of enabling payments at scale for PayPal and really making payments functionality a differentiator for us. And you see that in terms of things like our approval rates, our transaction expense costs, some of the partnerships that we've done with the payment networks and FIs in enabling new payment capabilities and functionality. And so it's a really exciting role. It's a role that gets to touch all different parts of our organization. And it's a role that really looks at how do we power the 2 sides of our network and how do we bring buyers and sellers together and create commerce for them and remove friction from the normal experiences that they experience when they're trying to do commerce today.

Jim, that's a pretty impressive portfolio, man. I have to tell you. So you almost kind of wonder what's left if you're not running all those things. So -- but let's take it to a big picture theme for a moment. There's a lot of things emerging in the current environment. And I wanted to run through some of those and maybe talk through it with you as how PayPal is actually positioned relative to the themes. The most obvious one, and you guys have commented on it a lot, but it would be interesting to hear your view, is this massive shift towards e-commerce and ultimately the need towards omnichannel solutions. You rattled off a huge portfolio of some of those benefits, but maybe you could take us deeper into what you guys are seeing there?

Yes, absolutely. The moment I think we're operating in over the course of the last 4 months is it's almost like we have seen simultaneous -- the analogy that I try to think about is what we saw in India through demonetization and the emergence of mobile phones, emergence of the PC. So it's almost like at one moment, demonetization happened globally as well as everybody got a PC and everybody got a mobile phone. And so that's to sort of describe that all simultaneous to physical stores being closed. And so it is just an amazing sort of tidal wave of inertia right now in the digital payment space. And what's interesting is, it is across the board, right? It is across the board in terms of what we see in terms of merchants coming to us and just seeking all of our different product capabilities. Obviously, there's a great demand for PayPal Checkout, but if you look at our invoicing capabilities, things like paypal.me, Venmo services, iZettle, even iZettle in terms of that being a business that is predominantly a physical point of sale, iZettle has grown substantially its payment link capabilities. And so it is across the board in terms of a moment in time where all of our product capabilities are really standing up to the demand that's coming in. And so what I would anticipate is that this momentum will continue. And it will continue in a manner that, I think, for a lot of our customers, once they go digital, they're not coming back. And for many of us, right, it seems quite obvious that we use PayPal or we use a digital payment mechanism. But 2 things that I think will emerge out of this is a further erosion of cash holistically. And I look at my own life in terms of example, I take a language lesson every week, I take an Italian language lesson, for what it's worth. And the reason why I say that is the -- my teacher is predominantly a cash-oriented person, always wanted cash. And the moment we got into the situation, it's all digital. And I see that playing out with our gardener. I see that playing out with any bits of situations where check and cash were utilized, just the total immersion now into digital payments. I think the other thing that we see is merchants coming to us and really asking about how do we rethink physical world checkout. And what's obvious is that we have had a great experience in online and mobile checkout. But is there now, as you rightly point out, this omnichannel solution that we can help and others can help bring to scale about how do we really create an efficient way to do buy online, pick up in store? How do you match together someone ordering from a Home Depot and making sure it's Jim buying up the goods and not somebody else? How do you think about basically getting people out of a queue in a normal store? And through things like QR code, you could essentially disperse where people are actually doing the checkout or the buying through just putting a QR code on the floor of a store, on a wall of a store. And so this is just an amazing moment of time in terms of what we're seeing holistically where consumer behaviors are changing immediately, and merchants are immediately trying to react to that.

Yes. I like that idea, the demonetization and the arrival of the smartphones and PCs. I mean it really is a huge delineation line. On one day, you were this, and the next day, you were that. And so it's kind of unprecedented in the pace of that change. You touched on it for a second there on this digital-first retail, so to speak, where physical stores are kind of maybe going to be pushed more towards distribution and then delivery points. So I'm wondering how you guys are thinking about reimagining the checkout experience with all of the tools and solutions that you've come to offer?

Yes. So I would say that checkout in store and buying in general has been going through an evolution regardless of COVID. And I think COVID has just amplified it. And why I say that is I think we see sort of this idea emerging of separating buying from paying. And let me decompose that a bit. I think what I see in my own personal life is the idea of people being much more preplanning about their buying. And it sort of manifests itself in a couple of different ways. I think we're all now familiar now more with like the Instacart type of model, where you're sort of buying ahead and ordering things as you go through that. But more broadly, one of the things that we're seeing, and this is where something like Honey comes into it, is almost an emergence of a trend of sort of demand pushed by a consumer onto an open marketplace for merchants to effectively fulfill that demand. And probably the simple example that I'll use is my son, who's really into buying sneakers. And he wants to buy and sell sneakers, use a StockX and whatnot, and he's into things like shopping bots, where you're basically preprogramming in advance your demand for -- the latest sneaker for what it's worth is something called Chunky Dunky, which is an Air Jordan that come together with Ben & Jerry, so I had no idea what that is until I found out. But if you want a Chunky Dunky, call me and I'll have my son help you. But anyway, the reason why I call that out is that what you now see is this idea of people emerging to say, "Hey, I want an item." Basically put the item out in sort of like an order, a bid, say, I want this particular item, and then people are basically competing to fulfill that order as they go through that. And so that's sort of an emerging trend that we see. The other trend that we see is that once someone is in the sort of shopping environment, things like Honey, which I sort of view as a wonderful almost couponing experience at scale, the ability now to give people offers, the ability to -- again, we always sort of view our world in sort of democratizing experiences, but to make available to people offers and the best deal is something that, obviously, now in an economic environment that we're in becomes even more important. But to do it in a very seamless manner becomes really critical for both the merchant and the consumer to make sure that the merchant is exposing its offers and making sure that whatever it can offer can be done in a very seamless manner. And then last but not least, what we're seeing is this sort of emergence of the idea of pay when you want after the transaction. And so PayPal, if you go back to 2008, buy and bill me later was probably the sort of at the forefront of the pay after purchase or bill me later type of model. But what we're seeing more and more is the idea of separating that buying experience to someone being able to decide how they want to pay after the transaction takes place. And so it could be, hey, I bought those Chunky Dunkies with my credit card, but now I want to pay them with my bank. We're creating, and others are creating, and I think this is a more emerging capability for people to make a decision on how they pay after the transaction. And so this idea of sort of preplanning in the moment of search and then after you're making the transaction, deciding how you want to pay are really 3 different things that we're seeing across the board in checkout. And so I think now when you juxtapose that with what physical stores are dealing with, I think, one, they are becoming more showrooms. They are becoming more places to try goods. And if you, again, view all those 3 areas, you now could see a world where I go to a Nike store here at the local mall, and I see the Chunky Dunkies, or I go to these other places, and it really becomes more of a showrooming type of environment. And then you could then go to your bot, you could go to your preplanning and say, "Hey, I want to now buy that in the future." And basically search the great Internet for those particular offers and search for people to actually buy them for you. And so I think this is an amazingly important trend that we're seeing holistically and how we've imagined commerce and checkout is going to change.

The trend you just described is really interesting, this put out what you want, have the merchant compete for fulfillment. Was that -- would that have been possible without Honey for you guys before? I mean, it's -- it seems like that may have been a hugely strategic move.

Yes. I think that's part of the thesis of Honey for us. It's how do you create these demand curves or demand opportunities for consumers, right? So think of Honey as both bringing offers to people. But at its essence, what we anticipate is the opportunity to use Honey as a way to then say, "Hey, am I getting the right deal? Am I putting my ask out for people to effectively fulfill?" One of the things that we've talked a lot about is cart abandonment. And one of the main reasons why I think the estimate is over 50% of people going online leave their items in a cart and not fulfill them is because they don't think they have the right deal. And they're worried that, hey, I might get a price better somewhere else. And what Honey does is, again, it democratizes that experience. It makes sure that you, as a consumer, have available to you the confidence that you're getting the right price. And then similarly, from a merchant point of view, the merchant is able to get in touch with consumers that may be searching elsewhere or may be searching for different offers and making sure that those offers and the best economic decision that the consumer can make from that merchant is exposed to them.

Yes. It's pretty important these days. I could see how that would be a big compression curve for accelerating in that direction.

Sorry. It's amazing, if you just look across the board of our growth, Honey is right there with it in terms of people wanting to use the Honey experience in our checkout flows and just holistically for us. And so we would love to give ourselves that much credit in terms of the foresight here, but it is something that is really sort of emerging for us and emerging sort of across the board.

Yes. How does the acceleration of like contactless payments, which is obviously much more of a physical world presence, how do you guys see yourself or maybe envision your role being played there as that kind of pivots over? Are you going to be more NFC-enabled inside the mobile device? Or are you thinking about moving more towards an off-line strategy? And maybe we could also talk how that dovetails into this notion?

Yes. So what we want to be able to do is give our consumers ubiquity. We want to give them the ability to use PayPal or Venmo anywhere, any context. And with the trends I just talked about, this sort of emergence between the physical world, online world and mobile world coming together, we see enabling our customers to be able to do in-store or physical face-to-face transactions really strategically important for us, but also helping merchants right now in terms of their need to make sure that they offer a safe environment for their customers. Again, we're probably all now familiar with queuing up at our local grocery store or pharmacy and having that sort of moment of dread in terms of who am I standing next to, how that transaction will be done. You're watching the sales -- I'm sorry, the checkout person take out Lysol and spray down the equipment before and after using it, and it's just not a good experience. And so I think right now, where we find ourselves is in a very -- again, it's a very important moment where contactless or what we broadly consider touchless payments are going to be critical from a physical world point of view. And so what we're envisioning there, Dan, is a across the board types of form factor that we'll be supporting. QR. We already have contactless cards in terms of our merchant debit card, our consumer cards that we have. Our Venmo card are all contactless. We also look to support NFC as part of that. But I think the one that gets a lot of interest right now is QR code. And really, how we envision that is really from 2 different segments for us. You have your casual sellers, think of your food trucks, your farmers market, and really being able to take the power of the hundreds of millions of consumers that exist within the PayPal and Venmo ecosystem and allowing them to use a safe QR code method of payment, not having to pass cash back and forth. And then what we're also envisioning is what I talked about previously is bringing the QR capability into more mainstream type of physical stores. And again, you could imagine restaurants. You could imagine the pharmacies, your grocery stores and how do we work with those merchants to again reimagine their physical checkout experience. And I think what's different now, and I get this question a lot of, well, you tried this many years ago, and what's different now? I think we, one, have a bigger critical mass of consumers. We have a bigger critical mass of merchants. And if you go back to 2012 and '13, maybe order of magnitude of at least 2x in our ecosystem. So we can bring a broader group on that. The other piece is that I think you have the clarion call right now of people wanting safe payments, wanting to rethink about how they're doing checkout. And obviously, mobile technology has evolved. QR code is something that in other markets has really taken off. And we think it's something that can take off here in the U.S. and the other markets that we're operating in.

Yes. It's -- exceptionally, technology is amazing. It's been around for so long, and it's finally seeming to find its place or its time for it to be launched. I know you launched in 28 markets globally recently. I'm wondering, when you talk about the physical or offline strategy, and I think it is important to draw distinction between then and now, but now you also have iZettle. And I'm just wondering, is that part of that physical world strategy that you're laying in there? And how does that look as we think out over the next couple of years? Like what would we considered a success there?

Yes. It is. It is. And I think you always need to think about when you have 25 million merchants, segments and subsegments. And where iZettle plays is very much in the what I would consider sort of nano to main street type of merchant. It is predominantly has been focused on your casual seller to your, I'll call, 1-store business, so again, through your main street store, and also in the food and beverage area. And when we think about iZettle, we think about it as part of a bundle, and you'll probably hear on our merchant side talk more and more about the power of our bundle. And when we think about supporting an SMB, and if you think about that from being more of a casual seller to 1 physical store, sort of that size, really, what we want to be able to do is bring the power of our bundle together, which in effect is, number one, for a store like that, it could be iZettle as a mobile POS device, an online acceptance through both PayPal wallet, Venmo as well as what we consider unbranded acceptance, and we can do that through Braintree or unbranded capabilities. We want to enable them to have a debit card, which we already have in most markets, a sort of a physical card to make payments. And we also want to be able to intersperse with that working capital and invoicing. And so think of iZettle not necessarily as stand-alone but really being accretive to that bundle. And it allows us to have a credible position with merchants that are -- have historically been predominantly a physical merchant and then may look for ways to go from what we're basically calling brick to click. So in this environment, obviously, many merchants are now -- if you see it in our numbers, and I think we've shared sort of over 1 million net new merchants that were trending in this quarter, that is a powerful indication that we've got many physical merchants that are coming on to our platform. And by having that bundled together and using iZettle as one of the main product experiences that they come on, it gives us the opportunity to have a much stickier relationship around all their payments and eventually all their commerce experience as we go forward. And so expect to see iZettle in more of our considered core markets over the course of the next 9 to 12 months as we look to create that bundle for small businesses.

Interesting. If I just stay on QR codes for 1 more second, and I think through some of the puts and takes on their barriers. I mean, are -- the United States, it seems like it would be slow to start, but this is the time where we would see that kind of demand. But are there things that we need to be mindful of as investors looking to that technology as maybe not being adopted so quickly? Is there a friction point? Are there hurdles? Are there regulations? Are there anything that we need to be mindful of? And maybe that's true for other markets as well.

Yes. So as we've thought about this and to give you the different areas that we've gone through, one is we have to get sort of physical representation where our consumers are, right? And so the easiest -- I would say, the easiest way to think about this is for your casual seller and sort of use the analogy of the lemonade stand, right? As my kids wanted the lemonade stand in front of the house, they go -- they basically, all they need to do now is show the QR code off dad's phone and anyone going by that has a Venmo or PayPal account can basically buy lemonade from my kids. And then you could imagine, if I don't want to give them my phone, I go to my printer, print out the QR code and off they go. And so that issue of physical distribution for the casual seller, I think it's something that -- it should be something that can be addressed relatively easily through, as I mentioned, just printout or using your phone. Where we're evolving ourselves now is working with the different point-of-sale providers, working with the different acquirers and basically using them as a conduit to distribute QR code capabilities. In most of how we think about it, and this is bared out in China and other markets, most of your casual seller experience will be a situation where me as a consumer will be taking a picture of the QR code from the seller. So use my lemonade stand as an example. However, in a mainstream store, the situation that we anticipate and what we've seen in China and other places is where the consumer is showing their bar code or their QR code and the existing capabilities that exist within most physical stores is around your sort of scanning device, which will read the QR code. And so we're working with your large and well-known point-of-sale and acquirer and network providers to make sure that, that capability can be read. And it can -- in essence, see it from the standpoint it will be read in a way that will act just like a PayPal transaction to them, so to leverage our P2P rails that we have. What we're also looking to do is to make sure that, that's scalable. And what we're looking to do is to partner with the payment networks and other payment providers to evolve that capability, so it leverages and is interoperable across what is today the traditional card network capabilities for us. And so we see a world where if the merchant is able to support a sort of common standard, then we will work with them and make sure the common standard is exposed. And one of the things that right now that I think you should be thinking and we think about is the interoperability of QR code standards that exist in the -- will exist in the US as well as around the world. And so one of the challenges that we see ourselves addressing, and I think that's the power, and I go back to the main thesis of what PayPal is, we sort of intermediate between parties. What we can do and what we can intermediate is to help create more of a QR code standard around the world. So if you're in China and you want to go to India, you could use your QR code bar to be read in an Indian location or vice versa. One of the things that we're looking to do in China is enable the capability for a US or any consumer that sits outside of China to use their PayPal QR code as a way to pay at any physical location when they're visiting China. And so that's just an example of the challenges and then the opportunities that exist around interoperability today. It's not the world that we currently have around card technology, which is, over time, become interoperable. QR code is not today interoperable. And so those are things that we are thinking about and actually see ourselves working with the payment networks and the existing payment ecosystem to help solve.

Yes. I mean, definitely, as we've seen over the years, when you start to establish standards, be it domestically or more importantly globally, products definitely take off as they become more global and ubiquitous. So that's a good point, we need to be paying attention to for QR. The net new active growth and engagement has been pretty off the charts. It's garnered a lot of attention as of late. I wonder if you could just talk to some of the other incremental use cases that are helping drive that? Why you think that's sustainable maybe potentially at these levels? And then also, a lot of this has been on the consumer side. Are you also seeing it on the merchant side of your platform?

Absolutely. The numbers are phenomenal in terms of net new merchants on our platform. As I mentioned before, I think it's over 1 million that we're seeing sort of trending. And if you break that down that's thousands a day, it's like thousands of days of net new merchants coming on to us. And we're an ecosystem of endpoints, right? And so the more endpoints that you have, it becomes quite viral. And by having more ubiquity, we get more utility for our consumers, more consumers then drive more ubiquity. And it is a total viral business that many of you are already very familiar with. And so in this environment, as I mentioned before, what we're seeing is sort of trends across the board. So trends in terms of net new merchants that were physical first, and they're now working to come online. And part of this sort of QR code strategy is to sort of give them a bridge to an online world. What we're also envisioning and already see is many of these are starting to set up their own online shops. Some of it coming through your Shopifies and your channel partners, some of it coming directly to us. And as I said, across the board, there is -- I wish I could point to one particular area. But as I said, it's this tidal wave of inertia, which everyone is now seeing digital as absolutely critical to their business. And those that have been on the side have basically now said it is absolutely imperative to take as we go forward. And so as I said, you see sort of emergence of health and beauty. I think everyone has probably gone through at least the idea of buying fitness equipment. You see food and beverage, obviously, becoming a mainstay of our merchant growth as now restaurants are now having to evolve themselves to more of a takeout environment. It is just across the board that the growth has been fantastic. And as I said, it's not just checkout. It's -- we have different products like invoicing. They basically are asking for this idea of these payment links. So can they send a link to another party to get paid as they work through them. Our Xoom numbers is just a -- on the consumer side, have gone up fantastically high in terms of now people are not wanting to go into a physical location to send money to loved ones around the world. And so this is a trend that I wish I could point to 2 things, but it is everywhere. It's everywhere within our business right now. We also see demographically the net new actives coming on, a higher percentage of folks that are 50 and above. People that, as I mentioned before, then sort of holdouts to wanting to use digital payments have been more comfortable with cash and checks have now basically seen that this can be another way of managing and moving money. And at least our experience so far has been as the states have been opening up, we haven't seen a downturn. It's continued to have momentum for us. And my feeling as just someone in the payments industry, once you use these capabilities, it is a transformational moment for you that you're not going back. You see them as easier. You just see them as a more efficient way of using things. And so as I said, the trends continue to be really strong across the board.

Yes. Well, I think it's better to have a much broader-based exposure as opposed to relying on 1 or 2 products. So that's encouraging to hear. When you think about the merchant value proposition, I think, more broadly for PayPal and you look at the assets you have today, are there gaps in kind of in the fabric of things that you might want to either develop internally or you feel like you need to acquire or either maybe even through partnership? Are there some things that are standing out that you might want to fill in?

Yes. I think just -- if you -- Dan, give me a moment and sort of talk about our strategy for our merchant capabilities. And I think we'll answer the question specifically, where do we see opportunities and gaps for us. As I mentioned before, we have great assets. And what we want to be able to do is to put those assets together in a very simple and unified way for our customers. And the beauty and challenge right now is that we have these great assets. And what we want to do is expose them in a very simple, platform-oriented manner for our merchants, whether they're a micro merchant, as I mentioned before, or a large enterprise merchant. And as we think about it, it's really a focus on how do we integrate the experiences together. And so you have a common boarding process. Once you get one of our products, how do you easily get the other product capabilities? How do we then think about a common servicing experience across the board? And so for us, the -- think of it as almost like a mosaic. We've got these tile pieces that we want to bring together into a beautiful picture for our merchants. And the mosaic today are things like Braintree, Hyperwallet, Simility, iZettle, our risk management capabilities that I mentioned, the power, the 2-sided network that we bring from the consumer side. And so for the sort of small and micro merchant, it's the bundle that I talked about previously around bringing together those assets in a very cohesive manner that are addressing a series of capabilities and needs for our merchants. At the higher end, for the enterprise merchants, a lot of focus is on how we tie together both Simility, Braintree and Hyperwallet. And what we have found, and again, the thesis of the Hyperwallet acquisition is that for every one payment that you get in, a merchant is typically then doing 6 or more other transactions, and just use that as a sort of rule of thumb that we've seen that they are now making more transactions out by receiving those payments, right? They're paying their taxes. They're paying their suppliers. They're paying their employees. They're paying everyone that goes through that. And so we want to bring together that bundle in a way that we are the one-stop-shop for their payment needs. And then you add our risk management capabilities onto it, you add our authorization rate capabilities on, you add the scale benefits of our cost structure in terms of what we can bring on transaction expense and you have a really, I believe, a formidable product offering that really supports a merchant from when they start to when they become really big. And I think the areas that we look at in terms of where we want to go next in adding those mosaic pieces are around, number one, looking into enterprise in store. And so as you mentioned previous, we have a capability for your small merchant around iZettle. We want to be thoughtful about how do we support larger merchants as they want to go into in store and create that omni experience. And so expect that to be a focus area for us to try to address over the course of the next year or 2 because we do see our digital-first merchants trying to operate in store, and we want to be able to support them. And probably you're familiar, Dan, and others on this call, but in-store acceptance of payment is very idiosyncratic. There has historically been a dissidence between sort of the in-store systems and the online and mobile systems. What you do in terms of terminals, all the things I talked about with checkout, that's just different. And so that's an area that we want to evolve into. And I think the other area that we want to continue to focus on is our geographical reach. And I'm very, very excited about our GoPay acquisition, and we've just started what we call our employee day 1 with our GoPay team. And you'll expect to see more out of our Chinese capabilities. But I think we have a really powerful asset in GoPay and what we can do for our merchants in China. And if you could imagine a world where we're bringing Braintree, we're bringing Hyperwallet around the solutions that we already have, again, we think that's a really powerful offering for -- especially for global merchants that want to operate in China. But beyond that, there's other markets that we sort of see as really important for us. And Mexico will be a market that we're going deeper on. Brazil, Japan and, obviously, India. But with the Gojek investment is another example of where we want to be more geographically dispersed, and so expect more focus on that. So together, enterprise in store and physical -- in the physical world as well as geographical reach.

Since you mentioned GoPay, let's just -- let's elaborate on that a little bit because I do think it's fascinating, and I think a lot of people have a lot of questions about opportunities in the China market and how that even works. So maybe if you take a step back and maybe address what that asset enables you to do or will enable you to do? And then when you put the whole portfolio context around it, what does that actually look like for that market in particular?

Yes, absolutely. It is a market that we already have a strong presence. And so they -- so we see our world today in China as predominantly an export selling business. So we're supportive of Chinese sellers and them enabling transactions and the selling of their goods around the world. That's our main focus. We also have a decent amount, but not as big, of import buying, so a Chinese consumer buying from overseas. And you can imagine, any luxury goods, any different things that are more easily obtained outside of China are items that we've seen a lot of strength in. And if you take a step back, our focus in the market is really 3 areas for us over the course of the next, I'd say, 18 months to 2 years. As we've evolved into China, the rules and the regulations of operating in China have evolved. And what we are really excited about is the license that we are obtaining by operating with GoPay and basically moving all of our China merchants onto the GoPay platform. And so by doing that, we operate in a compliant manner from the PBOC. We have a strong partnership with China UnionPay and UPI. And I think, taken together, we're really now in a position that while we were working through the regulatory aspects of our business, we now feel like we will see ourselves within the next 6 or so months on the other side of that through the migration efforts that we're doing. And now we're really ready to put our foot on the accelerator within China in terms of the support and the scalability of our systems and products within the Chinese market. So Phase 1 for us is making sure that we're honoring our commitments to the PBOC and working in partnership with them and China UnionPay to stand up our compliance solution and is really one of the only non-Chinese licensed operators in China. And so what that basically means is that we can scale our business. We can bring other capabilities into the market like Braintree and Hyperwallet and bolt those on to our merchant propositions. And so right out of the gate of announcing this, we saw an amazing and continue to see an amazing amount of inbound requests from merchants wanting to partner with us and use our services. And so you can imagine many of the global players that want to operate within China see our position as extremely interesting to them and important to sort of support their business needs. And so job 1 is to make sure that we're fortifying, growing our export part of our business. Job 2 for us is really looking to partner with banks within China and using our relationship with China UnionPay to fortify and grow our consumer side of the business. And so for those of you who have seen in the U.S. our partnerships with American Express and Chase and Citi and the whole laundry list there, the playbook that we've utilized to really drive a lot of net new actives and sort of interconnectivity to the banking ecosystem, we're envisioning doing the same within China. And through China UnionPay, who has great relationships with many of the largest banks within China, we envision taking that same playbook and going to China, whereby a PayPal account will effectively be provisioned within the apps of the largest Chinese banks. And so think of that as we work together, as they have their consumers come on board, they'll be given -- easily be given the option to open and create PayPal accounts so that when they are doing cross-border business, they have the easily ability to utilize PayPal as their preferred method of payment. And then the other piece that we're looking to do is what I mentioned previously around enabling QR code capability for foreigners coming to China. And if any of you have been to China, you probably can relate to my experience. I visited China a lot over the course of the last couple of years. And as I get into the airport and you go through the immigration and you go past all the people with their signs that's saying, come and get into -- for the car service, I'm always sort of looking around them. They're putting their signs up higher, and I'm working around them and they empathically are putting their signs, and I finally go, "No, I'm looking for the ATM machine." Right? So as a foreigner, the first place I go to in China is a cash machine. And it's a bit ironic, as someone who works in digital payments, the first place -- and we bought a digital payment company, the first place I go to as a foreigner is a cash machine because the interoperability between the card ecosystem that we utilize and the card ecosystem that exists within China are totally incongruent. And so what we want to be able to do is any foreign visitor into China, give them the power of PayPal and our app and our QR code technology to allow them to easily make payments in a physical world. And so those are our real 3 areas of focus. We will consider after that, and as we always look at ourselves as a 2-sided network. We want to build the consumer side and further grow our merchant side, and then we'll find ways to intermediate them together going forward or taken together, that's where we're focused and expect to see some really good progress over the course of the next couple of quarters.

Okay. That's exciting. I mean, it's clearly a position of strength for you guys relative to your competitors, and it's a unique opportunity that has real scale to it. So that's really good to hear. If we dig down into some of the more granular pieces of the business, I'm thinking transaction expenses. There's just kind of some interesting dynamics that are occurring here. In particular, the funding mix, debit's been running hot relative to credit for a lot of platforms. And I'm just wondering what you're seeing in terms of your funding mix? Are these numbers that you're posting now more sustainable in your opinion? Do you think they'll revert back to different trends? And I know your response for these numbers. So maybe you could just enlighten us as that cadence might be evolving.

I wish I had the crystal ball answer for you, but I'll give you the best that I can in terms of what we're seeing and what we at least anticipate in the near term. Overall, what you said, Dan, is spot on. I think our mix, and part of it is product mix, and as we're seeing new cohorts come on to our platform, the predominant way that they're paying more and more is through bank-funded, either debit card or ACH or PayPal balance. That's sort of the predominant way that they are paying. And in essence, what we're seeing is that as they're, in essence, more active, we anticipate them to continue to utilize those funding mechanisms. And typically, our funding costs, especially in the wallet, is more of a function of ASP or average sales price. So the higher the amount of the item, the more likely that someone is going to use a line of credit to fulfill that transaction. And so the more we're seeing P2P, the more we're seeing, I'll call, low ASP transactions. And you can envision the opportunities that we have around QR code, the opportunities that we have in terms of going into in store, where you're buying more lower-cost items that are hoping or at least our anticipation is that, that trend will continue. I think the other part that we think about is, right now, travel is down holistically. And those ticketing items tend to be higher ASP. And obviously, that is a temporal -- we anticipate a temporal mix shift. But I would say, on the whole, we're encouraged by what we're seeing from a cost point of view that some of these trends will continue. But it's really hard to say in terms of what that's going to look like. I think we have to see it in a couple of quarters before we can really call what the long-term future will be. But I think one of the thing, Dan, we always think about is our scale benefit is what I mentioned before. We're able at our scale to work with the payment ecosystem to almost procure our cost at a buy rate that we can then pass on to our customers. And so that will only continue as we continue to scale.

Yes. One last question since we have just a few seconds left. We get a fair number of questions, I think, broadly around authorization rates and the ability to improve them. In your case, you've been -- you've had great success in reducing transaction losses and things of that nature. But how do you improve authorization rates at the same time that you've got to minimize risk associated with that? It seems like a difficult needle to thread, so to speak.

Data partnership and technology. Data, we have -- because we're a two-sided network, we have great data in terms of who's -- who are good people and who are bad people. We have great predictability to know your card information. We have north of billions of cards on file. We know the patterns in terms of when your card expires, what that card number will likely be. So we can help predict that for you. We have partnerships with many of the large issuers where we're passing our risk score with them, and they're using that risk score to approve more transactions. I think on a wallet level, we are probably over 200 basis points of improvement over the course of the last 2 years through all the different capabilities that we're working through. I think a recent Mastercard survey showed sort of the PayPal ecosystem and specifically the PayPal Wallet to be about 600 basis points better in approval rates than they see on average. We're in the process right now of rolling all these capabilities into our Braintree and unbranded services. And so I firmly believe through partnerships, the data, the AI and the machine learning capabilities that we have that we said at the sort of forefront of authorization rate and sort of coupled together with our risk management services, we've been able to do both at the same time, which I think is absolutely fantastic for our customers.

Yes. Well, Jim, this is a fantastic discussion. We could go on for hours. But unfortunately, we're out of time here. But I just want to say thank you so much for taking the time to be with us today. And I hope you and your family stay safe and healthy. So thank you so much.

Thanks, Dan. Thank you and everyone on the call. Bye.