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spk12: Good evening. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to PayPal Holdings Earnings Conference call for the first quarter 2022. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the found key. Thank you. I would now like to introduce your host for today's call, Mr. Biel Rabinovich, Senior Vice President, Corporate Finance and Investor Relations. Please go ahead.
spk02: Thank you, Chris. Good afternoon, and thank you for joining us. Welcome to PayPal's earnings conference call for the first quarter of 2022. Joining me today on the call are Dan Schulman, our President and CEO, and John Rainey, our Chief Financial Officer and EVP Global Customer Operations. We're providing a slide presentation to accompany our commentary. This conference call is also being webcast, and both the presentation and call are available on our Investor Relations website. In discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call. Management will make forward-looking statements that are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties. These statements include our guidance for the second quarter and full year 2022 and our medium-term outlook. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties, and other factors that could affect our results in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC and available on our investor relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today's date, April 27, 2022. We expressly disclaim any obligation to update this information. With that, let me turn the call over to Dan.
spk09: Thanks Gabrielle. Thanks everyone for joining us. We obviously have a lot to cover today, but before I begin my formal remarks, I want to start by saying how dismayed we are at the atrocities happening in Ukraine. Early on, we suspended our transactional services in Russia and worked quickly to enable PayPal send and receive services in Ukraine. Since then, our platform has enabled approximately $100 million to be sent to Ukrainian citizens and refugees. In addition, thanks to the generosity of our community, nearly half a billion dollars has been sent over our platform to leading nonprofit organizations supporting Ukraine. It is in times like these that we are most reminded of the essential role our platform and services provide to those most in need. This afternoon, in the interest of time, I'm going to briefly cover our first quarter results before I provide a strategic update and discuss our outlook for the quarter and year ahead. We have provided additional coverage of our Q1 results in our investor update presentation. As all of you know, after almost seven years at PayPal, John Rainey will be leaving the company to join the leadership team at Walmart. I'm happy for John, and I'm not surprised that the Fortune One company has recognized all that John has done to help build PayPal into what it is today. John, I'm going to miss you and I wish you the very best of success and happiness in your next chapter. I also want to say that I'm thrilled that the board has appointed Gabrielle Rabinovich as interim CFO. The three of us are here together and we will be handling Q&A as a team. I want to begin my prepared remarks by acknowledging that our shareholders expect more from us than our track record over the past several quarters has delivered. And I take full accountability for that. Navigating through the pandemic in an uncertain macroeconomic environment with resulting shifts in consumer behavior has made visibility more challenging. But we need to do better, and you will hear more from us today about delivering on our commitments. Before we talk more about our go-forward focus, let me touch on our Q1 results. I'm pleased to report we delivered solid results that exceeded our guidance on revenue and earnings. The first quarter of 2021 was the strongest in our history, with 31% spot revenue growth and 84% non-GAAP EPS growth. And despite lapping this growth, revenues increased 7% to $6.48 billion and increased 15%, excluding eBay. U.S. revenues grew 20% and international revenue decreased 5%. Ex-eBay international revenue grew 5% which was on top of 47% growth in Q1 last year. Volume-based expenses increased 25% and represent 49% of revenue versus 42% of revenue last year. This uptake of approximately 700 basis points resulted from increased funding costs driven primarily by volume mix and lapping the release of $84 million of credit reserves. Non-transaction related expenses grew 8% in the quarter and represented 30% of revenue, which was flat to last year. Investments in technology and development were offset by leverage in our other non-transaction operating expenses. We delivered non-GAAP EPS of 88 cents in the quarter, absorbing an incremental 3 cents of earnings pressure due to our suspension of transactional services in Russia. We also generated more than $1 billion in free cash flow and returned $1.5 billion in capital to stockholders through share repurchases. As I shared last quarter, we are increasing our emphasis on incremental engagement across our existing customer base while continuing to add higher value accounts. In Q1, we added 2.4 million net new active accounts in the quarter, bringing our total active base to 429 million. Our transactions per active account grew 11% to 47%. We continue to be pleased with our Buy Now, Pay Later franchise, which is seeing persistent market share gains. We did 3.6 billion in volume in Q1, up 256%, with over 18 million consumer accounts choosing this funding option since launch. And we are seeing increased merchant penetration and upstream presentment, which will allow us to continue to deliver strong results. In Q1, Braintree outperformed again with volumes growing 61%. This growth comes with the success of key customers like Airbnb, Uber, DoorDash, Live Nation, Vineyard Vines, and TikTok. Importantly, for many of these merchants, we are their exclusive or primary provider of unbranded processing. In addition, Venmo delivered strong revenue performance in Q1 with growth of approximately 60%. Volume grew 12% to $58 billion on top of 63% growth a year ago. Venmo now has more than 85 million accounts in the U.S., and our goal in the coming year is to drive more commerce transactions on Venmo while continuing to be a leading P2P platform. We are making progress in driving more pay with Venmo transactions, business profiles, and offline purchases with the Venmo debit and credit cards. And our integration plans with Amazon are progressing with the back half of the year as our current launch timeframe. Across both PayPal and Venmo, we are working hard to have our digital wallets at the center of our consumers' daily financial lives. Our redesigned PayPal digital wallet app is now installed by over 50% of our base, and our app users are engaging with more features and driving incremental average revenue per account as a result. Customers who use our digital wallet transact 25% more at checkout than users that are not using the app. And over 70% of our buy now, pay later users engage through our digital wallet. We have nearly completed the rollout of our savings product, and we will be introducing additional financial services and commerce functionality in the coming quarters. Our digital wallet, ARPA, is two times that of a customer who only uses checkout, and the churn rate for digital wallet users is 25% less than the rest of our base. We are focused on increasing adoption of our digital wallet and believe it is one of our most meaningful opportunities to drive growth. In addition, working with partners has been and continues to be an important ingredient to our success. We recently renewed and expanded our strategic partnerships with American Express and Citibank. Our strong and growing relationships with these important partners and others highlight our commitment to offering our customers choice in how they pay by enabling seamless FI integrations into our products and services. I'd like to now discuss our outlook for Q2 and the year. While we are pleased that we delivered Q1 with a beat on revenue and EPS, 2022 remains another challenging year to forecast. In laying out our 2022 outlook several months ago, we noted that if macro pressures persisted, we would trend towards the lower end of our range. And if we saw structural improvement, it would push us upwards towards the upper bound. It is clear that relative to early February, the macro environment has deteriorated. Russia, Ukraine, and China are contributing to increased global uncertainty and incremental inflationary and supply chain pressures. And more specific to PayPal, forecasting normalized consumer e-commerce spending as we come out of the pandemic is exceedingly complex. As a result, we believe it is prudent to lower our 2022 guidance and reevaluate our medium-term outlook. For the second quarter, we expect revenue growth of approximately 9% and non-GAAP EPS to be approximately 86 cents. We expect a bit more than $200 million of impact from eBay in Q2. And we have tough comps as eBay revenue grew, as eBay, ex-eBay revenue, excuse me, grew 32% in the second quarter last year. We also had reserve releases of $156 million in Q2 2021, which creates an approximate 11 cents headwind to earnings growth. For the year, we now expect 11 to 13% revenue growth and non-GAAP EPS to be in the range of $3.81 to $3.93. X eBay, this represents revenue growth of approximately 15% to 17%. In addition, at the midpoint of our range, this equates to back half revenue growth of 15.5%. Our revised EPS guidance reflects the flow-through implications of our revenue expectations and volume mix. We are now forecasting 10 million net new active accounts for the year. We expect to add positive NNAs to our platform every quarter this year, with Q2 representing the low point. I want to share additional context about the work we are doing to increase our operating leverage. Pre-pandemic, we were in the process of simplifying our operating model and enhancing our operating efficiency. The pandemic forced us to put many of those initiatives on hold to simply scale the business and support the unprecedented growth on our platform. We are now coming back to this work with renewed focus, energy, and purpose. While we are focused on incorporating more discipline into our operating model and driving operating leverage in our business, we are simultaneously investing to grow. We see opportunities to accelerate our growth and customer engagement. We believe our portfolio of digital payment assets is unmatched in breadth and depth, which creates a powerful competitive advantage for us. To extend this advantage and advance our leadership position, our focus on streamlining and improving the way we work is critical. and will allow us to achieve more efficient growth. Overall, these efforts will yield significant savings, allowing us to continue to reinvest in the business and drive profitable growth. For the year, we now expect to generate more than $5 billion in free cash flow. In addition, we still plan to balance capital allocation between investing organically in our business share, repurchase, and inorganic growth. That said, to be clear, transformative acquisitions are not on our growth agenda at this time. We currently expect that any activity for the foreseeable future will be focused on straightforward deals that have clear and unassailable alignment with our skills and capabilities. Finally, I'd like to discuss our medium-term outlook that was provided at our investor day in February 2021. We have reassessed the feasibility of achieving our revenue and earnings targets. These targets relied on several baseline assumptions relating to both e-commerce penetration and macroeconomic factors that are no longer on the trajectory that we forecasted. As a result, we're withdrawing our medium term outlook. We will continue to guide revenue and earnings on both a quarter and full year basis and continue to update you on how we are thinking about our business over the long term. Make no mistake, we have strong conviction in the growth potential of our business and our ability to sustainably create value for our shareholders. However, we recognize the need to level set expectations in what remains a dynamic environment. We know the scale of our two-sided platform is truly differentiated and gives us strong competitive advantage. We believe the secular tailwinds from the digitization of payments and e-commerce growth are persistent. And we believe that we are uniquely positioned to bring more merchants and consumers together globally than any other company and help them connect and transact safely. We continue to have many opportunities in front of us, given the scale of our two-sided network and the ongoing growth in digitized payments. We will advance our leadership in checkout, continue our work to become the preeminent digital wallet and bring PayPal's tools to more in-person context, all the while investing in our foundational technologies. Hundreds of millions of consumers and tens of millions of merchants value our comprehensive set of products and services. We are investing resources to both improve our existing products and innovate for the future. with capabilities including enhanced loyalty programs, package tracking, and returns management. With branded checkout and full-stack processing as the foundational elements of our platform and competitive advantage, the opportunities ahead are significant, and we believe PayPal is well-positioned to play a leading role in driving the future of digital payments and commerce. We believe we will continue to grow revenue faster than the rate of e-commerce growth and increase our market share in digital payments. At the same time, we will continue to focus on improving operating leverage to support sustained value creation, accelerating the velocity of getting product into the hands of our customers, and driving greater organizational effectiveness by simplifying processes and increasing accountability. We look forward to sharing our progress with you as the year unfolds. And with that, let me turn the call back to the operator for your questions.
spk12: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone key bag. The request is that each analyst ask one question and then return to the queue. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Lisa Ellis of Moffitt Matheson. Your line is open.
spk03: Thank you, and good to hear your voices. John, we will miss you, of course. Dan, this one's for you, maybe just building on how you just closed the formal remarks. Reflecting back on the challenges over these past six to eight months, what, in your view, are the top three or four things that PayPal really needs to do differently going forward to turn around the trajectory of the business?
spk09: Yeah. It's good to hear your voice as well, Lisa. I have the same way about John. So, look, it's been a difficult several quarters for us in accurately forecasting, you know, what our business would look like. You know, I will say that, you know, over the past five years, we've very consistently gained market share. That's true also in Q1, if you look across Q2. the different products and capabilities we offer. And so, you know, I think we need to, one, kind of rethink, and we've tried to start to do this here, our philosophy and methodology around forecasting. And we'll talk probably about that later. I'm sure there will be conversations about that. Second, I think there are less things we need to do extremely well. And so we are really gonna be focusing on checkout and we can talk about that in more detail later in the call, but we have a number of initiatives on advancing our position in checkout and also thinking about next generation checkout as well. And we also need to double down on the digital wallet. We clearly believe that's where the future of the industry is going. It's the future of PayPal. It is the heart of what we are trying to do from an engagement perspective. And so those are the two things that we really need to double down on. I'd say the third thing is we need to go back to where we were before we came in the pandemic with a real focus on our operating model, making sure we simplify and streamline putting more and more accountability into the hands of our product managers and driving really end-to-end accountability and ownership across the whole business. And so there are clearly a lot of things we need to do. You know, I feel like we're beginning to make good progress on some of the execution. Q1 was a piece of that, and some of the metrics we're seeing green shoots on that. But we've just got to stay focused and keep driving simplification and operating leverage in our model.
spk12: Thank you. Your next question comes from the line of Tianqian Wang of JP Morgan. Your line is open.
spk01: Hey, great. Thanks for taking my question. Let me also start by saying thank you to John Absolutely wish you nothing but the best. I'll ask on the outlook and at least ask a good question on what's going to change. But I'm just trying to better understand the full year vision to revenue and EPS and where you're landing now versus 90 days ago. So it looks like the eBay assumption is the same. So how much of the change is due to macro factors versus maybe knowing a little bit more about the impacts of your strategy shift? And of course, how much did conservatism play a role, recognizing, as you said, visibility is tough and you have a CFO seat to fill, et cetera?
spk06: Sure, Tenjin, I'll start. And let me first say thank you for your comments. And I think Gabrielle will probably jump in on this as well. But I'll give a little bit of color to the way that we're thinking about guidance. And so you'll recall, and Dan also referred to this in his prepared remarks, that At the last quarter, when we gave a revenue range of 15% to 17%, we very clearly said if things did not improve, we would be at the low end of that range. And that's a different approach to the guidance that we have today insofar as we are actually assuming that things get a little worse from here. It's been challenging forecasting sort of the return or the normalization of e-commerce trends post-pandemic And we've been chasing this for a little bit, and we don't want to continue to find ourselves in that situation. So, you know, if you sort of contrast where we are today with when we gave that guidance, not only have things not improved, I think very clearly they've gotten worse. We've got a war that's broken out in Ukraine. We've seen more supply chain issues that are acute in places like China. You've got even higher inflation now, which is, I think disproportionately affecting our customer base that skews more towards discretionary spend versus non-discretionary spend. All of these things affect the way that we're approaching the outlook for the year. Gabrielle, you want to add anything?
spk02: Yeah, sure. Thanks, John. In terms of sort of lowering the revenue outlook, in addition to what John mentioned around just the macro worsening and what that means for our overall growth expectations in our core markets, we also, to John's point, sort of took a look at what we're seeing on our own platform. And that really relates to sort of e-commerce and consumer behavior. It does have that sort of macro intersection, but for us, because we have more of a discretionary platform, we do see a greater impact on the spend. And so relative to how we started the year, e-commerce globally is slower than what we thought, and we're seeing that come through on our platform. And so we're reflecting that, and that's both in terms of just the spending patterns as well as offline-online mix. So that's sort of how we're thinking about starting the year. It's really not about our overall conviction in the secular tailwind that supports the business, but we want to be realist about what we're seeing in-year and adjust that outlook for that. The final contributor to it on the revenue side is really that we've recalibrated our expectations on some of our initiatives at PayPal based upon those lower global growth expectations. And so we wanted to have a consistency in that conservatism around what we think our sort of newer initiative can deliver in year, given some of those macro impacts. On the EPS side, it's really a flow through of some of these things, but maybe just something I'd call out is from a volume standpoint, we are seeing outsized performance from Braintree. So that unbranded processing mix does play a role in the overall profitability of the business. And so we're taking down EPS in part for that. In addition to that, we're continuing to invest heavily in the areas that we think are important to drive that long-term profitable growth. And so that's what you're seeing sort of in terms of the overall impact to EPS. One other call-out would just be suspending transaction services in Russia does have an EPS impact as well, and so we've adjusted our outlook for that.
spk01: Perfect. No, that's clear, guys. Thank you so much.
spk12: Your next question comes from the line of Byron Peller of Wolf Research. Your line is open.
spk05: Hey, guys. Great. Thanks. John, I also want to wish you the best. Guys, when we look at the guidance that you guys gave, and I know you withdrew the medium term, which I think a lot of investors expected at this point, but the exit year, if you could just help us understand the cadence of the year and then the exit growth rate implied by the new guide range, and maybe a little more on the assumptions behind that exit rate.
spk09: Yeah, sure, Darren. I'll start off there and then see if Gabs or John want to add to it. So as I said in my remarks, what the back half implies with our 11 to 13% is a 15.5% revenue growth in the back half. So mid-teens in general with that. And then You know, as we think about EPS, you know, there are a number of one-time events on our EPS growth rates. But when we think about kind of like what is an exit as we go into next year, just kind of on a normalized basis, it's probably in the mid-teens as well. And as we think about the medium term, you know, the thing that – that I talked about in my script is that we've had a long track record of taking share and growing faster than e-commerce. As you're thinking about what does that medium term look like, it really depends on your view of where e-commerce is going to come out. We'll take a look, but there are a lot of shifting estimates right now, as John mentioned. you know, coming out of the pandemic, now coming into a high inflation kind of a macroeconomic environment that's uncertain and the magnitude of that uncertainty is wider. You know, we felt it was best to characterize kind of what the company expects to do over the medium term as opposed to put out any specific numbers.
spk06: I'll just add to, Darren, that, look, you know, No company wants to be in the position of pulling their medium-term guidance, but when you step back and you look at the set of assumptions on which we base that medium-term guidance, they're very, very different today. That said, and perhaps I'm in a unique position to say this, that doesn't take away our conviction and the long-term value and the prospects for this business at all. There are a few companies of our size and scale in digital payments that have some of the unique attributes that we have around our cash flow generation, our revenue growth, and the margin profile that we do. And so we're not immune to some of these economic vagaries that we're going through right now, but we've got to respond to that. But that should not take away from how you think about our business longer term. And again, we are perhaps the purest play in digital payments, and we're going to continue to invest appropriately to make sure that we stay that way and stay a leader in digital payments going forward.
spk09: Yeah.
spk06: And if I can just jump on top of John's points.
spk09: At some point, these trends, you know, tend to turn as well. But when that happens is unclear. And so we know as long as we continue to invest, to seize those growth opportunities, to assure that our growth remains in excess of that of e-commerce, you know, when these things do change, we'll be beneficiaries of that as well. So we just want to be heads down, focused on the things we control and execute really well against them. That's really helpful. Thanks, guys.
spk12: Yeah. Your next question comes from the line of Ramsey L. Assel of Sparkly. Your line is open.
spk07: Hi. Thanks so much for taking my question this evening. I wonder if you could give us an update on the kind of pivot to focusing more on customer engagement versus acquisition. And I guess specifically, do you have all the tools that you need now to sort of execute on this shift? Is there more development or M&A or incremental technology or resources that you're going to need to dedicate to the new strategy? Or are you kind of set where you are now to make it happen?
spk09: You know, it's such a fast moving environment that we operate in with constant innovation that we're never in a place where we're not going to need to continue to innovate and invest in the business. You know, I think we've made some really important strides. in the past year or so with the advent of our digital wallet. We clearly think that the world is continuing to digitize. Yes, there's some normalization between online and offline right now, but going forward, the world continues to digitize and disparate parts of the economy are coming together, whether that be shopping, payments, basic financial services, And so the wallet is going to be one of the key elements of how we drive customer engagement. And we're going to continue to evolve the wallet. It is, you know, V1.0 right now. And there's going to be V2.0 and V3.0. And we've got a number of things on our roadmap that we really want to execute against this year. But we're already beginning to see you know, uptick in our engagement. You know, for the second quarter in a row, we had 11% TPA. Actually, engagement went up 19% in the quarter. That's a pretty big move in terms of engagement. And you heard the stats that I talked about in my script in terms of, you know, the increases in ARPA, the decreases in churn. And as you think about kind of our growth going forward, now 30% of our customers generate 80% of the volume on our platform. We're clearly not a subscription business. We're a transaction-based business. And growing those transactions is a huge opportunity for us. We probably today have like 25% of the online financial transactions that a consumer does. And so there's a ton of room for us to grow in that area. I would also say the surest way for us to grow net new actives going forward is to increase engagement. When you're at 429 million active accounts, even with a consistent churn rate year over year, and by the way, we know this year our churn rate will be somewhat higher because we're letting these low-engaged consumers turn off the platform because the ROI to keep them isn't worth it. But the more we can keep people on the platform engaged, the more we'll grow our NNAs going forward. And so the two big things we're focused on, improving checkout, improving digital wallet, are the things that we'll probably be talking about for years to come, actually. Anything you would add to that, Ken?
spk12: Your next question comes from the line of Jason Kupferberg with Bank of America. Your line is open.
spk11: Thanks, guys. Good afternoon. I wanted to shift over to Venmo for a minute if I could. I know that volume growth started the year at 12%. Clearly, there was a tough comp there. I'm just wondering whether or not any of the new IRS rules around reporting of these transactions is having any impact there. How do you expect Venmo volume growth to evolve during the course of the year? I know you started really strong on the revenue side with Venmo at 60% in Q1, so fair to assume you still expect 50% plus revenue growth from Venmo this year?
spk02: Yeah, Jason, you know, I think we continue to expect the 50% revenue growth for Venmo this year. To your question on sort of the IRS change, I'd say very early in the year. We did see some impact from that. We've worked a ton on customer comprehension and education. So we think that's basically behind us just in terms of what the impact could be. But we also are up against really tough comps. And so last year's Q1 was 63% growth for Venmo. This year, 12. The business has scaled to the point that it's actually meaningfully larger than what our U.S. business was coming out of separation. And so at this point, we continue to expect strong growth, but it's going to be a mix of commerce volumes. and revenue as well as the P2P piece.
spk09: Danny, can you go? I'd just say they've got a strong roadmap ahead of them, putting in business profiles, transitioning that almost into storefronts, enabling charities to be a part listed on Venmo, full debit card refresh, they're revamping P2P even. Improving searchability and other things around that. So they've got an app course launching Amazon in the back half of the year. So they've got a pretty full roadmap. And I think Gab summarized all the other points perfectly.
spk11: Yeah. Okay. Thanks. Appreciate it.
spk12: You bet. Your next question comes from Brian Kian with Dolce Bank. Your line is open.
spk10: Hi, guys. Thanks for taking the question. I want to ask about TPV. When I look at total payment volume in the quarter, I see the dichotomy between the U.S. growth up 21% and international only up 5%. So clearly, international is growing slower than the U.S. So wondering, when I look at the international market, what are some of the factors there that are influencing the growth rates? Is it inflation? Is the Ukraine situation bleeding into other parts of Europe? Is there any share loss? Any color on that would be great. Thanks.
spk02: Yeah, sure. Thanks for the question, Brian. You know, I think the two main drivers really are, in first instance, actually very challenging comps. We're up against very, very tough comps from last year. So Q1 of last year, international revenue growth 38% in the quarter, and it was 47% ex-eBay. So that alone is sort of one of the drivers this year. The other big piece really is the eBay component. And so that, too, is playing a role. So on the revenue side, international revenue growth ex eBay was up 5% relative to the negative side that you see. Probably also worth highlighting that China and UK continue to be tough markets for us. And that is both the eBay migration, but it really is also the macro. And so that's one where we're watching it really closely. We did see sort of China revenue down more than it was in Q4, UK revenue down again more than it was in Q4. We'll continue to watch it closely, but that definitely does have a macro layer to it.
spk10: Got it. Thanks, and good luck, John. Thanks, Brian.
spk12: Your next question comes from Mike Yang of Goldman Sachs. Your line is open.
spk00: Hey, good afternoon. Thanks for the question. I'd like to ask about competition. Specifically, there have been some high-profile challenges reported for startups in the one-click checkout space. Could you talk a little bit about some of the benefits of PayPal scale that may create barriers to entry among new entrants and where you're most focused as it relates to competition, if not necessarily new competitors? Thank you.
spk09: Yeah. Well, as you point out, checkout is a hard business. I mean, you've got to be able to scale it, and it's got to be perfect. Um, as you noted, you know, retailers depend completely on a checkout provider and if it doesn't go right, they can lose a tremendous amount of sales. And so, um, like the brand trust we have and our track record over time, our availability, uh, our fraud and risk capabilities have been honed over the last 10 or 15 years. Like on average, a retailer that does 100 transactions with PayPal, we approve six more than somebody else, another checkout methodology. These make huge differences. I'd say the other thing, of course, is that it is a network affects a business. The larger the scale, the more attractive the network is. When you do consumer surveys, 60% of consumers pick PayPal as their number one choice to do an online transaction. The next closest digital wallet is 8%, so it's not even close. PayPal customers are two times more likely to shop when they see a PayPal button. And for smaller merchants, having the PayPal brand is essential because in today's age, you're seeing much more e-commerce sales that are outside of local territories. It's across state, it's across the country, it's across countries. And seeing that PayPal brand, enables the consumer to feel confidence that they've got protection and for a business to feel comfortable because we give them seller protections as well. And so, you know, we have a ton of scale advantages and a ton of experience in high auth rates and low loss rates, which typically don't work hand in hand, but they do work that way with us. And look, we are not resting on any of those laurels by any stretch or imagination. We are driving to improve basic hygiene, increased uptime and availability at five nines level, taking latency down to low single-digit seconds, simplifying our UX. Right now, too often, there's a pop-up that occurs and it takes you out of the web or the native app. And you don't want to go out and then back into that app. So we want to drive in context or inline checkout. We know we can even make our integrations easier and simpler by moving more and more towards industry standard integrations. And we're going to optimize logon through new identity techniques. And by the way, we are also thinking about the next generation of checkout. The real issue for retailers is not so much can you make conversion better when a consumer gets to the product page or the checkout page, which by the way is important because every little bit actually matters to merchants and we clearly lead in that area. But the real issue is less than five out of 100 people who go to a merchant's website actually check out. So there's a ton of drop off before a consumer gets to the product pages or to the checkout. And basically, you know, nobody has the amount of data and information we have on customers. We vault over a billion financial instruments on our platform well more than that. And being able to work with retailers and consumers to surface who that consumer is, obviously with consent and all of that, so that a retailer can customize kind of to every customer coming on kind of offers or deals or the homepage they come to is a huge potential next generation of checkout with a lot of interest from merchants. And nobody can really do that better than we can because of our scale and the data we have. And so I think we got a lot of good advantages right now, but we are really thinking about how do we take it to the next level and how do we even reimagine checkout?
spk00: Great. Thanks for the very comprehensive answer, Matt.
spk09: Yeah, you bet. My pleasure.
spk12: We have time for one last question from David Tagut of Evercore. Your line is open.
spk10: All the best to you, John. At the beginning of the pandemic, Dan, you clearly articulated a focus on unified commerce, in particular a major rollout of QR codes at some of the biggest retailers in the country. And more recently, we've seen consumers return to the physical point of sale with increased vaccination rates. Can you update us on how PayPal is positioned in unified commerce? And, you know, in particular, where do you stand with the QR code rollout?
spk09: Yeah. Well, I think we said from the very beginning, that's proven to be very true, that in-person payments is going to be It's going to be a long slot for us going forward. There's no magic bullet to that. We are continuing to increase every quarter the number of retailers that offer our QR codes. But changing consumer behavior to move to mobile and mobile checkout, it's going to take time. It clearly will happen over time, but it's going to take time. And so our view on this is that we really feel like putting quite a large emphasis on revamping our debit and credit card to tie in fully with our app, but enabling a consumer to shop seamlessly. You know, if it's in-store, they want to use a form factor they're familiar with. They can do that, but it ties completely into the app, fully integrated, a little like the Venmo credit card is into the Venmo app. We just launched this three, two part, you know, 3% cash back on any purchase on PayPal, 2% everywhere else, but it is a fully integrated experience. And so, for instance, what might you be able to do with that? You might be able to go into a store pay with your 3-2 card, and then come into the app and do a buy now, pay later type of thing. So flexibility on choice of how you pay, not just doing it instantaneously. You may want to split that way of paying for that through rewards points and fiat currency. And this tying in of both using the mobile phone app point of sale, but also enabling people to use cards and tie that directly into our app, I think is probably a good one-two punch as we think about moving into in-store. Clearly, buy now, pay later is exploding everywhere. And we are really gaining good traction there, good traction on upstream presentment. And more and more people want to use that. And that plays by the way, right into our advantages as well, because we have 10 years of credit experience. We think we have the lowest loss rates, uh, of, uh, the buy now pay later, um, uh, industry, probably the highest approval rates because we know so many of the customers and a really powerful value proposition to merchants. And now we can tie that both online and offline. And that, that can be a pretty powerful combination. Understood. Thanks so much. All right. Well, thank you, everybody, for joining us. And, John, you heard it from everybody, but you'll hear it from us how much we will miss you as well.
spk06: Thank you.
spk09: I will miss you all as well, too. Yep. And we look forward to working with you in your future projects as well. Okay, everybody, thanks very much for your time, and we look forward to talking to you soon. Take care. Bye-bye.
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