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

I think we can get started with our next session. Let's see if -- okay. Great. All right. Welcome back, everyone. My name is Ken Suchoski, and I'm the payments and fintech analyst at Autonomous Research. I'm joined by my colleague, Rob Wildhack, who covers the buy now, pay later space for us, and he's going to help moderate this session. We're excited to have Greg Lisiewski, joining us today. Greg is the VP of Shopping and Global Pay Later at PayPal. He's been with the company since 2019. Prior to that, he was the founder and CEO of Blispay, which was later acquired by Alliance Data. Directly prior to his current role, Greg was the VP and GM of Consumer credit. And so interestingly, this is Greg's second tour with PayPal as he spent 5.5 years with the company prior to founding Bliss play. So Greg, welcome. Thanks for joining us. I hope I got your last name right.

Ken, great to be here, and you did a perfect job. So Well done, but we share the ski. So my guess is a little more practice than others, but great job.

Yes. I would have heard it if I butcher it. So well, it's great to have you. And like I said, Rob's going to help moderate the session.

Hi, Greg.

Hey, Rob.

And so yes, if the audience has any questions, feel free to use the Q&A box within the Zoom app or you can e-mail them to me at [email protected] or [email protected], and we'll get those answered. So with that, let's get started.

Greg, I must say you have a tremendous amount of experience across the world of payments and fintech. Firstly, it would be great if you could walk us through your background and what led you to head up the Global Pay Later business within PayPal. And you're also running the Shopping business as well. So I'd be curious to get your thoughts there.

Yes, sure. So you walked a little bit through my background, but I originally my first story with PayPal is part of their acquisition of Bill Me Later. So for those of us -- for those of you who are around, essentially the OG of buy now, pay later generation ago, that was really, really built out the model for several things you see in the market today, lending through bank charters, point-of-sale distribution through e-commerce and the power of providing point-of-sale financing for all -- for 3 different players in the ecosystem: merchants, consumers and the business making the offer or underwriting a loan. I ran product and marketing at Bill Me Later. After 10 years at MBNA, which was a monoline credit card giant, generally credit was creating the affinity marketing space. And there, I did all first-generation web stuff. So it's been a couple of decades now, which makes me a little depressed, but really fortunate that we're always been on the front edge of sort of technology and financial services. What we now regularly call fintech wasn't so much the case 20 years ago or so. Did a state touting my own business in the space. Coming out of the 2008 recession, a lot of the direct-to-consumer activity backed off. PayPal actually took Bill Me Later in a slightly different direction and along with a few other folks, saw an opportunity to sort of fill that void, had a good 5-year run there and then exiting that to Alliance Data. And its PayPal started to -- I would say, it reenergized about the space and sort of return to the Bill Me Later roots. We just decided to get back together, and I sort of picked up where I left off in some ways and helped bring PayPal with lots of folks around here into the sort of modern day buy now, pay later space. And then recently added the Shopping business to my remit. And it's not intuitive at first glance, but Pay Later and Shopping really go together because I've always viewed, and we did this even back at Bill Me Later, Pay Later is just another merchandising value prop -- Pay Layer value propositions. It's just another retail-oriented value prop to help a customer to get what they want or need today with the ability to pay for over time. In a customer's mindset, they ranked it up there with the ability to save money. Or if they're on the rewards sort of cash back side of things, the ability to get something. And that's really where this space started. It was a B2B2C business model, where Pay Later value props help convert sales. And merchants are always looking for top-of-funnel traffic. And when you combine those 2 things together, it sort of makes sense to use sort of our platform to help drive our customers back out to our network of merchants.

No, absolutely. That makes a lot of sense. Greg, I mean, what are some of the key aspects of the business that you're laser focused on these days?

Yes. So it's been a busy couple of years for us. So we've launched 9 different products across 7 markets over the last 2.5 years. The flagship launch for us was pay in 4 back in October of 2020 here in the U.S., but we've diversified across all of our core markets. We've added pay monthly here in the U.S. We launched that a couple of months ago. And what I'm focused on right now is really maturing and optimizing those products from a customer experience perspective; rounding out the edges, making sure post-purchase experiences are strong; making sure our merchant interactions and experiences with us on those offerings are where they need to be. And then obviously, it's a lending business at the end of the day. So we're constantly looking at usage, but also credit quality payment performance, et cetera. So it's really about how do we grow and mature business. We've now sort of spread wide and make sure there's growth from a new user perspective, strong reuse because people like to use the product and that we're lending responsibly. So we're making good decision in terms of who we lend to. And we monitor that on the backside to make sure payments look healthy, so that we can make sure the business model sustainable, but also make sure we're not helping customers get in over their head.

No, that makes a lot of sense. And you talked about the launch of the various products over the last few years. I mean where do you see the offering evolving over time, Greg? And I guess for us, the analysts and investors looking in from the outside, what are some of the KPIs that we should focus on the tracker progress?

Yes. I think -- yes, there's probably, yes, the core metrics, and I'll just expand on what I sort of mentioned, user growth. So we talk about first-time adopters of our product, is a good metric. Our new customers -- are we driving new customers into the product line. That's a good metric. Is transaction volume, both in terms of number of transactions and TPV, continuing to grow at a healthy clip? So either through new users or reuse. Our reuse rates are strong, 78% of our customers are still using the products after 6 months. The lift that provides the overall business, we talked about this publicly, is sustained at around about 20% lift in engagement with PayPal. And then credit quality. It's an important metric. And it's interesting, this pay later has been around for a while. The sort of pure plays have been gaining momentum heading into April -- March, April of 2020. But the pandemic, obviously poured port gasoline on that, and that was a period of a lot of uncertainty. And here we are in the current chapter of COVID, which is hopefully where we stay and keep improving. However, the macroeconomic environment is shaky or unpredictable at the moment. So credit quality is obviously is an important one to keep track of.

Yes. Definitely, sorry. I didn't mean to cut you off there if you were going to -- keep going.

No, you're good.

Yes. So I mean buy now, pay later adoption has certainly picked up over the last couple of years, and you sit in a great position to opine on the latest consumer trends, Greg. So what are you seeing in terms of consumer adoption of buy now, pay later? And where do you see the share gains coming from?

Yes. It's a really great question. It's interesting early in the current sort of chapter buy now, pay later, which essentially is normalized into short-term no-interest products, right? Buy now, pay later may mean a lot of things, but in general, the mainstream, I think, interpretation of it is essentially a product like pay in 4. And that was really attracted or at least came steam in millennial and Gen Z consumer segments and in beauty and health and fashion kind of verticals. If you turn back the clock though, there was a lot of headlines around, millennials are credit averse, they don't want credit cards, et cetera. And I don't -- I never really saw it that way, and I think the data supports it, like penetration of 20-year-olds or 25-year-olds with the credit card is as high now, as it was 20 years ago. Credit card type adoption is really more rooted in life stage than like demo segment. However, the value prop and its attractiveness to consumers is undeniable. So the opportunity to interact with a product that has no interest, in our case, probably no fees. We eliminated fees globally, well over a year ago. And it's super transparent. It's just a helpful product to help manage cash flow. What I've been really excited about is between the pandemic but also PayPal's entry into the market, given that one of our go-to-market tactics was to add it as a feature to the wallet. So we certainly have a merchant side to our business, and we might talk about that later. But we added it as a feature to our wallet. With Mint overnight, we essentially became, by far, the most ubiquitous pay later offering in the market given the distribution of the PayPal checkout button. And that had 2 effects, one on the consumer side and one on the merchant. We exposed additional customer segments to the value proposition. So it wasn't just millennials or folks shopping at trendier, more modern sites that suddenly what's he pay in 4. It was Gen X and older segments. We saw pretty quickly really strong adoption across all consumer segments. And similarly, we saw -- we also opened up the vertical spectrum, if you will. So what was in fashion and beauty, in health and sporting goods and whatnot, suddenly became available at all verticals that PayPal were involved with, which was really wider than anyone was covering at the time. And we saw a similar effect. It wasn't just that people wanted cash flow and payment transparency on jeans or sneakers or beauty products, they just really wanted to purchase order values that were in the $100 to $300 range, so that they could predictively spend $25 or $50 or $75 every 2 weeks without the risk of it turning into a revolving balance on their credit card. And that's been really great to see. And that's been -- I think a lot of the growth is additional segments and additional verticals have entered in the space. And it probably comes at the expense of most likely credit card -- would have -- otherwise been credit card users or delayed cash debit purchases.

Greg, if I could just jump in and dig in a little more here. Obviously had tremendous user and volume growth starting essentially from scratch. And if I hear you right, it sounds like that comes a lot from the ubiquity, the ability to just turn it on. But I'm interested, too. We just had a firm on like an hour or so ago, and they talked about having a much younger demographic. So why do you think you saw that more broad-based uptake mainly from a demographic perspective, but I'm also interested from a product or category perspective, too, not just fast fashion, for example.

Yes, it's a good question. And I didn't refresh the data in my mind this morning. But what's interesting is as others in the space -- and obviously, Max has done a great job with the firm and entered the paying-forward market relatively late, not that separate from when we did. You would see a lot of like -- we'll see a lot of messaging in the marketplace where we're the provider for Gen Zs, we're the provider for millennials. And I was doing one track or someone referred to PayPal sort of legacy fintech, which is a little bit of an interesting term. The reality is PayPal has as many millennial and Gen Z customers as any player in the market, actually probably more. We just also happen to have a lot of other people in our book. So when you look at the total size of pick the player's portfolio, and I don't know what firm quotes is their current user numbers, but we probably had that many Gen Z millennials on our book. And certainly in our Venmo brand. We just also happen to have 20 million, 30 million, 40 million Gen X in order. So we play to both spectrums. We do have a skew towards our younger consumers. But I think the value prop resonates, and Rob especially resonated in 2020, right? So we launched in October of 2020 at a time when there was still great uncertainty in the marketplace across nearly every segment of customer, every demo profile. Were you going to able to leave the house? Are they got to have a job? Is he going to get -- will stimulus coming or not coming? So you had this sort of uncertainty and enter PayPal with a ubiquitous solution. And it just met what customer needs. And once they use it, the trick to these products are -- like get someone to use and they're like, wow, that was is valuable. There was no got you, it just works. And I habituate to it. In vertical, I think on the category merchant side is just a function of, if you're shopping at PayPal and you happen to be in auto goods or specialty retail, it doesn't matter. If you're spending $100, the ability to turn it into four 25s is attractive if you're trying to manage cash flow. And therefore, we just exposed it to both -- we exposed it to far broader set of consumer segments and verticals at a time when market forces were such or -- whatever we want to call it, COVID, universe forces were such that people were looking for ways to help manage cash flow in a more smart and efficient manner. And anyway they liked it, so they used it again. Sorry, go ahead.

Absolutely. Greg, looking at the latest stats, I mean, PayPal has seen, I think, it's over 22 million customers transacting with buy now, pay later. What's the key to driving this number higher? Do you expect buy now, pay later to be more prominently featured within the core app in Venmo? Or what do you see as the main driver of the user growth algorithm over the next 1 to 3 years?

Yes. We have -- we see a lot of upside in that growth number. So I think for us, it's continuing to make sure our customers are aware that we have the value prop and feature as we're in uncertain recessionary times. Inflation is running amuck. Cash flow management still matters to people. So making sure we're surfacing it when they're in the checkout flow in a way that makes sense, letting them know in our other channels that it makes sense, integrated with some of our shopping features and solutions is a way to make sense. If you think of this combining of sort of our shopping and our pay later businesses, part of our shopping business is the Honey browser extension. So when someone's out on the Internet shopping and they are interacting with Honey, because they like the idea of not having to figure out if they're missing out on a coupon code, we now overlay the idea that, hey, don't forget you can pay in for with PayPal. And then obviously, we're also trying to drive growth through our merchant partnerships. We -- and I mentioned earlier, there's been a couple of horizons here to the business. So there's a lot more direct-to-consumer now than there was even a year ago, certainly 2 or 3 years ago. But at the heart of a lot of this growth is still B2B2C. And we've really focused on that as well. So we've significantly grown the number of merchants using our merchant toolkit to present financing options on product pages, homepages for awareness, et cetera, for the purpose of helping pull conversion through on their site. And that helps pull -- it pulls incremental sales for the merchant, and it pulls either existing PayPal customers to make sure they use the button and drive up selection for us or even new customers to take advantage of the value prop.

And Greg, 2 years on, is the growth fairly balanced across those different demographics and categories?

It's more balanced than I expected. There is a skew if we just draw a sort of straight age graph, there'll be a slight skew to the left. But it's not imbalance. It's not like 80-20. It's pretty effective throughout all the segments. The verticals, I'm just trying to think, I think our penetration, if we look at it on a vertical basis, better correlates if we look at it like an average order value basis. So the average order value of the vertical is in our sweet spot. Our penetration is pretty balanced. But if it's a QSR partner of ours or like, obviously, where it's not relevant, we don't have any share. And until recently, similarly, if it's -- yes, the average order value is $700, $800, $900, we wouldn't have a lot of pain for penetration, but that's why we introduced pay monthly to the market to help customers and merchants on higher AOVs.

Yes. Yes, that makes sense. And if I could stick with -- or I guess, shift to the merchant side, a big part of the buy now pay later process is the merchant integration. And I know you've talked about wanting to grow upstream presentment, making the consumer more aware earlier in their shopping journey. What have you learned in terms of buying behavior when the Pay Later button is presented earlier? And what are the biggest bottlenecks when it comes to the merchant integrations themselves?

Yes. So let me take those separate. So when we have good visibility into sort of the stack at a merchant, which we do, given our Braintree business at a decent swath of merchants, so we can see both their -- all of their processing, if you will. And then we do studies with partners where we don't have that, just about the value of the product to them. And the results are good. We drive meaningful, incremental growth. We help -- the product helps drive meaningful incremental growth for e-commerce sites where they're maximizing the value prop, which means presenting it on product pages and putting it out to marketing campaigns and letting their customers know that, hey, we have a financing or a buy now, pay later offer available, which is a tried-and-true retail tactic dating back decades. It's off-line retail, for those of us who remember Sunday paper stuff, the circulars. If you grab the furniture circular or an electronics circular, financing would have been on every page, and that helps pull people in. And then when that happens, we see PayPal's share go up in a meaningful way. And unfortunately, I can't share specific operating metrics, but we see -- it starts with the merchant, right? So we help the merchants sell more goods by giving consumers a real payment flexibility value prop, that a disproportion of those incremental sales come to PayPal because we're providing the service. And then a disproportionate piece of that flows into our pay later portfolio, and/or our PayPal Credit product, which still does exist and is still loved by millions of consumers with the value prop of 6 months, no interest if paid in full. It's still beloved by millions and millions of customers. The industry is just kind of redefined buy now, pay later, so we don't necessarily talk about it as much. That was part one. Part two, Rob, just remind -- integration bottlenecks. So this is a really good question, and I won't get into my list page journey. But one of my -- one of the founding pieces of bills pay was actually simplifying integration, and that product was leveraging the Visa rails. The advantage at PayPal is that most merchants online have an e-commerce or payments integration with PayPal. And therefore, the bottlenecks are pretty few because it doesn't require the standing up of a new tender type, which does have a lot of sticky work associated with it, exception processing, disputes, online purchasing, in-store returns, financial reconciliation, money movement, like it's -- there's a lot of work in standing up a tender type. Now for midsized and small merchants, a lot of that work has been moved to the platforms, which is really great. But for large enterprise, like they still do most of that on their own, certainly leveraging third-party solutions. So when PayPal's already integrated a tender type and you have all that sort of tender type back-office stuff sorted out, working with us for production presentment is then just the addition of an SDK and essentially putting little tags in places that help drive sales, product pages, homepages, category pages, search result pages. And because we chose to bundle our product from a pricing perspective with our processing, there's no real economic deal to work out. One addition to that, I wouldn't call it a bottleneck, but unlike my first store in 2000 -- we were -- [indiscernible] acquired in 2008. So it's like a lifetime ago. But we were the only player. So we had -- it was an amazing network. We had to use present at Overstock; Walmart; Apple; dot, dot, dot, Amazon, that network had to be recreated by a handful of players, but there are a handful of players now. So there's a lot of competition for the largest brands. So the sales cycles tend to be long, not because integrations are necessarily a bottleneck but because it's just competitive, and you get into all sorts of exclusive periods and whatnot. But we're in this for the long haul. So we're proud to say we have over 250,000 merchants presenting upstream. That number has more than doubled year-over-year, and we'll continue to work with both domestic and global partners to serve their pay later needs.

Yes. And based on what you just said there, it sounds like it's almost no work for a merchant who already accepts PayPal to turn on PayPal pay in 4. And then by virtue of those SDKs and all the work you've done there, building out upstream presentment really isn't a ton of incremental work from a merchant perspective. Is that right?

Yes, that's exactly right. For -- because we turned it on as a wallet feature, it's essentially available at all of our merchant partners, unless they're on some unique integration pattern. So without any merchant relationship beyond the yellow button, we've been available at millions of merchants and have seen transactions at over 2 million unique merchants. So that's like no work. Upstream presentment is light integration work, just to turn on the message, where you can think of it as like a merchandising-only integration, which is way different than merchandising-plus tender type.

Great. There are several other buy now, pay later providers out there. And at first glance, it may seemed that the offering at its core is relatively undifferentiated across the different providers. So what allows PayPal to win with merchants? What is it that you're able to offer that makes merchants want to work with you instead of the other players out there?

Yes, Ken, I think it's fair to say, there's only so many ways to say 4 payments of $25 for $100 purchase. So from a value prop perspective, it's -- like I said, it's four 25, it's four by 25. We do stand on some real points of differentiation though we talk to merchant partners. First and foremost is our brand, as the #2 trusted brand on the globe. And we feel like that matters, when it comes to payments, the ability to say 4 by 25 and then align it with the PayPal logo, we think really says something and really does help provide additional lift. That's one point. Second point is given our large network with 3 -- I forgot the number, I think it's 400 million accounts we now quote, with hundreds of millions of consumer accounts and many of those having relatively long-term relationships, we have lots of unique and proprietary data that allows us to make the best decision, which is really about maximizing approval rates while staying true to being a responsible lender and as well as a sound lender from a credit quality perspective. So our data, we think, sets us apart in the scale of that data. And then our -- as we enter -- I don't know if we're entering a recession or as we live in and enter uncertain economic times, we have pretty deep and long experience lending in the point-of-sale environment, going back to those Bill Me Later as I talked about. And we talk about that as being a real point of differentiation as well. And I think the other thing we talked about over the last couple of years is there's undoubtedly consolidation going to happen in the marketplace that's starting or has already happened. So we're not going anywhere. We're committed to this. We're invested, and we present 0 operator risk in terms of the longitudinal survival. So these are some of the key points. And many of those resonate, particularly with larger brands, on the data, the scale, the sort of responsibleness. And then on the smaller side, the brand affiliation is really helpful.

Greg, you talked earlier about bundled pricing. And as one of the largest buy now, pay later players already, probably argue that, that has some implications for the competitive landscape. How do you expect that to impact competitors? And how do you see take rates at high level evolving over the next several years?

Yes. So we were very -- we were fortunate in that, we're a large-scale payments player. And payments -- and you guys follow payments, you know this, payment is a scale business, like its scale really matters. And because we're not a monoline and we had scale, the real value for us is deepening customer engagement and providing services to merchants that bring more volume onto the platform. And when we do that, we don't have to make all our money on the buy now, pay later offering. So we knew -- we had a good sense of what the sort of performance curves are going to look like and what the unit economics were going to look like. And by bundling it, we were comfortable that there was -- where there was positive margin there. And that the early movers just really were arbitraging on a premium basis because they were first out. And we think eventually, those sort of profit pulls will normalize, and that's -- I think that's what we see happening. And yes, we -- given our size, we probably helped pull it there a little faster. But we feel pretty good about it, making a part of sort of a one-stop offering from PayPal for a broader than just a Pay Later service. And I think that's a really important part of our sort of approach to the market.

Yes, absolutely. And just on the merchants, in your experience, are you seeing merchants go live with more than 1 or 2 different buy now, pay later providers? Or is that sort of come down?

I mean that really varies market by market to some extent. So if we go to the -- someone referred to Australia as a spiritual homeland of pay later -- buy now, pay later, certainly, the current generation, you're there. Given that so many companies sold Afterpay into that market, you did see merchants sort of go logo-heavy, if you will, in terms of put up multiple offerings. And now the consolidation has happened there. Europe, a little less so, but more than we saw in the U.S. The U.S. has been a little slower, but you're starting to see more dual or triple integrations, but still not that widespread. Certainly, the technology has improved. The rise of platforms across platforms integrating with providers making it easier to turn it on from like a dashboard perspective and also sort of made it easier to experiment around that. But I don't think -- I think we're going to see it revert back to 1, maybe 2 offerings from an upstream perspective, which we also -- by the way, just to comment from a PayPal perspective, and we value the merchant side of this equation a lot. We think it's a really important component because we think we can all merchants sale more goods. But we're also in a place where we can say PayPal is the less rewarding way to pay, and you can pay now or pay later virtually everywhere you want to shop wherever PayPal is. And therefore, you don't have to sort of keep track of merchant A has Provider 1, merchant B has provider 2, Merchant 3 has provider 3 from an upstream perspective, but all 3 have a PayPal yellow button. So we're trying to track this from both the consumer side and the merchant side.

Greg, Shopping also falls under your leadership. So I wanted to just weave in a couple questions there. Can you share why this makes sense from an organizational perspective? What does the joint leadership of Shopping and Pay Later mean for the consumer? And then can you talk about the consumer value prop around shopping today? And where you see it headed given the company's refined focus on the digital wallet?

Yes. Yes, sure, Ken. It's a great question. And I may touch on this briefly at the top here. It's not necessarily intuitive to think, I'm going to put a lending product with shopping sort of assets. But if you step back and think about it from a consumer perspective, how you frame the question or a merchant perspective, both shopping capabilities and pay later capabilities actually are all merchandising assets to drive retail. And from that perspective, it really makes sense. It's also interestingly enough how we modeled the business, all the way back to Bill Me Later. We didn't think of it as 2 different businesses. It was just I manage consumer and then met acquisition and then it meant getting our consumers back out to our network and what we call network marketing. And you've seen the pure play sort of really focus on that the last few years. And it's not surprising because they're -- as a monoline, their focus is getting someone -- it's getting someone to use their product once, acquiring. And then once they use it once, getting them to use it a second time. And therefore, you put all your channels to work in driving that second purchase. The next thing you know you have sort of these marketplace-oriented businesses. That's -- going back to the acquisition of Honey that PayPal made, we're trying to bring value to our consumers at all stages of purchasing. So shopping tools and capabilities, discovery of things like deals, coupon codes, discounts, cash back and pay later value props. So prepurchase, we can let them know how they can save money, never more important, by the way, than the times we're in right now with inflation so high. Let them make sure they can discover value while they're purchasing. So that's the addition of pay later as a value prop on wallet, but also a big reason for us acquiring Honey and the extension. So the extension sort of can help people make sure they're not missing out on coupon codes. And you've seen others sort of follow into the market there. And then on a post-purchase basis as well, it's just making sure people are mindful that when they just checked out with PayPal, we have tools and capabilities to help them save on their next purchase. So just using simple interactions like transaction receipts or someone's organic interest in engaging with our digital wallet to make sure a transaction went through or we use the right funding instrument, it's another opportunity. So that need most, first, that's job one. And then job two as we transform and sort of work with the digital wallet is make sure they know they can get additional value from our merchants. So it's really about getting our merchants in front of our consumers and connecting those dots by exposing value. And the value I'd like to refer to, I say this a lot internally, is save, earn and pay later. So we can help people save by showing them a free shipping offer or a $10 off coupon code. We have quietly run a cash back program in the PayPal app for the last year or so. So that's helping them earn cash back and then they can pay over time, which is a retail value prop. So those 3 things all serve both consumers and merchants for the purpose of driving retail. So it's sort of a natural fit and the sort of objectives are well aligned across those business units, which is why we consolidated them into one.

No, that makes a lot of sense, Greg. And we've heard about the flywheel effects of PayPal's two-sided network. And I guess, can you just help us think through how shopping plays a part in that?

Yes. So it's -- and we have not always -- I think we see a lot of opportunity to get better at this. So it's using those organic interaction moments or the adoption of people use our digital wallet, whether they're engaging to look at their activity or they're managing their PayPal credit account or they're checking on their savings account, there's these natural reasons to pull to the wallet. And we want another one of those natural reasons to be, oh, I was about to buy a pair of sneakers from Finish Line, and I'll use myself as an example here. My for back-to-school, one of my daughters said, hey, can you buy this pair of sneakers for me, which was, oh, because she usually would ask her mother. So my wife must have said no. And I said -- and I'm always buying stuff because I like to test different things out. So I said, yes, sure, send me a link, and she did. And I said, well, gee, I think this is one of the merchants we have a partnership with. So I went to the app, I searched for Finish Line in this case. And we have a 9% cash back offer. So by going through PayPal, instead of spending $100 for a pair of speakers -- pair of sneakers rather, I spent $91 and I got to pay for it over 4 payments of whatever that math is, $20-some. That's what we want to habituate customers that think, PayPal is going to go out and find me deals. They're going to reward me for going through their app by giving me cash back or other rewards. And I know I can pay over time. And we'll develop sort of that habituation by leveraging organic interaction events with the wallet, certainly as we launch to product and features by marketing and outreach. And all of that serves the purpose of getting our customers out to our merchant network, which is what makes the flywheel spin altogether. So look, that's a lot of what we're working on now. I don't want to get ahead of anything, we've talked about publicly, but I think it's worth keeping an eye on over the next couple of months and into 2023 as we really look to drive more engagement and activity, connecting our consumers and our merchants.

Great. Greg, clearly, you have a wealth of experience as it relates to consumer credit. So maybe we can just pivot to some of the macro trends that we -- that you're seeing out there today. What are some of the indicators that you're watching internally as you try to tease out wherever you are in the credit cycle and how to best grow PayPal's Pay Later business? Anything that stands out to you that perhaps the media or investors more broadly aren't paying attention to?

Well, obviously, we have a unique data insight. So it's hard for external folks to see the data. But one thing I'll just note is we do have this experience of managing through cycles. So when you have the data, you have to know what to look for. And there are a couple of things we do keep a close eye on. And as it relates to the Pay Later business, one of the nice things about the model, especially pay in 4, is because the durations are so short, you have really great insights into like first payment default, which is always a leading indicator of where -- of how a loans going to end up. So instead of getting a feedback in 30 days or 60 days or 90 days, we get it in 14 days. So that's a metric we look at all the time to make sure we don't see any unexpected movements. And then the other one, which I think will make sense when I say it is the funding mix of the repayment vehicles. So these products have a strong correlation to debit. And with PayPal, we also support bank and ACH in which we have a long-term -- a lot of experience underwriting ACH-related transactions. But we also spur credit card. So I think we're paying attention to the mix, which is a shift in that mix from more ready-state funds like a debit card to a credit card could be indicative of something changing in the macro environment. So we'll watch that data and obviously other macro signs and signals. But those are 2 that you may not instinctively think about.

And Greg, maybe just one quick follow-up on that, just as I kind of thought through it. As you mentioned, the repayment types. We've seen some of the comments out of other buy now, pay later providers talk about that. That repayment being like 70%, 80% kind of debit, is that kind of what you're seeing in the data?

Yes, for sure. We have -- I think we uniquely had like ACH as well and bank. So -- but if you put it all in ready state versus credit, like we do see a strong effort towards debit plus bank, which is what we were expecting, and it was good to see. So shifting that would be a sign of something worth looking at. I also would note, given our scale of data, because there was a question there about growth, if we look at like whatever our recent monthly vintages, year-over-year, our volume has grown 2 to 3x and our loss rate, unlike most of the industry, has actually gone down on a vintage basis. So our model has actually been improving while supporting growth. And by rest partner here, I'm sure he's knocking on wood because every day is a new day in the risk world, but we're pleased with that trend to date.

Greg, along those lines, you've talked a bit today and PayPal some more broadly about moving or expanding the offering to include larger ticket, longer duration type options. I'm sure you touched on a couple of them just now. But what are the challenges getting that product rolled out? And then on the other side, what -- how big do you think the opportunity could be there?

Yes. So we heard a lot from both consumers and merchants that they really loved pay in 4, but they are also bigger. If you're a merchant, I won't name the retailer, but think sporting goods. It's a pay in 4 products, great for apparel and sneakers, but they also sell treadmills and workout sets and multi-thousand-dollar items. And they also don't want to have multiple partners for different SKUs. So -- and similarly, we saw that on the consumer side. So we thought it was really important to support a wide range of AOVs. And we knew there was market demand for it. It's a different product, like there's interest calculations. You can't get that wrong. It's a bigger lending decision. It's a longer duration asset. It's -- we welcome regulation, but it's more regulated. So you have to really be prepared for all of those things. Unfortunately, and we launched that product in the U.S. We've had a product like that in Germany for 5 or 6 years now. And then obviously, we have PayPal Credit. So we have experience in longer-duration assets, larger ticket sizes, underwriting, but we still had to put all the pieces together and set up our infrastructure and make sure our back-end servicing must prepare for it and stuff. So it's just making sure you get -- you dot all the Is and cross all the Ts and make sure you deliver it in a way that customers would expect it from an experience perspective. And we're -- we feel really good about the product we put out in the market. And early signs are good, but we'll see how the holiday season goes here. We're excited to have it for holiday season.

Yes. Definitely. And one last related question. What kind of data are you using to underwrite consumers today? How do you think that, if at all, is differentiated from competitors? And then how will that change or not change as you do move into the larger ticket longer duration that are more underwriting intensive, if you will.

Yes. So we use -- we have more -- we use lots of proprietary data that we have on payment behaviors given our long-standing relationship with many customers and the number of our customers. But we also complement that with traditional bureau data, which we've been doing forever on the PayPal Credit side, the Venmo, our Venmo credit card product as well. We do this obviously in partnership with Synchrony, but we facilitate a lot of that underwriting part of that process. And we're using essentially the same data sets. We rely on the bureau less on pay in 4, particularly when we have a rich data set on a customer, but we will go to the bureau if needed. And we'll go there more often for pay monthly given that it's a different type of decision. Otherwise, yes. I mean, I've been doing this so long. I want to say it's just traditional, but it's lending. So we're using data. We have available to us uniquely, and that is really differentiated in its size. And then we use the bureau and public data as well.

Got it. Great. Greg. Well, we're out of time. I think we went a minute over. So I think we're going to have to leave it there. I'm glad we got to learn more about PayPal's Pay Later offering and how shopping fits equation as well. So thanks so much for taking the time. Really appreciate it, and we look forward to doing this again next year.

Yes, great. Ken, Rob, great to talk to you guys. Appreciate the time.

Thanks, Greg.

All right. Thanks, Greg. And with that, we conclude today's presentation. Thanks for joining us today. We had a great discussion throughout the day, and we'll continue those tomorrow, starting at 9:00 a.m., eastern time, when Melio's Chief Business Officer, Prashant Gandhi, will join us for a chat, followed by discussions with [ Duvae and FIS. ] So we hope you can join us then. Thanks again, everyone. We'll see you tomorrow at 9 a.m.