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

I want to welcome Diego Scotti. He is the General Manager of PayPal's Consumer Group. Diego oversees marketing, communications and product design across several lines of business at PayPal. He joined PayPal in 2023 after serving as CMO at Verizon. He also spent 15 years at American Express, leading a variety of different functions there. Thank you, Diego, for making the trip over here.

At your Investor Day earlier this year, you laid out 3 pillars of consumer strategy, including pay everywhere, pay your way and driving value for consumers. Maybe start with PayPal Everywhere. PayPal's very strong penetration online. Maybe give us an overview of what you're looking to do in terms of expanding into omnichannel with PayPal Everywhere, which can help drive usage of the overall platform.

Thank you for having me here. It's great to be with all of you. And just to give you a context, the consumer business per se and PayPal is pretty new. So we formed this group in 2023 with Alex Chriss became the CEO. And under this group, we have PayPal, obviously, the brand that you guys know and Venmo as well, and we manage the 2 brands separate, but together under the group. And yes, like you mentioned when we had our Investor Day early in the year, I talked about a strategy that had those 3 pillars in order for us to be the smartest way to pay and really bring back the consumer. We wanted to have the pay everywhere portion of it. We wanted to also make sure that people can pay the way they want, and that's all the payment flexibility that comes with it, and we'll talk about that later, I hope. And then the third piece is loyalty and give people value a reason to really use PayPal. The pay everywhere piece is an important one because if you think about PayPal and think about yourselves as consumers, you think about PayPal as, oh, it's great to use online and traditionally, it's being used like that. So when you think about the consumer, they're thinking about PayPal in this box, which is for those type of purchases. That means that then if you want to shop offline, then you need something else. So that is a barrier that when we say to the consumer, now you can use us online and offline, you only can think about PayPal. It becomes a new frontier for us to be playing a different space in the mind of the consumer. And I tell you, we completely repositioned our debit card proposition with 5% cash back and completely embedded in the experience. The results have been incredible. We are now 6 million new FTUs on debit card, 70% growth on TPV on debit card year-over-year, which is incredible. I don't know, guys, if you know, but we launched our first NFC tap to pay off-line solution in Germany early in the year as well, the first in the world for us. And that's funny because it comes not only with that, but also with the first solution for BNPL in the country. In Germany, it is a country that is still you want to have a deferred purchase. You need to go to the eighth floor of the department store, get somebody to sign a pay lift or something and you get your loan. Now you can do it right there in the app when you select the TV that you want to buy. We're already almost 6 billion customers in NFC in Germany. So we're very, very excited. And what you hear me say all the time, and I'm sure you're going to -- I'm going to repeat this a lot today, what we see is when a customer use one of our products, we see the impact on our checkout business. So what you see in this case is for customers that are using us offline, 6x the number of transactions that they do at checkout and 3x the ARPA in the value of those customers. So you see how the flywheel starts to work also when we talk about offline.

Perfect. Frictionless checkout is another area. Upgrading merchants to the latest checkout experience has been a focus point for you guys. Where are we in that progression in the United States and outside?

Well, I appreciate that question because it gives me the opportunity to frame how we think about this, which is both what needs to happen on the merchant side and what needs to happen on the consumer. Of course, I'm very focused on that piece as well. But if we don't have the 2 pieces working together, the whole puzzle doesn't work. So when we look at the merchant side, we're already 25% of all of our global transactions in the new experience, which is very, very exciting. Every month, we are making good progress, and that's great because we see the impact of that on the business. And then on the consumer side, you're going to put the whole puzzle together, which includes, number one, we're making a big push on biometrics in order to eliminate more friction from that experience. When you compare or when you put together the new checkout experience with biometrics, we see a 2 to 5 points of improvement on conversion, which is really exciting. On top of that, we're launching a big rewards new rewards program. We actually launched it in the U.K. yesterday. It's [indiscernible] that happened there, but we can talk about that later. BNPL is another component that we added on top of that. And then you're going to see us making our app a completely redesigned and rethought app that becomes central to the experience to drive back to checkout with things like BNPL and transactions. So when you put all together, we are expecting to see also an acceleration of the new experience having an impact on the business overall.

Do you have any stats on what percentage are on the latest integration? And what percentage of branded checkout TPV is now coming from the newer integrations?

Well, 25% of our global transactions are already coming from the new integrations.

Got it. Perfect. One of the other initiatives that you talked about is the new customer wallet experience to make it seamless for consumers to transact and manage their payments. Many consumers obviously have multiple wallets. What will make PayPal the wallet experience -- what will make PayPal the wallet experience compelling for a consumer and make it their default wallet?

Well, first, what I always start is something that has always been a strength for PayPal, but maybe in the past, we didn't capitalize it as such, which is we have the largest suite of products all under one roof. When you think about checkout, when you think about BNPL, when you think about debit cards, when you think about rewards, when you think about merchant rewards, -- when you think about crypto, I mean, the list goes on and on. We never really thought about them in the past at how all these products come together, both in terms of the experience of the consumer and the way we think about the business. So the way to think about the consumer is like we are making, we are changing and evolving our experience of the wallet for all of these things to come together in the wallet. And we call it the smart wallet because it's going to do a lot of more things for you versus what the wallet does today. But also thinking about the point about what it does to our business, which is -- and I know that we all focus on checkout, checkout, checkout. But the point about monetization of our base through the usage of more products and how all of those products work together to drive monetization and also go back to checkout is the way we look at the business. And there are some examples of that in terms of what this means. I mean, when you look at, for example, 15% of our checkout customers also use P2P, and they do it right there in the app. 25% of our -- the funds that our customers sell through crypto get reinvested or reused on checkout. BNPL is another great example, 30% increase in TPV on checkout customers that use BNPL. Subscriptions, we just launched a new -- completely new subscription hub, so then customers can turn on and off their subscriptions right there in the app, and you see higher engagement. So you see how all of these things are now thought together and are accelerating the flywheel. And which is an incredible new differentiation is, I'm sure you probably heard about PayPal World, which we announced a few months ago and interestingly enough, today, we actually got the first transaction. But that means that PayPal is becoming a network of wallets. That means all these regional wallets from UPI, WeChat and the likes of the world, now they are going to expand their reach to the global markets through PayPal, which means that we go from 500 million customers to 2 billion-plus customers all over the world that are going to be on the PayPal network. So when you put all of that together, we are not only very confident about our differentiation for the customer, but what it means longer term for the growth of our business.

Got it. Could you talk about how the new wallet experience actually translates to higher usage, greater share of checkout, stronger retention? And like what metrics should we pay attention to, to see if the strategy is working?

I see it in a very simple way. Everything that we do in terms of how all of our products come together generates higher engagement with increases ARPA. And I know that sometimes people say, is that it? Well, it's not that it is that when the foundations of the business are simple and clear, then you see the metrics and you see the progress. And to give you an evidence on that, if you think about the ARPA that we get with a customer that only does checkout, if that customer then uses our debit card, you get 2x or 3x. When that customer uses BNPL, you get 5x. And when that customer comes back and uses all of our post-purchase services, we get 7x the ARPA. And that's a fact. The focus that I have and the team have on the business is that when you look at the penetration of checkout in our business, yes, it's obviously 90%. When you look at debit card, BNPL, you get 5%, 10%. But it's very low. And that's obviously both what drives us, but also the huge opportunity that we have on executing the strategy. And what it gives me confidence on where we are is that the strategy that we've been executing for the last 18 months is driving higher penetration on the segments of multi-use product and also ARPA accretion.

So Buy Now, Pay Later, you talked about it. It's getting to be quite competitive in the United States. There's a number of different players sort of even entering the space at this point in time. How is PayPal leveraging its brands to maintain differentiation and take wallet share?

Yes. Well, listen, I'm very, very excited about where we are with BNPL for a couple of reasons. First, what -- based on what I said to you before, 30% increase in TPV per customer for a checkout customer that starts using BNPL or customer use BNPL increases 30% TPV on checkout. Second, we're going to make $40 billion this year on TPV on BNPL, which is a significant number from where we come from. We start with something that I think sometimes people take for granted, which is what our competitors are fighting for distribution. Our BNPL product is already accepted almost everywhere that we have checkout. So the product is right there. And now we're starting to then take it to the next level. Number one is geographic expansion. You see we launched this week in Canada, and we're growing very healthily all over the world. Number two, we are going to attach rewards to it. We just launched here in the U.K. -- in the U.S. for the holiday 5% to 20% cash back on the NPL, 0 fee, 0 interest, which is really compelling for consumers. And then the other piece is taking it upstream in our experience. Right now, which I think is an opportunity for us to grow even further because right now, it's behind the checkout button. So if we take it upstream, and we're going to do more and more and more of that in the next few months, the opportunity continues to increase. And then the last piece is what I mentioned to you about the app. Our app is going to evolve. You're going to see a completely new app next year in which BNPL merchant offers are going to be at the center of this new app. So we're going to close the circle overall in terms of how BNPL makes sense for us. And listen, we have some work to do on the perception because a lot of people know PayPal for the checkout experience, but not necessarily for BNPL. But you see even the marketing that we have in the market right now with the Will Ferrell campaign continuation is focused on BNPL to try to drive that perception. And listen, I always look at things customer back, and I know that you guys are obviously looking at the consumer and what the state of the consumer today. And we are in a time in that the consumers are looking for how they can make more from their money, how they can stretch that dollar and especially with the younger generations, and you know this as well, people are not loving credit cards, high fees, high rates, getting into debt. So BNPL and debit are two things that are really connected and are core to our experience are resonating with the consumer because we are making sure that they are targeting that segment of especially the younger generations that they don't want to get into that, but they want the payment flexibility. And that gets me excited because then you see the brand and the business resonating, especially with the younger generation.

Perfect. So adding value to consumer is -- so they keep coming back as the third pillar that you talked about, right, at the Investor Day. So what are the initiatives on that front that you've launched? What's worked? What hasn't?

Well, we are at a great moment. I'm very bullish on the loyalty side because as I look to the company as a whole in the past, the 2-sided network benefit that we have, we haven't really leveraged to create value back to the consumer. Yes, in pockets, but not in a holistic way. So the way we think about loyalty, both for PayPal and Venmo is coming from this perspective, which is I firmly believe, and you are all consumers, so you all know how you do it. But every time that we speak with consumers, they tell us, I use different FIs, different things to maximize my rewards. I use this for this, I use this for my miles, I use this for my groceries. But the reality is I'm confused and I'm overwhelmed because it's a lot of work. So for PayPal, our goal has been to create the program of all programs, a program that, number one, on the purchasing of the shopping piece can allow us to say, you can use PayPal for everything. You're going to get rewards using your FIs and you can actually double deep if you have your Amex or whatever. But if you have our own FIs, you're going to get 10x the points and the rewards through a cash back that you can reinvest in -- or you can use for checkout. And then the more you do with us, the more products you attach with us, see, I'm talking about spending in checkout. I'm also talking about monetization and product attachment. The more products you get, the more -- the higher you go on the rewards tiers will give you more benefits, more access to experience and even more value to your points. We call it PayPal Plus. We launched the first iteration of that yesterday in the U.K. I encourage you guys to go and take a look, especially in a market that we want to take back, which is the U.K. You have on our debit and credit cards, you have 10x the points that you get with checkout, but then we offer the opportunity for people to double deep. And we're even going to get consumers to be able to attach rewards programs from merchants. For example, you can attach your Starbucks rewards program, so then you get points on us and them on the same transaction. And with the Smart Wallet that I was referring to before, we're even going to be able to recommend to you for every transaction, which FI to use to maximize your rewards. I want this program to be not only what gets you engaged with checkout, not only what gets you engaged with more products on PayPal because you will get points for everything that you do with PayPal. But for you to say, I don't need any other rewards programs because PayPal got it. So just launched, a lot more to do, but very excited about that. And then on Venmo, we also launched -- it's almost like we plan all these launches around this conference, which we didn't but -- it's a good thing. For Venmo, we launched Stash -- Venmo Stash on Monday, I believe it was on Monday. And for Venmo, again, we're talking about a younger consumer, 18 to 29, affluent, urban, they want their rewards. And what we wanted to do for Venmo, and this is -- if you follow our strategy, is central to it is we want to drive monetization. So basically, it's a cash back-based rewards in which you get 1% when you start with the debit card, you get 3% when you start bringing funds in and then you get 5% cash back when you attach your direct deposit. And then you can earn cash back on the merchants that you want. So there are bundles that you can pick because one of the things that we have consumers to tell us is, what's the point of getting [indiscernible] cashback on the merchants that I don't want. I want the merchants that I want and I want to get more. So I'm very excited about this because strategically, it's right at the center of how we're going to drive the consumer relationship with Venmo, which is more products and ultimately more monetization.

These sound really exciting. How do you make sure that it makes money for PayPal? Because you have to drive the monetization. What are the KPIs that you're looking for? How do you measure you get the return?

Well, first of all, let me share how I think about this. In the absence of the strategic platforms to drive loyalty because the vision is that everything that we do to create incentives to drive product attachment or incentives to drive checkout or BNPL are going to be connected to this program, which in the way we're looking at the financials, it's a better way of spending or a better way of getting ROI on the investment versus doing one-off incentives or more above-the-line marketing to try to drive volumes. We have to create that ecosystem that PayPal never really had. So obviously, we're looking at ROI between 12 and 24 months for all of our investments. But in the way you guys need to look at it is like we're going to make more strategic investments with high ROI potential because overall, it's a better use of our money, all more connected, all working harder for us versus these one-off things.

Got it. So for Venmo, revenues for Venmo have been growing 20%, and that's a goal that you shared at the Investor Day. Also, the goal was to grow the revenue to more than $2 billion by 2027. Can you just talk about some of the initiatives and strategies that you're employing and sort of what's resonating with consumers and merchants?

Yes. Listen, I -- I'm very, very excited about where we are with Venmo, especially because the first thing that I heard from many of you, not you, but many of you, when we came was you guys don't know what to do with Venmo. Venmo can never be monetized. This would never work. You have no idea what you guys are doing, and you can see a lot of things. And some things are more using expect to this as well. So it was beyond that. But I always felt that Venmo is this thing that we have a really affluent base, now close to 100 million customers. And what it needed was a vision for what we wanted Venmo to be. And we want Venmo to be the money movement app for the next generation. And the next generation means 18 to 29 affluent, urban, educated and with disposable income. And when we talk about money movement, we don't just talk about banking per se, but we talk about all of the ways of creating the opportunities for you to move money with a social experience at the center, which is very unique to Venmo. And then get into basics, which is let's do the things that we need to do and a strategy that started with we need to be the best of P2P. Two, we need to get you to bring more funds in. Three, we need you to use those funds to actually buy things, right, so monetize that. Third -- fourth, we want to have commerce experiences in the app. And fourth, we want a rewards experience that connects all of those elements. And the results are there. So let me talk a little bit about some of them. Pay with Venmo, we just crossed our 1 billion mark on TPV, the highest ever, growing, yes, 40% year-over-year. Debit, we crossed our 1 million FTUs, new FTUs per users per month. just in September. And you see that we're doing things like going back to colleges and college campuses with the deal that we've done with Big 10 and Big 12, for example. But the machine is accelerating on Pay with Venmo and debit, and that is driving an increase in ARPA as well. Funds in, and I don't think anybody would have thought about this even internally, but funds in, which includes funds in and direct deposit is the TPV is up 60% year-over-year. So people want to bring their money into Venmo and spend it. In-app experiences, we just announced built, I think it's like 2 weeks ago, I believe, so a lot of announcements with experience in terms of like paying your rent, which is core to what this audience wants to do and then split it. So we're really trying to stay very, very focused on the customer. And you see that the numbers are showing, 20% revenue growth year-over-year. We're going to end this year at $1.7 billion, where we said $2 billion by '27. So you do the math, I'm very, very excited. And for the ones that say, how you compare with our competitors, I would say 2 things. One, we have a great opportunity for monetization that we know that we still are very low, like I said, 5% to 10% penetration of debit and Pay with Venmo. So imagine if we keep driving that, the opportunity is enormous. But also we have a more affluent base. And that is something that maybe doesn't talk about enough, but it's something that we are having very present because we have a slightly different strategy than our competitors. And that's something that as you think about us, you should definitely consider.

And so when we think about the different initiatives that you mentioned, where are you seeing the strongest traction?

Well, listen, I think I would say that the omni -- starting with omni, our omni strategy is central to our strategy, and we're seeing great traction there. BNPL, which creates checkout activity and engagement has also tremendous traction. Venmo has tremendous traction. And I know that you guys look a lot at the checkout numbers specifically, but what we call branded experiences, which include the virtuous cycle created by Pay with Venmo, Omni, et cetera, is up 8% year-over-year. And I do want us to internally and externally to look at the business in its whole, right? Because our business now is much more diversified than just the checkout business, but everything reinforces checkout -- that's what we're focused on. That's what we'll continue to emphasize and double down. And listen, I think that we're just getting started. It's been a lot of great work from the teams, but I do think that we're just getting started.

I mean it seems like branded experiences and branded checkouts are really critical and important to the story. I mean -- and it sounds like you're having some success. How like -- how deep are you scratching the surface in terms of getting the penetration of branded checkout in Venmo.

Listen, like I said before, we're doing everything that we need to do on this new experiences to create adoption that then will add to checkout. And we are deploying the new experience, including the new checkout experience, including biometrics and the other elements like rewards and app that I mentioned and get better every month. So we need to keep chipping at that. You know that there are obviously merchant integrations that need to happen, product adoption that needs to happen. But listen, the teams are very, very, very focused. We will continue to make progress, getting better every month, and that's what we're here to do.

And it seems like there should be a collision between sort of Venmo and PayPal coming together in some ways. So maybe just talk about how you see Venmo's role evolving within the PayPal broader ecosystem?

Well, yes and no. And I'd tell you, the thesis and where we see the intersection happening. First of all, we're talking about 2 of the most powerful brands in financial services in the world. Different target audiences. Venmo, as I said, is 18 to 29, a much younger audience; PayPal, older, 30, 40s, families, et cetera, more global, of course, as well. So there is opportunity for the 2 brands to really fulfill their potential. That's what we're focusing on. Now on the back end, obviously, we are integrating everything that we can, right, marketing efforts, risk platforms, tech stacks, CRM platforms. So we get as much efficiency as possible on the back end. But also -- and you see this already, where there are opportunities to -- for the 2 brands to create more interoperability, we want to do that. So as part of PayPal World, starting in Q1, Venmo customers are going to be able to shop anywhere in the world through the PayPal button through PayPal World. So that was one of the first things that we looked at when we were thinking about interoperability earlier on. And it's a great example of the way we're thinking about there are opportunities that make sense, we would do that. Maybe rewards and loyalty platform is another area that in the future, we will look at it. But I feel very bullish on the potential of the 2 brands to fulfill their potential before even thinking about further integrations.

And then just like in terms of the demographics, right, they're quite different. Maybe you could just kind of dig into those like how you're sort of catering to each of those demographics within the Venmo and PayPal platforms?

Yes. So let's start with Venmo. With Venmo, we are talking about this 18- to 30-year-old audience that starts young, but I'm not saying that we don't have older customers as well, but that's the core of the audience. And what is interesting is that these are either affluent or aspiring affluent customers, very urban in their definition. And they are in a trajectory of growing income in terms of how they want to see themselves and manage their money. A lot of them are young, but they're also the customers of the future. So everything that we do and the build partnership, for example, is a great example. What do you guys want? Oh, I need to get my rent. What do you use Venmo for? Oh, I would like to split my rent with my roommates. And then I want to split the purchases and the services for the rent. So let's go and be very, very focused on that audience. For PayPal, one of the things that really fascinated me when I joined, and you mentioned part of my career has been in American Express and I run marketing for Vogue magazine. I was CMO of J.Crew. So I've done a lot of things in my life, but always with a strong sense of who -- what this brand is and how it appeals to. And you would all agree that PayPal was a little bit diffused -- strong brand. I mean when I joined, people ask me like, how do you feel 2 years after joining? Well I feel more bullish now than when I joined. And with PayPal, it's like no matter where you go in the world and you ask consumers, first of all, do you know PayPal? They say, yes. The second thing is why do you -- what stands out for you about PayPal, the trust, the confidence, the security, that's an incredible asset. I mean you guys know how hard it is to get, especially in the fintech space, any brand to be recognized for anything. And again, a lot of our competitors have done a really interesting job, a good job. But PayPal was a little bit diffused. So everything that we've done since we started is to refocus the product, refocus the brand on again, a younger audience still 30 to 40. They already have disposable income. They spend a lot of online. They are more global. Cross-border is a huge component of our business, and it will continue to be -- that's why we're doing things like PayPal World. And then being more aggressive in terms of our marketing and the way we position the brand. There's no reason why this brand PayPal cannot be -- continue to be reinvented in the eyes of the consumers to be relevant. So every step that we're taking, including the marketing that we're doing is to bring this brand back to be confident and to occupy a space in demand of the consumer that is going to be compelling for them. We've got to be relevant, and that's what we're trying to do.

Well, I for one agree. I like the incentivization. It's a great strategy. I guess like when we think about other stuff that you have in the pipeline, like how you don't tell me what specifically, but just what's the development pipeline? Like how should we think about new initiatives coming into play and how it might drive growth in the future?

Well, what you should know about the way we are approaching the business is we have to win today, and we also need to play for the future. The announcements that you've seen on agentic, for example, and the focus of the company on agentic, we're going to be the first wallet to be able to shop in OpenAI, as an example, but we already have a pipeline with Perplexity and XAI, et cetera. We want to be the way consumers shop in the agentic world. And that is a bet that we're making. That is work that is going on right now, and we're going to lead because that's what we do. But that's going to take some time. That means we also need to win today. So everything that I talked about and what we're doing is about winning today. And listen, in our world, like you all know, it's really easy to start working on 70 different things, all trying to kind of like see what sticks. We're very focused on -- in the future, agentic is going to play a big, big role. We need to make sure that, that is there. Two, we know that consumers are escaping a little bit from credit, so debit and BNPL. And even a debit card that has payment flexibility attached to it is where the consumer is going. So we want to be playing very hard in there. And then I think the future is a future of interoperability of wallets around the world. That's why PayPal World is such an important bet for the company that, again, I want to reinforce this point, it takes us 500 million customers to 2 billion-plus customers all over the world. Again, it's something that is going to take time to build, but we're very bullish. Those 3 elements are where the future is going and where we're going to be going. And everything that I shared to you about today is what is going to help us win quarter-over-quarter. That's what we're focusing on.

As you can imagine, the agentic commerce is something we've been talking quite a bit in this conference. And it may or may not be your area of expertise in terms of like what you're doing at PayPal. But like as you think about it from your seat, how do you see it working period because it's so early, right? Do you see consumers allowing bots to make their payment decisions or their shopping decisions one, but then their payment decisions. And then what kind of role does PayPal play in that? You talked -- you hinted a little bit about it, but maybe just elaborate a little bit on that.

We -- trying to predict how fast -- I get this question a lot, but trying to predict how fast the curve of adoption is going to be. Some people say it's going to be 24 months, some people say it's going to be 10 years. The answer is going to be somewhere in the middle. Who knows? The point is the consumer is going to decide at some point how they want to do this. What I can tell you is this, that in order for you to allow bots or this type of agentic services to show for you, buy for you, you're going to need to trust that. Every piece of research that we've seen and that we've done especially with the younger consumer, less so interestingly with maybe some of the older consumers is the trust piece comes number one, comes number one. So what I can tell you is that part of the reason why we're very bullish in terms of the role of PayPal is that we have the trust, we have the confidence from the consumer about PayPal standing for that. So the way I see it is the role that PayPal played in the beginning of the Internet age when -- remember what it was, one of the reasons why PayPal was created is because had you shop online when there wasn't in existence. The trust that we created there is the same trust that we're going to put into place right now so we can win on the agentic space.

Perfect. So we have a few minutes left. I figured I'll see if the audience has any questions. Any questions from the audience? Could you get the mic...

[indiscernible]

Well, what we're seeing is interest both on the consumers and on the merchant side to be paid unpaid with stablecoin, especially in the context of the world that is getting smaller and smaller. So for us, the fact that we have a global business, and this could be a way for consumers to both save and shop with same currency all over the world is something that we're starting to see some interest around that. It's nascent. And I would say the -- probably in countries in where the stability of their currency versus the dollar something that is not there. I'm from Argentina. So I know that very well. The use of stablecoins is something that has resonated well with consumers. I'll tell you, we're doing a lot of this space. We also just launched our rewards proposition for crypto, which is that we give you 4% when you keep your money with us on crypto and it's having a very good reception overall. And like I said, it's also creating a great effect on the flywheel for checkout for those customers.

Any other questions?

All right. Well, thank you. Thank you very much. It was a lot of fun. I appreciate your time.