PayPal Holdings Inc
NASDAQ:PYPL
PayPal Holdings Inc
In the bustling world of digital payments, PayPal Holdings Inc. emerged as a pioneering force, transforming the way transactions are conducted globally. Born during the dot-com era, PayPal's journey began with a simple, yet revolutionary idea: to allow people to pay each other effortlessly through a digital wallet. Over the years, it has become synonymous with safe, reliable, and user-friendly payment solutions, building trust with millions of users worldwide. PayPal works by enabling individuals and businesses to send and receive payments securely over the internet, functioning as an intermediary that allows users to link their bank accounts, credit cards, or debit cards to a PayPal account. This consolidated platform not only circumvents the hassles of traditional banking but also enhances transactional efficiency with features like buyer protection and simple refunds.
PayPal’s business model thrives on transaction fees, which are its primary source of revenue. Merchants, eager to tap into the vast online marketplace, pay a small fee for every transaction completed through PayPal. This model seamlessly integrates into e-commerce platforms, where swift and secure payments are critical. The company also broadens its financial ecosystem through services like Venmo, catering to a younger demographic with peer-to-peer payment capabilities, and Braintree, offering sophisticated payment solutions for businesses. Furthermore, PayPal earns through interest and fees on credit products, enhancing its revenue streams. By constantly innovating in digital finance and initiating strategic acquisitions, PayPal has positioned itself as an indispensable component of the modern financial infrastructure, enabling both personal and business financial interactions with intuitive ease.
Earnings Calls
In 2024, PayPal experienced a successful transformation, achieving a 7% year-over-year revenue increase, reaching $32 billion. Total payment volume also grew by 10%, nearly totaling $1.7 trillion. Key contributors included branded checkout and Venmo, with transaction margins growing 7%. For 2025, PayPal expects transaction margin dollars of $15.2 to $15.4 billion, about 4.5% growth. Non-GAAP EPS guidance ranges between $4.95 and $5.10, signaling approximately 8% growth. Initiatives prioritized for 2025 include enhancing checkout experiences and expanding Venmo monetization, which is expected to be a significant growth driver alongside ongoing cost management strategies.
Management
James Alexander Chriss currently serves as the Executive Vice President, Chief Financial Officer, and Global Customer Operations Officer at PayPal Holdings Inc. He joined PayPal in 2023, bringing extensive experience in financial management and strategic operations. Prior to this, Chriss held significant leadership roles, including Chief Financial Officer at Intuit, where he was instrumental in overseeing financial strategies and global customer operations. His career has spanned various sectors, demonstrating a strong track record in driving growth and operational efficiency. Chriss's leadership at PayPal focuses on accelerating the company’s growth trajectory and optimizing financial performance.
Jamie S. Miller is a seasoned executive with extensive experience in the finance and technology sectors. She is known for her strategic leadership and operational expertise. Prior to her role at PayPal Holdings Inc., Ms. Miller held prominent positions in various industries, showcasing her broad range of skills in financial management and corporate strategy. Before joining PayPal, Jamie S. Miller served as the Chief Financial Officer of C.H. Robinson, a leading logistics and supply chain management company. Her role involved overseeing the company’s financial operations and contributing to strategic decision-making processes. Earlier in her career, she was the Senior Vice President and Chief Financial Officer at General Electric Co. (GE), where she played a pivotal role in financial planning, analysis, and operations across the organization. Her tenure at GE was marked by her leadership in various financial and operational roles, contributing significantly to the company's fiscal strategy. Ms. Miller’s adeptness in handling complex financial structures and driving efficiency in operations has made her a key figure in the companies she has been part of. Her leadership at PayPal is anticipated to strengthen the company’s financial strategy and operational execution, supporting its growth and innovation objectives.
John C. Kim is a notable executive in the tech and financial industries, particularly known for his role at PayPal Holdings Inc. He joined PayPal as the Executive Vice President and Chief Product Officer in September 2022. In this position, he is responsible for overseeing PayPal's product innovation and strategic development, focusing on enhancing customer experiences and driving the company's growth in the competitive digital payment space. Before joining PayPal, John C. Kim had a significant impact at various companies through his leadership and expertise. He served as the President of Expedia Marketplace at Expedia Group, where he played a crucial role in driving the company's global growth strategy. His career also includes important roles at other influential companies, showcasing his broad experience in product management and technology leadership. Kim is recognized for his ability to integrate technological advancements with consumer needs, thereby pushing for innovative solutions that align with market demands. His work continues to shape PayPal's efforts in expanding its service offerings and maintaining its position as a leader in digital payments and financial technology.
Michelle Gill is a recognized executive in the financial and fintech sectors, known for her role as an executive leader at PayPal Holdings Inc., where she has played a significant part in driving the company's strategic initiatives and financial operations. Before joining PayPal, Michelle Gill amassed considerable experience in the financial industry. She was associated with a leading investment firm, Goldman Sachs, where she held significant roles contributing to her expertise in asset-backed securities and complex financial products. Her tenure at Goldman Sachs helped her gain a deep understanding of financial markets and strategies. At PayPal, Michelle Gill has been involved in leading the company's capital management strategies and financial planning, playing a critical role in ensuring the company's financial health and facilitating its expansion into new markets. Her expertise in navigating financial regulations and capital market trends has been instrumental for PayPal as it continues to innovate and expand its suite of financial services globally. Her contributions to PayPal have not only strengthened its market position but have also been pivotal in evolving its offerings to meet the demands of a rapidly changing digital payment landscape. Michelle is known for her strategic thinking, financial acumen, and leadership skills, which have earned her respect and recognition in the fintech industry.
Mr. Christopher Natali serves as the Vice President of Investor Relations at PayPal Holdings Inc. In this role, he is responsible for managing the company's communication and relationship with the investment community, providing strategic insights, and articulating PayPal's financial and business strategies. His experience and leadership play a critical role in enhancing investor understanding and confidence in the company's performance and future outlook. Prior to his tenure at PayPal, Mr. Natali held various positions in financial management and investor relations, contributing significantly to his expertise in the field.
Srinivasan Venkatesan, often known as Sri Venkatesan, is a notable technology executive with extensive experience in engineering and leadership roles. At PayPal Holdings Inc., he has served in key positions where he has been instrumental in driving significant technological advancements. As an executive at PayPal, Venkatesan has been focused on enhancing the scalability, security, and efficiency of PayPal’s global payment platforms. His work often emphasizes innovation, customer-centric solutions, and leveraging emerging technologies. Before his tenure at PayPal, Sri Venkatesan held significant roles at major tech companies, further contributing to his vast experience in the industry. His leadership style is often described as transformative, guiding teams through complex challenges and fostering a culture of continuous improvement and technological excellence. Venkatesan's academic background includes a solid foundation in computer science and engineering, which has been pivotal in his successful career trajectory. He is also known for his contributions to tech communities, often sharing insights on technology trends and best practices. Overall, Srinivasan Venkatesan's impact at PayPal is marked by his commitment to advancing technology infrastructure and improving user experiences, aligning with the company's goals of delivering dependable and innovative financial services.
Steven Eric Winoker serves as an executive at PayPal Holdings Inc. He holds the position of Senior Vice President of Investor Relations. Before joining PayPal, Mr. Winoker had a substantial career at General Electric (GE), where he was Vice President of Investor Relations. His work at GE involved strategic roles in finance and investor communications, providing him a solid background in these areas. His expertise in investor relations and strategic financial management has made him a key figure in communicating PayPal's financial strategies and performance to its stakeholders.
Bimal Patel is an accomplished executive known for his contributions to finance and technology. At PayPal Holdings Inc., he serves as the Vice President overseeing several crucial components of the company's infrastructure. He is recognized for his expertise in payment systems, risk management, and strategic planning, bringing innovative solutions that enhance service delivery and operational efficiency. Before joining PayPal, Bimal Patel accumulated extensive experience in financial services and technology, holding significant roles that honed his leadership skills and technical acumen. His educational background in finance and technology has equipped him with a comprehensive understanding of the evolving digital payment landscape. Under his leadership, PayPal has successfully implemented numerous projects aimed at expanding its international footprint and enhancing security measures on its platform. Bimal Patel is revered for his strategic insights and ability to adapt to the rapidly changing financial environment, making substantial contributions to PayPal's growth and success.
Ms. Amy Bonitatibus is the Chief Communications Officer at PayPal Holdings Inc. She is responsible for overseeing the company's global communications strategy, which includes media relations, corporate communications, and brand reputation efforts. Before joining PayPal, Amy Bonitatibus served as the Chief Communications Officer at Chase, the consumer and community banking division of JPMorgan Chase, where she played a crucial role in managing communications for one of the world's largest financial institutions. Her extensive experience in corporate communications and brand management is instrumental in shaping PayPal's public messaging and enhancing its global presence.
Kausik Rajgopal is a prominent executive known for his strategic and leadership roles in the financial and technology sectors. He served as the Executive Vice President and Chief Human Resources Officer at PayPal Holdings Inc. In this capacity, Rajgopal was responsible for overseeing the company’s human resources strategy, focusing on talent management, organizational transformation, and employee engagement. Before joining PayPal, Rajgopal had a distinguished career at McKinsey & Company, where he was a Senior Partner. His work primarily focused on advising financial services firms and public sector organizations on operations, organizational strategy, and transformation initiatives. His background and expertise in both the consulting and corporate landscapes have been instrumental in driving PayPal's growth and adapting to the rapidly evolving digital payment space. Rajgopal has been recognized for his ability to blend strategic insight with a deep understanding of talent and organizational dynamics, making significant contributions to the development and implementation of PayPal’s corporate culture and human capital strategies.
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Good morning, and welcome to PayPal's Fourth Quarter and Full Year 2024 Earnings Conference Call. My name is Sarah, and I will be your conference operator today. As a reminder, this conference is being recorded.
I would now like to turn the program over to your host for today's conference, Steve Winoker, PayPal's Chief Investor Relations Officer. Please go ahead.
Thanks, Sarah. Welcome to PayPal's Fourth Quarter and Full Year 2024 Earnings Call. I'm joined by CEO, Alex Chriss; and CFO, Jamie Miller.
Our remarks today include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses as we see them today. As described in our earnings press release, SEC filings and on our website, those elements may change as the world changes.
Now over to you, Alex.
Thanks, Steve, and thank you to everyone for joining us this morning.
PayPal had a successful 2024 delivering strong operating and financial results. The improvements we've made to branded checkout, P2P and Venmo plus the progress we've [indiscernible]. We set out at the beginning of 2024 to make it a transition year to narrow our focus and to make sure we are executing the initiatives that matter the most to the growth of our business. One year later, I'm proud that we've laid a strong foundation for durable growth.
We drove branded checkout transaction margin dollar growth in each quarter. U.S. branded checkout growth accelerated in the fourth quarter to exit the year at a high point as our new checkout innovations are scaling to customers. Driven by a renewed focus on pricing-to-value, Braintree has meaningfully contributed to our transaction margin dollar growth over the last 3 quarters. Venmo monetization is making great strides with over 20% growth in Venmo Debit Card and Pay with Venmo monthly active accounts. Put simply, the PayPal team executed well during our transition year and made strong progress on our transformation.
The investments we made throughout 2024 and allowed us to perform well during the holiday shopping season and finish the year strongly. Total active accounts returned to growth in '24 as we enhanced our value proposition and brought innovation to market. Total payment volume grew 10% to nearly $1.7 trillion. We delivered $32 billion in revenue, up 7%. We reached an inflection point for transaction margin dollar growth, which increased 5% excluding the benefit of interest on customer balances.
Our non-GAAP earnings per share increased 21% year-over-year. We generated $6.8 billion in free cash flow and completed $6 billion in share buybacks. For 2025, we expect another solid year of transaction margin dollar growth and strong free cash flow, which Jamie will discuss.
As we look ahead to '25, I want to share the areas we're most focused on. First is innovation. With the leadership team in place and the velocity with which we're executing, we've proven we can bring innovations to market. In 2024, we rolled out new branded checkout experiences, launched PayPal Everywhere, introduced Fastlane and expanded PayPal Complete Payments. We are not stopping there, and we'll continue to innovate to solve our customers' biggest challenges.
The second is product adoption. 2025 will be focused on scaling adoption of our innovations. We have world-class products and solutions and will continue educating customers about all we have to offer. In '24, we completely revamped our marketing and go-to-market playbook. We're just scratching the surface, so you can expect more ahead.
Third is partnerships. Last year, we formed significant partnerships to drive Fastlane adoption and bring more value to customers. We are building on our leadership position in payments and commerce and establishing ourselves as the platform that leading brands want to work with. We will strike even more partnerships throughout 2025.
Fourth is efficiency and effectiveness. In 2024, we reduced headcount by 10%. We made deliberate investments in AI and automation, which are critical to our future. This year, we are prioritizing the use of AI to improve the customer experience and drive efficiency and effectiveness within PayPal. We expect to make meaningful progress on all 4 of these areas in '25.
Let me walk you through how this focus will drive our results this year and beyond. In '25, our key strategic initiatives will be to win checkout, scale Omni, grow Venmo and accelerate SMB. Our teams are organized around these priorities and tracking progress daily.
Starting with win checkout, our #1 priority. With our upgraded experiences, we now have the leading checkout solution on desktop and mobile. When fully implemented, the upgraded experiences reduce latency by more than 40% and drive more than 100 basis points of conversion lift on average, consistent with the early results we've shared. These upgrades are now live for more than 25% of U.S. checkout traffic, which is up from 5% last quarter. We have a lot of room to grow here as adoption increases in the U.S. and then expands globally.
On top of the benefit of higher conversion, these new experiences improve the presentment of our branded markets and solutions like Buy Now, Pay Later, which can help to expand our share of wallet. BNPL customers spend 30% more on average. And merchants see higher sales after adding BNPL messaging to their sites, which is critical when one more sale can make all the difference. In 2024, we drove approximately $33 billion in BNPL total payment volume, growing 21% from the prior year. Consumers and merchants trust the PayPal brand and experience. We have a lot more we can do with BNPL in the next year.
Merchants continue to show strong interest in Fastlane. In the fourth quarter, we focused on selling Fastlane to large brands that can drive future volume. I'm excited to share that we have signed NBCUniversal, Roku and StockX and are working on implementation. We now have nearly 2,000 merchants up and running with Fastlane. We expect an inflection point in adoption when we expand our go-to-market efforts and bring Fastlane to even more merchants through Adyen, Global Payments and Fiserv this year.
From early data, what's exciting is that 25% of Fastlane users have never had a PayPal account before, and more than half have a PayPal account but haven't been active in the last 12 months. To say that simply, 75% of Fastlane consumers are new or dormant PayPal users. This means that Fastlane not only improves conversion for our merchants but also introduces more shoppers to PayPal and enables us to reengage in active users.
We shared that one of our strategies is to build deeper relationships with our largest merchants as we renegotiate deals to reflect the value we provide. A key part of that is adding value-added services that improve the experience for our mutual customers. We built a suite of world-class value-added services and continue to introduce new ones.
In the fourth quarter, we launched FX-as-a-service, which is automated currency conversion, and it's already live for Meta. We also actively scaled the use of network tokens for automated billing capabilities, which is live with merchants including Instacart, Mint Mobile and Poshmark. The expansion of our value-added services is a key driver of the transaction margin dollar growth we are delivering.
Next, let's talk about our initiative to expand beyond e-commerce to become truly omnichannel. We launched PayPal Everywhere in September, which is driving significant increases in debit card adoption and opening new categories of spend. We added more than 1.5 million first-time PayPal debit card users in the fourth quarter, and debit card TPV was up nearly 100% in Q4. Our most active reward categories are gas, groceries and restaurants. These new capabilities are driving deeper relationships with our users and more PayPal volume overall, off-line and online.
The average debit card actives generate 5x the transaction activity and 2x the average revenue per account compared to users who only use branded checkout. This is leading to a habituation Power users, which are PayPal consumer accounts transacting more than 100 times per year, grew more than 9% year-over-year in the fourth quarter. So we are seeing strong momentum today with our omnichannel push, but we're just getting started. We plan to expand our PayPal Everywhere value proposition to several European markets this year, including launching NFC capabilities in Germany.
Moving to our progress to grow Venmo. Our task is twofold: first, continue to improve the social P2P payment experience that made Venmo, increasing engagement and bringing on more users; second, drive adoption of our monetized products, including the Venmo Debit Card and Pay with Venmo. In the fourth quarter, we continued improving the Venmo experience by giving our users more of the capabilities they've been asking for like scheduled send and improved search.
With these steady improvements to the experience, we see engagement increasing. Our engaged Venmo user base grew 4% in the quarter, reaching more than 64 million monthly active accounts. On monetization, we increased the average revenue per active Venmo account in 2024 and we plan to build on that growth in '25. Monetized Venmo monthly active accounts beyond P2P and instant transfers grew more than 20% in the fourth quarter driven by the adoption of Venmo debit card and Pay with Venmo. Venmo debit card monthly actives grew more than 30% and Pay with Venmo monthly actives grew more than 20%.
We continue to expand Venmo's acceptance with major brands like Instacart and MoonPay adding Venmo in the fourth quarter. And as we recently announced, JetBlue became the first airline to accept the Venmo for flight bookings. So while we are still early in monetizing Venmo, we have a proven playbook that is resonating with customers. This gives us confidence as we move to 2025 and beyond.
Finally, I'd like to cover our efforts to accelerate growth for SMBs. We are moving from a disparate set of payment products to building an end-to-end suite of solutions that solve more small business needs. PayPal Complete Payments was the first step towards an integrated suite of solutions, and we continue to make progress driving adoption with 45% of SMB processing and checkout volume now on this platform. Merchants on PPCP benefit from our upgraded branded checkout experiences.
Key to our success in growing with small businesses on our platform is our expanding set of connected and value-added services, which move us beyond a payment provider to a growth partner and help us retain customers throughout their business life cycles. Take for example our merchant financing solutions. Entrepreneurs come to us for payment services as they start their business. As their business grows, they need access to capital to buy inventory, invest in marketing and higher.
PayPal Working Capital is a financing solution purpose-built for early-stage companies. As the business matures, PayPal Business Loan offers more traditional merchant financing to match the increasing complexity and multichannel nature of larger businesses. Our business financing solutions increase loyalty and engagement, driving the PayPal flywheel. Merchants typically increase their PayPal volume by 36% after adopting PayPal Working Capital and 16% after taking a PayPal Business Loan.
Our merchant lending originations were $3 billion in '24 demonstrating our leadership and that there's plenty of room to grow to support our customers. This is just one example of the services we offer that help SMBs change the trajectory of their businesses. Expanding this ecosystem of value-added services is a focus in 2025 and beyond.
To close out, I want to thank the PayPal team for their focus on delivering for customers every day. I am proud of how far we have come in the last year. It was an important transition year for PayPal. We created strong momentum that sets up well for 2025 and beyond. We are now executing a game plan that we have confidence in, and I'm excited to share more at our Investor Day later this month.
With that, over to Jamie.
Thanks, Alex. Moving to Slide 7. PayPal delivered another solid quarter of results to end the year. While there is still more work to be done, the team is making progress, building on the firm foundation that we have established. As we enter the second year of the company's transformation, our teams are energized and moving quickly. We remain focused on better serving our customers as we seek to drive durable, profitable growth.
Looking at the high-level financial results in the fourth quarter. Revenue grew 4% on both a spot and currency-neutral basis. For the full year, revenue grew 7% on both a spot and currency-neutral basis. Transaction margin dollars grew 7% in the fourth quarter or 6% excluding the benefit of interest on customer balances. Outperformance compared to our guidance was driven by higher contribution from branded checkout and Venmo, credit performance and interest earned on customer balances.
For the full year, transaction margin dollars grew 7% or 5% excluding the benefit of interest and customer balances. Non-GAAP earnings per share were $1.19 in the quarter, up 5%. We ended the full year with $4.65 of non-GAAP earnings per share, up 21%. These full year results benefited from a return to transaction margin dollar growth, fueled by our transformation efforts, expense discipline, the higher interest rate environment and a strong capital return program.
Turning to Slide 8. Our operating metrics reflect another quarter of steady progress. Total active accounts increased by nearly $3 million from the third quarter and nearly $9 million from last year to $434 million. Monthly active accounts also continued to show steady progress, up 2% year-over-year to $229 million with contributions from PayPal consumer accounts and Venmo. Transactions per active account excluding PSP processing grew 4%.
Moving to Slide 9. Total payment volume grew 7% on a spot and currency-neutral basis to $438 billion. For the full year, TPV grew to nearly $1.7 trillion, up 10% on a spot and currency-neutral basis. Looking at the TPV breakdown by product, we see strengths starting to build in some key areas. PayPal P2P accelerated for the sixth consecutive quarter to 6% growth. Venmo also accelerated by 2 points to 10% growth. Steady incremental product improvements combined with reinvigorated marketing campaigns are starting to make an impact. Global branded checkout volumes increased 6% on a currency-neutral basis in the fourth quarter. This was about a 50 basis point acceleration from the prior quarter.
Underlying this growth, we were encouraged to see U.S. branded checkout volume improve in the fourth quarter. Part of this increase can be attributed to a healthy spending environment and specific vertical exposure. In the U.S., we are focused on scaling our modern, best-in-class experiences. From a merchant perspective, we continue to see the greatest strength across large enterprises, platforms and marketplaces. Winning checkout remains our most critical priority. Our goal is to drive more consumer engagement and a higher PayPal selection rate, which should accelerate TPV over time.
Turning to PSP. As discussed throughout the past year, we moved rapidly within our Braintree business to prioritize healthy, profitable growth and intentionally let go of unprofitable volume. In line with this strategy, PSP processing volume grew 2% in the fourth quarter compared to 11% in the third quarter. Our conversations with merchants have become more holistic, moving beyond price and share of card processing to a deeper appreciation of our customers' needs and how we can add value through our full suite of solutions. We expect a handful of large Braintree merchant renegotiations to result in a headwind to revenue growth of about 5 points in 2025.
Shifting away from this volume pressures gross revenue but is accretive to transaction margin dollars and will result in more than 1 point benefit this year. We expect this benefit to build over time as we drive more value-added services. Over the next few quarters, we will continue to work through renegotiations, at which point we should reach a new baseline to drive faster volume and revenue growth.
Moving to more financial detail on Slide 10. Transaction revenue grew 4% on a spot basis to $7.6 billion, driven primarily by branded checkout and Venmo. Other value-added services revenue in the quarter grew 5% to $778 million. This acceleration was driven largely by a return to growth in credit revenue. We continue to see solid performance across our credit portfolio. As Alex shared, we have begun to modestly grow merchant originations and expect credit to be a positive revenue and profit driver in 2025. Transaction take rate declined by 4 basis points to 1.73% driven largely by mix. Venmo monetization was a slight benefit, offset by merchant mix within branded checkout and Braintree, faster growth in payouts and foreign exchange.
Turning to transaction margin dollars. The largest contributors were branded checkout, Venmo, interest on customer balances, a return to growth in credit and Braintree. Transaction margin percent increased by more than 100 basis points for the second consecutive quarter, reflecting our focus on price to value and profitable growth. As planned, we increased our level of strategic investment in the quarter, growing nontransaction operating expense by 10%. This growth included marketing spend deferred from the first half of the year and efforts to support the rollout of new products and initiatives.
Non-GAAP operating income grew 2% in the quarter to $1.5 billion. Non-GAAP operating margin declined 34 basis points to 18%. PayPal generated $2.2 billion of free cash flow in the quarter, bringing full year free cash flow to $6.8 billion. This is meaningfully ahead of the $5 billion we planned for at the start of the year and includes some benefit from lower cash taxes, which we expect to be a headwind in 2025.
In the quarter, we completed $1.2 billion in share repurchases, bringing full year share repurchases to $6 billion. Finally, we ended the quarter with $15.4 billion in cash, cash equivalents and investments and $11.1 billion in debt.
Moving to guidance on Slide 11 for the first quarter and full year 2025. For the first quarter, we expect flat to low single-digit revenue growth on a currency-neutral basis, which is heavily impacted by the Braintree renegotiation efforts I discussed earlier. This also includes about a 1 point headwind from lapping last year's leap day. We expect transaction margin dollars to be between $3.6 billion and $3.65 billion, which represents 5% growth at the midpoint. We are planning for low single-digit nontransaction OpEx growth in the quarter, and we expect to deliver non-GAAP EPS in the range of $1.15 to $1.17 or approximately 7% growth at the midpoint.
Moving to the full year. We plan to continue guiding revenue one quarter at a time. We believe this approach has served the company well during our transformation, enabling healthy long-term decision-making that prioritizes driving faster transaction margin dollar growth. Over time, we are focused on accelerating both revenue and profitability. For the full year, we expect transaction margin dollars of approximately $15.2 billion to $15.4 billion, representing approximately 4.5% growth at the midpoint.
In 2024, we had a 2-point benefit from interest on customer balances. For 2025, our guidance includes about a $150 million or about a 1 point headwind due to interest rate cuts. Excluding interest on customer balances, we expect transaction margin dollars to grow by at least 5% compared to 4.6% growth in 2024. In the first quarter, we expect minimal benefit from growth of interest on customer balances and then a headwind for the remainder of the year.
One other factor to keep in mind is that in 2024, we saw a 1 point benefit from transaction loss improvements. We are planning for some normalization and transaction loss during 2025 as we roll out new products. Our focus in 2025 is to strike the right balance between investment and productivity, seeking to fund long-term investments largely through savings generated from better tech and automation deployment. We expect full year nontransaction operating expenses to increase in the low single-digit range.
There will likely be some unevenness quarter-to-quarter due to the timing of initiatives, marketing spend and comparisons to the prior year. As a result, we expect second quarter OpEx growth to be higher than in other periods. We expect to deliver full year non-GAAP EPS in the range of $4.95 to $5.10, representing about 8% growth at the midpoint. This includes negative impact from lower interest rates and just over a 2-point increase in our expected non-GAAP effective tax rate. Our guidance also includes approximately $6 billion in share buyback, and we expect full year free cash flow of approximately $6 billion to $7 billion.
I'd like to wrap up by thanking the PayPal team for their continued focus and dedication. The progress we made in 2024 gives us a strong foundation to build on as we move into the second year of PayPal's transformation. One of our primary focuses this year will be driving adoption of recent innovation and scaling better customer experiences. It will take time for some of our efforts to build and drive financial impact, but we are confident in our road map and in our execution plans, and we're excited to share more with you at our Investor Day on February 25.
With that, back to you, Alex.
Thanks, Jamie. To summarize, in 2024, we executed the transition plan we laid out. We have positioned PayPal to compete and win and delivered strong results along the way. I'm very proud of our team and the impact they made during a year of intense change. The momentum we have created sets us up well for 2025, which is about scaling adoption.
It is still early in our transformation, but our objective is clear. We are evolving PayPal from a payments company to a commerce platform that helps merchants win every sale and helps consumers shop smarter.
Steve, let's go to Q&A.
[Operator Instructions] Sarah, please open the line.
[Operator Instructions] Your first question comes from the line of Andrew Schmidt with Citi.
Alex and Jamie, good to see the next stage of the transformation here. I wondered -- just digging on branded volume growth. Maybe you can just unpack the fourth quarter performance particularly in the U.S. How did it sort of trend relative to your expectation in terms of share of checkout? And then as we think about 2025, what are the right expectations to set for branded volume growth? And I know you mentioned a few things that are drivers there, your checkout integrations, reinvigorating the consumer side. Maybe just remind us what are the biggest unlocks in the time frame to see those come into play?
Yes. Thank you, Andrew. Let me kick off and then hand it over to Jamie. So first, let me just remind us of the context of what we walked into at '24 on branded checkout. I talked about it throughout the course of the year as our #1 priority, and most of it was focused on how do we improve the customer experience. We felt good about the desktop experience, but clearly, gaps in mobile. And that was innovation that the team really executed on throughout 24, tested a number of different pay sheets, a number of different vaulted experiences, and then by the time we got to '24, felt really good about the innovation we were rolling out.
And as we start to roll out, just as a reminder, our onetime checkout improvements is 400 basis points on conversion. Our vaulted improvement is 100 basis points on conversion. And so -- and the biggest impact is really on our mobile and our small business base. So really excited about the innovation that's now rolling out. As we talked about in Q3, we had just started to roll out. We'd ramp that to about 5% throughout Q4. We continue to execute on our rollout and got that up to 25% by the end of the year. So as we exit '24, I'm feeling really good about the quality of the innovation, our ability to roll it out and impact customers.
And as we look to '25, we now have, I believe, the best-in-class experience on desktop, on mobile and starting to see knock-on effects of things like our Buy Now, Pay Later attach, which is up 20% with this new pay sheet. So from an innovation perspective and a customer impact perspective, feeling really good as we go into '25.
Yes. And Andrew, just to add on there with respect to the U.S., we did see sequential improvement in branded checkout in the U.S. in the fourth quarter. And that was about 3 points of growth quarter-over-quarter really due to market dynamics, but also specific key vertical exposure around travel, crypto, gaming, et cetera. Alex mentioned we're still early in the ramp of our modern checkout experience, and that is certainly something that as, we get into '25, we are very, very focused on.
Our biggest priorities are really around innovation, driving those improvements in checkout experience. And you mentioned also giving consumers more reasons to choose. So some of the things we've done throughout the year around really improving the app experience, adding rewards, adding different elements to how people can find contacts and things like that, all of that is around engaging the consumer in a different way. And as we talk about internally, really getting the flywheel continuing to move between our consumers and our merchant experience.
So from a 2025 guide perspective, we still expect branded checkout TPV to grow about mid-single digits and to have consistent growth from last year into this year with some acceleration with our initiatives on [indiscernible].
The next question comes from Ramsey El-Assal with Barclays.
As expected, unbranded volumes decelerated again as you pursue the price of value strategy. Can you give us your updated thoughts on your sort of confidence level, timing and toolkit to reaccelerate unbranded volume growth at the higher baseline profitability levels as we move forward here?
Yes. Let me just touch on -- thanks for the question, Ramsey. And let me touch on just how we're -- how these conversations are evolving. So first, again, this has been our strategy throughout the year. I'm encouraged to see just another quarter of branded/unbranded Braintree contribution to TM dollar growth. The conversations are continuing to be strategic in nature, which is exciting for us. We're having not just processing conversations, but now they're sort of evolving into two steps.
One is the value-added services that we're bringing to market. I mentioned some of these FX-as-a-Service, Risk-as-a-Service, chargeback automation, orchestration, all of these are things that we're now able to price to value and monetize as part of a best-in-class unbranded offering. In addition, though, we're really starting to differentiate ourselves in these conversations by being able to bring customers to the conversation. And so again, as I sit down with CEOs of some of our largest customers and really talk about what are their greatest needs, it goes well beyond just processing. It really goes to how do we bring more customers to bear.
And this is really the first time that we're leveraging the two-sided network that PayPal has and being able to say, hey, we have hundreds of millions of consumers around the world. We now have an ad platform. We have reward platforms. We have the ability to enable our unbranded processing customers to create rewards and offers inside of our PayPal app to be able to drive additional growth for them. And so these become really fun conversations, to be honest, because we're now having holistic, not just processing but end-to-end, how do we leverage their marketing dollars, how do we leverage their ability to acquire customers in our two-sided network.
Yes. And with respect to forward trends on this, we do expect similar dynamics in the next few quarters, some volatility. I mean, this is not something that just happens in a perfect line. And we still do have some large agreements over the next couple of years that we will work our way through. But the revenue growth should build as we lap some of the larger agreements sluffing off over time.
For 2025, we expect the renegotiations to be about a 5-point revenue growth headwind. But the other important point here is that it's a 1 point accretive on the TM dollars growth in 2025. So I think an important dynamic there that, as you mentioned, we're very intentionally driving.
The next question comes from Jason Kupferberg with Bank of America.
I just wanted to come back to the branded TPV topic. I think you mentioned U.S. accelerated 3 points in the quarter, if I caught that right. I guess that would imply international slowed. So perhaps you can quantify that and then maybe give us a sense of how that mid-single-digit global branded volume outlook for '25 splits between U.S. and non-U.S. And just a little bit of color on how the transaction margin profile differs between U.S. and international branded.
Jason, with respect to international, we are still in a very strong market position there and we continue to take share internationally. We had less than a full point international pullback. Just some softness in Europe is what I would say. And when you look at the split, international to U.S., both in the TPV line and in the TM line, it's really 50-50. And from a margin perspective, it's slightly healthier outside the U.S. but it's very much in line.
The next question comes from Tien-Tsin Huang with JPMorgan.
Just on grow Venmo. Can you just -- I know you'll talk a lot about it on February 25, but is it more about user growth, new products or ARPU from existing products expanding? Just curious what the algorithm is there. If you don't mind, a quick clarification. The step-up in CapEx in 2025, is that more of a onetime issue? Is it a sustainable level for you to consider?
Tien-Tsin, let me hit Venmo and then hand it over to Jamie. So on Venmo, and again, we will -- it will be exciting to see you all at Investor Day and we'll certainly dive deep on Venmo. But really, it is both customer growth as well as monetization growth. Again, we are excited. Venmo is the #1 P2P platform in the U.S. We saw MAAs continue to grow to $63 million by the end of this year. We're seeing TPV continue to grow up 10%, hitting double digits really for the first time in, I think, 7, 8 quarters, up to $76 billion. So really exciting to see the continuation of growth and active users.
In terms of our focus on monetization, again, we've been consistent. This is about proven levers of debit card MAA growth, which was up 32%; and Pay with Venmo MAA growth, which was up 22%. The reason this is important is we've seen that debit card MAA delivers average revenue per account 4x when they adopt our debit card, and Pay with Venmo average revenue per account is up 3x. And just as a reminder, we are in single-digit penetration across both of those products across the base. And so as we continue to grow customers, we're growing active customers and we're starting to grow penetration of monetizable elements.
So this is exciting for us. We also will just continue to focus on innovation. I think we're just scratching the surface of a very engaged, highly valuable demographic. We've rolled out new innovations like scheduled send and gifting and groups and direct deposits to bring more money into the ecosystem. But the [ theme ] is a really, really exciting road map for '25 as we start to really think about what are the other needs -- once this money is in the ecosystem of Venmo. What are the other needs that our customers have to be able to enable them to be able to spend in an omnichannel way and obviously move money across each other.
So exciting about what Venmo will have, and we've built a very good baseline of monetization throughout '24, which sets us up well for '25.
Good. And then with respect to CapEx, we're seeing, over the next 2 years, an increase in the program to about $200 million to $300 million. And it relates to tech infra build-out and data center build-out in connection with both platform consolidation and a few other things. But after the 2 years, it should come down.
The next question comes from Darrin Peller with Wolfe Research.
Jamie, I think you said you'd expect stable branded growth through '25 based on what you're -- what's built into your outlook. You guys have initiatives now where 25% of your checkout experience is on the more modern checkout, which I know has kind of ramped through the end of last year and were there now, and so it should impact, I think. The debit card is more further out. Marketing has been more substantial. I guess I'm just curious when those initiatives you think would have a more material impact. Or are they embedded in your outlook that they could have an impact on branded acceleration as the year progresses? Are you just building in uncertainty around things like international, maybe Germany or any other softness?
And then just my one quick follow-on would be the exit rate of transaction margin growth ex flows, I think 6%, in the context of this 6% branded. So I'm just curious, when you think of your forecast. Is there anything about this fourth quarter growth rate that was unsustainable other than maybe leap year? Otherwise, you're 5% -- I think you've added 5% plus, so we may capture that.
Yes. So first, let's talk about the branded checkout growth in 2025. You were specifically asking about initiatives. And as Alex mentioned, we've got 25% of our U.S. TPV flowing through the most modern checkout experiences at this point. That is something that we expect to scale as we get into '25. And in addition, we're going global with that as well. So to your point, we do expect some impact from that to start to flow through. And we have embedded some of that in our guide, and we expect it to build over time.
Having said that, we also think we've prudently planned here. And I wouldn't say we've explicitly put an overlay for European softness in there. Having said that, we've left ourselves room for to navigate different things because as we roll this out, the impact of how this will flow through may be uneven as we see it. And then do you want to remind me of your second question? It was on TM, but I didn't pick up the exact question you were asking.
Growth rate, you're at 6% already without any acceleration in the underlying KPI despite all the initiatives you've done. And you're guiding 5% plus -- I guess, 5% plus, right, from a non-float impacted. So just making sure there's nothing unsustainable in Q4's exit rate that should inform you on '25's growth.
Yes. When you look at '25 from a TM perspective, there's probably two things to think about that are headwinds to 2025 TM. The first is we expect transaction loss to normalize as we get into the year. We had a full point benefit of that in '24 and -- or a full basis point benefit. And when we get into 25, we expect about 0.5 basis point headwind. And really, we are growing products that should carry with it a higher transaction loss rate. And then you mentioned the 6%. I would talk a little bit, even though around interest rates. .
When you look at total all-in TM, we're expecting about $150 million of interest rate headwind on all-in TM there, too. But when you look at the underlying profile of TM, which really revolved around branded checkout, Braintree, Venmo, credit, I mean, all of those things are things that we believe are durable it's clearly diverse and things that we fully expect to continue as we get into '25 and beyond.
And Darrin, I just -- I want to pile on to Jamie's comments as well because I think it's really important to set our branded checkout strategy in context. First, as Jamie said, and I think we've been consistent throughout the year, we're excited about the innovations. I think we've been pretty prudent in the way that we have looked at a forward guide. We want to see the results before we tell you they're coming.
But if I just step back and think about the strategy, think about what we did in '24, we really worked on innovation and what I would call just fixing the basics of branded checkout. As I described earlier, an improved product now in the hands of customers on both desktop and mobile, and we're now starting to see that scale, as you mentioned, up to 25%. And we'll continue to scale that throughout the quarter and the rest of '25.
We've expanded to check out to guest checkout, which we weren't playing in before. And now we're starting to bring in new users through our Fastlane product, which again needs to continue to scale and will scale over the next few years. But we now have innovation in market that is best-in-class to go after the guest checkout experience. We expanded to off-line. So now we're playing in an omnichannel world where it's not just branded, but we're seeing off-line commerce that we didn't see before.
And it's driving habituation. Our debit card users are transacting twice as much as just a branded user and driving 20% higher average revenue per active. So we're just starting to put together a holistic strategy here that's beyond just a single button experience, but really starting to engage our growing customer base -- our growing monthly active customer base in a holistic way, where we really can be their commerce partner going forward.
The next question comes from Timothy Chiodo with UBS.
So in the past, and when we talked about the mix within the branded checkout, we typically talked about it being very skewed to discretionary and to goods. And in prior periods of strong discretionary growth during 2020, 2021, the branded checkout button grew in line, if not faster, depending on the metric or the industry data that you're looking at. The growth was better than the industry.
Could you maybe talk a little bit about how that mix might have evolved, if at all? And if we were to expect a better period of discretionary spend, should we see another period of the branded checkout button growing in line, if not faster, than the industry?
Tim, so when you look at the composition of our verticals now, I would say that one of the things we've done a really nice job of in the last couple of years is really expanding to services. And when you look at some of the dynamics that you might have seen 3 or 4 years ago, when you shift to now, we're just more balanced across different verticals. And I mentioned some of the growth in a few of the areas, but services in particular is one that has been a larger space. So I expect the dynamic to be more muted with respect to that discretionary side of it, on the good side of it.
The next question comes from Sanjay Sakhrani with KBW.
Just a follow-up question on the U.S. branded volume. I think, Alex, you mentioned that it exited the quarter at the high point. I mean, is there any color on sort of what that growth rate was and how it trended into this new year quarter-to-date?
Yes. So really, the way I think about branded U.S. is that we have been moving along, and we're obviously very focused on continuing to shift, continuing to impact our U.S. market position. And Alex talked about a lot of the innovation, specifically around mobile and around a couple of other areas that is really focused on driving shifting there. We saw some lapping in the first part of the year. But as we hit third quarter and into fourth quarter in particular, that was pure growth off a base. And that 3 points was reflective of that.
The next question comes from Colin Sebastian with Baird.
Maybe turning to the non-transaction expenses for the year. I was just hoping you could maybe expand on, first, I guess, the ability to use AI for more operating efficiency. And are those initiatives that are requiring some incremental investment near term? Or are you already seeing sort of a positive ROI from that? And relatedly, with the focus on scaling innovations and educating consumers, I guess what does that mean specifically in terms of the investments in customer acquisition and rewards that might be impacting margins -- operating margins through the year?
Yes. Thank you, Colin. Let me start with AI and then maybe hand it over to Jamie. AI is opening up a huge opportunity for us. First, at our scale, we saw 26 billion transactions on our platform last year. We have a massive data set that we are actively working and investing in to be able to drive our effectiveness and efficiency.
Let me break it into a couple of different pieces. First, on the customer-facing side, we're leveraging AI to really become more efficient in our support cases and how we interact with our customers. We see tens of millions of support cases every year, and we've rolled out our PayPal Assistant, which is now really cutting down phone calls and active events that we have.
We also are leveraging AI to personalize the commerce journey, and so working with our merchants to be able to understand and create this really magical experience for consumers. When they show up at checkout. It's not just a static button anymore. This really can become a dynamic, personalized button that starts to understand the profile of the consumer, the journey that they've been on perhaps across merchants and be able to enable a reward or a cashback offer in the moment or even a Buy Now, Pay Later offer in a dynamic experience.
And so this is all AI-enabled and all things that will generate both efficiency for us from the consumer standpoint, but also drive more branded checkout and more sales for our merchants.
In addition, we also are looking at our back office and ensuring that not just on the engineering and employee productivity side, but also in things like our risk decisions. We see billions and billions of risk decisions that often, to be honest, we're very manual in the past. We're now leveraging AI to be able to understand globally what are the nature of these risk decisions and how do we automate these across both risk models as well as even just ensuring that customers get the right response at the right time in an automated fashion.
Yes. And then with respect to scaling consumer and nontransaction OpEx, we increased our marketing spend in 2024 by about $250 million, and we were very focused around really reinvigorating the brand and then really reinforcing the consumer value prop as we did it, And as we get into 2025, we will be increasing marketing slightly. Our total OpEx guide is up low single digits.
I would say marketing is up low single digits plus in terms of how we look at it, heavily weighted towards the second quarter as we really look at the profile throughout the year. It's been very targeted. And we've seen the results of that starting to come true with consumer MAAs up sequentially. We saw debit card MAAs up sequentially. We're seeing P2P improvement. So there's been a nice kind of flow through of what we've seen.
We've got some CAC, or customer acquisition cost, budgeted for this year but we really haven't started deploying that yet. We've been testing that. But the full suite will be things that we'll be looking to deploy as we get into 2025.
The next question comes from Harshita Rawat with Bernstein.
I want to follow up on Fastlane. You talked about the new merchant wins. Now that the holiday season is over, and the merchants are more open to integrating new solutions, how are those conversations going with large merchants especially because there's also some competitive dynamics there? And then, Alex, you also talked about 75% of Fastlane consumers kind of being new or dormant PayPal users. Can you just remind us about how you're converting those into PayPal users?
Yes. Thanks, Harshita. So you're exactly right. Our -- so guest checkout, just as a reminder, for Fastlane, this is really 6 months in the market. So it's still brand new. There are other guest checkout experiences that have been in the market for -- some for many years, one almost up to a decade. And so we're the new entrant, but we're delivering the best converting experience for our merchants. And that's what gets us really excited.
As we start to scale our Fastlane experience, we are still continuing to deliver double-digit lift in conversion for our merchants. And so our focus -- our go-to-market focus has been really on those enterprise merchants, on the largest ones. I mentioned a few on the call, NBCUniversal, Roku, StockX. And this has been obviously set up conversations throughout the holiday season as many of them weren't ready to actually do the integration. But now as we get into '25, it's full steam ahead.
Now just as a reminder, as we have these conversations, they are very excited about the conversion uplift. Guest checkout is also not something that they've spent a lot of time playing around with. So it's not like these merchants have a scrum team sitting there ready to play around with guest checkout. So they're working on their road maps. So the conversations have been great. It's now about getting implementation done. And I do think this will take a number of quarters for us to really scale this out across the merchant base. But the conversations are exciting, merchants are on board, and I think we'll continue to see this scale.
To your question on what we're seeing from a customer perspective, again, we -- 25% of Fastlane users that are coming in are new to PayPal. 50% were dormant in the last 12 months. And again, these are customers that are opting into Fastlane at 45% clip. So we're continuing to see customers choosing to, once they go into that guest checkout experience, actually opt into the Fastlane experience.
To us, this is just scratching the surface of being able to now reinvigorate them. So we started to really ramp up our marketing efforts. It's still early, and it's through both off-line channels, things like e-mail, testing notifications as well as online through the app to find incentives and reasons for these consumers to be able to reengage in the PayPal experience. The good news is it's sort of a second bite at the apple, right? They've gone past the branded experience. They've gone through a guest checkout experience. We've accelerated it for them and for merchants. We've created that conversion.
And now we can go and remind those consumers what a great experience a cash-back offer, a package tracking offer, a full end-to-end experience they could have gotten through a branded checkout. And we're going to continue to lean into that to reignite those users into being more consistent active users on PayPal.
The last thing just that I'd say as context is our PayPal users that are online don't use PayPal for every single one of their purchases. This is why the omnichannel habituation and just continuing to drive up not just our MAAs but those power users that I talked about that are really using us for all of their purchases is so important to us. Because we still have users that love PayPal, have an active app, use us but still use us for just a fraction. And so our ability, even through the Fastlane experience to gather those users up and remind them of the benefits of actually going through the branded experience of PayPal is so important and will ultimately drive to to our branded checkout growth.
Our last question comes from the line of Trevor Williams with Jefferies. .
I wanted to go back to Venmo. Jamie, it sounded like next to branded, it was one of the biggest contributors to TM dollar growth in Q4. You guys have given some good stats on attach rate and user growth across the different buckets. But it would be helpful if you could get an updated transaction margin dollar number for Venmo. And then anything more just on the current mix of revenue across the different buckets, debit card, Pay with Venmo, instant transfer? And then just how you're thinking about Venmo's contribution to transaction margin dollar growth in '25.
Yes. So Venmo has been a growing contributor to transaction margin dollar growth. Certainly in '24, it was behind interest branded checkout, Braintree, et cetera. As we get into 2025, it continues to grow in terms of its impact on TM, which is really great to see. When you look at -- our Venmo TPV was up 10% in the fourth quarter. Our debit card TPV was up 40%. Pay with Venmo was up 50%. P2P was up 8%.
So we're really excited about not only the core P2P continued strength but also just the beginnings of the investments we're making in debit and Pay with Venmo which, when we really dig into this, which is really our new Venmo leaders' target in 2025, we're excited about the growth we can drive. When we get to Investor Day at the end of February, we'll unpack this with a lot more detail, and we're looking forward to talking to you all there.
Alex, any final thoughts?
No, just a huge thank you to all of you, and thanks, Steve. I look forward to seeing many of you later this month at our Investor Day on February 25, where we will share our vision for the future and dive into our strategies for medium and long-term growth and what it's going to take to get us there. So take care, everyone.
This concludes today's conference. Thank you for participating. You may now disconnect.