Full transcript of the earnings call with management discussion and Q&A session.
Operator
Good morning. My name is Sarah, 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 2024. [Operator Instructions] I would now like to introduce your host for today's call, Ryan Wallace, Head of Investor Relations. Please go ahead.
Ryan Wallace
Good morning. Thank you for joining PayPal's First Quarter 2024 Earnings Conference Call. Joining me today is Alex Chriss, our President and CEO; and Jamie Miller, our CFO. We're providing a slide presentation to accompany our commentary. This conference call is also being webcast. 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. Our remarks today will include forward-looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. 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 report on Form 10-Q filed with the SEC and available on our website. All information in this presentation is as of today's date. We expressly disclaim any obligation to update this information. And with that, let me turn the call over to Alex.
James Chriss
Thank you, Ryan, and thank you to everyone for joining us this morning. This quarter, we delivered a solid set of results, and the year is off to a good start. Our new leadership team is operating well together, and we are really starting to get our arms around the business. You will see in our numbers and the read-through that our efforts are beginning to make a difference. We also see substantial need for continued retooling of the company, how we work with our customers and how we execute. We are encouraged by the progress to date but remain realistic that we still have a lot of work to do and a lot of opportunity to drive profitable growth ahead of us. What we said at the start of the year still holds. This is a transition year where we are focused on execution and making critical choices that will set the business up for long-term success. We have a plan that will return this company to where it needs to be and remain focused on execution to get there. We see clear opportunities for operational improvements across our large enterprise, small business and consumer businesses, including Venmo, and in driving more efficiency across the organization. But it will take time to prudently drive a meaningful and sustainable transformation. In the first quarter, we delivered 10% revenue growth on a currency-neutral basis on $404 billion in total payment volume. Transaction margin dollar performance grew 4%, which was better than expected, thanks in part to actions we took. Our non-GAAP earnings per share increased 27% year-over-year. Our results are stronger than we expected earlier in the year, and they require some unpacking to put them in the context of the full year. What I want you to understand is what we are focused on, namely, making surgical changes to the way we are running the company. Some of these will have an immediate impact and others will take longer to bear fruit. As such, we need to maintain flexibility throughout this year to make important decisions to drive the long-term growth of the business. This includes decisions about where we prioritize and reinvest, how we go to market and actions that can be taken to sharpen our value proposition for consumers and merchants. With that in mind, we do now expect full year EPS to grow mid- to high single digits, which is partially driven by our better-than-expected start to the year. Jamie will take you through our Q1 results, contours of the year and updated guidance in just a few moments. Let me first spend some time providing an update on our execution against our customer strategies and investment priorities and detail progress on our efforts to operate more efficiently. Turning to our 3 customer groups. We continue to make steady progress on strengthening our strategic positioning and product portfolio. For large enterprises, we continue to focus on accelerating growth in branded checkout and driving the profitability of our business. We are executing to get upgrades to our core branded checkout experiences to the market. We continue to make good progress in our early testing of Fastlane by PayPal with a focused group of merchants. And data from those alpha merchants show that returning Fastlane users are converting at nearly 80%. We are just getting started and already creating a low double-digit lift in guest checkout conversion for participating merchants. The results so far are encouraging as incremental conversion improves our merchants' growth and profits. Demand for this product is promising, and we expect to make Fastlane generally available in the U.S. in the second half of the year. Additionally, we are continuing to focus on making it even easier to pay with PayPal by removing friction from the checkout process. In the coming months, we will continue to move to more passwordless authentication processes, like biometrics, and launch a redesigned mobile checkout experience, which we believe will result in higher conversion rates. We've begun active discussions with our largest enterprise customers to focus on commercial outcomes that reflect the true value of our payments processing platform and the services we provide. As we speak, many of our top merchants are gathered in California for our annual Commerce 360 Customer Conference, where our teams will go deep on the innovations we plan to bring to market this year and the value they can provide. We are also in the early stages of evaluating the overall dynamics and pipeline of our top 10,000 merchant accounts. As we evaluate our programs, we see clear opportunities to price to value, not only with our PSP processing, but especially with our value-added services that we already provide, services such as payouts, fraud prevention and processing orchestration. This process will take time, but we have a focused game plan, and we are already having fruitful conversations that are helping merchants understand the additional value they can unlock by strengthening their relationship with us, including through our value-added services. For example, DraftKings recently went live with our fraud management solution, Fraud Protection Advanced, which combines our intelligence with advanced machine learning and analytics to help businesses protect themselves from ever-evolving fraud threats. This is an example of a best-in-class offering and a key differentiator against our competitors. It also showcases our ability to leverage AI to drive customer benefit and is an area where we can price to the value we provide. For small- and medium-sized businesses, the launch of our PayPal Complete Payments Platform has been gaining momentum over the past couple of quarters. We've made good progress in expanding PPCP's geographic reach to now more than 34 countries. In the first quarter, we expanded the platform to Canada, the U.K. and more than 20 European markets. We also added new features to PPCP in Australia, Germany and the U.S. in recent months. Additionally, we are seeing positive response to our new low- and no-code tools for merchants and developers to integrate PPCP, which we launched in March. As of the end of the first quarter, approximately 7% of our SMB volume is already on PayPal Complete Payments, with our team focused on distribution through partners that can accelerate adoption to the largest number of customers. Our efforts here are important because PPCP ensures merchants have our latest branded checkout integration, which will include Fastlane, so that consumers have a best-in-class checkout experience wherever they shop, and merchants will benefit from higher conversion. On average, merchants who adopt PPCP use approximately 4 PayPal products, which deepens the relationship and reduces churn. This translates to an average revenue per account for our PPCP full-stack merchant that is nearly 2x that of an SMB on a legacy integration. As you all know, I have a deep passion for helping small businesses succeed. Frankly, this is an area where PayPal took its eye off the ball. Over the years, we've deprecated products and made pricing decisions that negatively affected our market positioning. Despite that, we still have the largest population of SMBs anywhere, who are using our products and eager for us to do more for them. This is an area where we are investing to correct our course. We are here to serve and win the small business market. On the consumer front, the PayPal app is at the center of our strategy to leverage the power of our data to create more value for our customers and unlock new sources of revenue and margin expansion opportunities. In the first quarter, we revamped the PayPal app with a new look and feel and introduced enhancements to our rewards program to enable shoppers to get the most out of their money while increasing conversion for merchants. Additionally, we began testing a comprehensive rewards-focused life cycle marketing program. When tested with approximately 20% of our PayPal app users, we saw it drive a nearly 7% increase in weekly app logins and 4% increase in transaction margin per user. Introducing consumers to new products, like our debit card that can help maximize the value they receive from PayPal, is a major focus. The enhancements our team made to our onboarding flow enabled a 38% increase in debit card first-time users during the first quarter. On average, a customer who adopts the PayPal debit card is more engaged, generating a 2x lift to transaction activity and a nearly 20% increase to average revenue per account compared to users who primarily use checkout. Approximately 4% of our active PayPal consumer accounts in the U.S. have a debit card. So while we have a lot more to do, this work is meaningful to the economics of our business. In the quarter, we onboarded BigCommerce and WooCommerce to our package tracking solution. In the 12 months since launch, we've had approximately 7 million active accounts use package tracking. This is a key pillar in our post-purchase strategy. Package tracking not only allows consumers to track their shipments within the PayPal app, but will also enable us to make personalized purchase recommendations and present relevant offers through the app and our AI-powered Smart Receipts. We believe these innovations will drive engagement with the PayPal app and incentivize future branded checkout activity. For Venmo, we are focused on giving our customers more ways to immediately use their Venmo debit card in person with Apple Pay and Google Pay, which you will see in the market in the coming months. In the first quarter, we saw a 21% year-over-year increase in consumers using our Venmo debit card. Remember, Venmo debit cardholders are among the most engaged accounts and on average drives 6x the incremental revenue than that of a P2P-only customer. Simultaneously, we are making it easier for consumers to use their Venmo balance when making payments or sending money to friends. In the first quarter, balance-funded P2P senders grew by 17%, which contributed to our overall transaction margin dollar growth in the quarter. Our leadership team is continuing to go through our business from top to bottom, understanding where we can operate more efficiently and invest in the innovation that will offer the greatest impact for our customers and PayPal. This is a mindset shift we are driving throughout the entire organization. Investing for durable growth backed by a clear payback path and time horizon remains a top priority. Investing in branded checkout and better serving our small business customers are 2 focus areas you heard me talk about today. We are also actively evaluating and greenlighting new investments to accelerate future growth that support and strengthen our strategic priorities. A good example of this is our remittance business, Xoom, which has stagnated while similar services have gained share. This business has been on a negative revenue trajectory due to a lack of prioritization and clarity about its value proposition. That is now changing. We are executing the right product refinements bundled with an enhanced and more customizable pricing model intended to promote growth over the long run. We plan to reduce the cost of cross-border transfers and provide consumers the option to eliminate transaction fees altogether when funding with our PYUSD stablecoin. We are activating those plans, and we expect to see tangible progress throughout 2024 and beyond. The key takeaway here is that we are in the process of assessing a handful of areas of investment where we believe there are compelling unit economics and market upside. These may mean that we will make decisions to invest in 2024 where we believe these investments will ultimately contribute to the sustainable and profitable growth of the company. At the same time, we must maintain our focus. We are continuing to evaluate the markets we operate in and the products we offer. Where we see areas to improve focus and prioritization, we will take action and update you accordingly. Finally, a few words on our continued efforts to drive operational efficiency and productivity across PayPal. We are instilling a rigorous cost/benefit discipline throughout the company and leaving no stone unturned when it comes to reducing unproductive costs. We are also investing in automation that will help answer our customers' frequently asked questions, simplify the integration process for our merchants and enable our team to deploy solutions more quickly. As mentioned on the last earnings call, we have started reporting stock-based compensation as part of our non-GAAP metrics beginning this quarter. In addition to our annual incentive plan, shifting to cash payment from stock, we have also better aligned our incentive programs to performance, particularly focusing on transaction margin and non-GAAP operating income growth. We will continue to focus on a pay-for-performance culture that appropriately aligns pay with results. I'll conclude by thanking the PayPal team for continuing to innovate and serve our customers. While we are still in the early innings of driving a meaningful and comprehensive transformation of PayPal to deliver the sustainable and high-quality growth we are aiming for, our first quarter results are an encouraging indication of what our team's renewed strategic focus and persistent execution can achieve. We will continue to update you on our execution throughout the year and be transparent about our progress. I am confident that we are taking the right steps to build long-term profitable growth. With that, I'll hand it over to Jamie to take you through our first quarter results.
Jamie Miller
Thanks, Alex. Good morning, everyone. We had a solid start to the year with first quarter results that were above our expectations. As Alex mentioned, it's still early in the company's transformation. We are getting deeper in understanding both our challenges and our opportunities with much greater clarity. Our goal for 2024 is to foundationally set up the business for the future by making key decisions and aligning our investment path for growth. And to do so, we are laser-focused on strategic analysis and decision-making, driving innovation back into the business and executing with excellence. While it will take time for our efforts to sustainably flow through results, the speed at which the team is moving is encouraging, and we are making steady progress. Let me start with a summary of our financial performance. As a reminder, our non-GAAP results now include the impact of stock-based compensation expense and related payroll taxes. This change is intended to enhance transparency, operating discipline and align our performance measures to how many investors already evaluate our business. Now moving to our results. As Alex mentioned, in the first quarter, revenue increased 9% at spot and 10% on a currency-neutral basis. Transaction margin dollars grew 4% year-over-year, improving in growth by more than 400 basis points from the fourth quarter. I'll walk through the drivers of that growth in a few minutes and provide context on the shape of the year, including tailwinds that we expect to be more pronounced in the first half compared to the second half. Under our updated non-GAAP methodology, earnings per share were $1.08, representing 27% year-over-year growth. Under the company's prior non-GAAP methodology, which excluded the impact of stock-based compensation, earnings per share would have increased approximately 20% to $1.40, above our guidance for mid-single-digit growth on a comparable basis. Relative to our outlook, higher earnings per share were driven by a combination of factors, including better-than-expected transaction margin dollars, ongoing expense discipline, the timing of certain investment in marketing spend and interest income. Now I'll walk through some key operating metrics that support those results. We ended the first quarter with 427 million total active accounts and 220 million monthly active accounts. Total active accounts increased by nearly 2 million from the fourth quarter and included growth in PayPal merchant and consumer accounts in addition to other products. We were encouraged to see total active accounts inflect positively in the quarter, and we remain focused on driving deeper relationships and more activity across our customer base. Monthly active accounts continued to show steady progress, up 2% year-over-year to 220 million with contribution from both PayPal and Venmo. Transactions per active account, which is a trailing 12-month number, was 60 in the first quarter, up 13%. Excluding PSP processing, which is primarily Braintree, transactions per active account grew 7%. Moving to volume growth. In the first quarter, TPV grew 14% on a spot and currency-neutral basis to $403.9 billion. U.S. TPV grew 12%. International TPV grew 17% on a currency-neutral basis primarily driven by strength in Continental Europe and improvement in Asia. Global branded checkout growth accelerated to 7% on a currency-neutral basis from 5% in the fourth quarter. The first quarter included about a 1 point benefit from leap day as well as ongoing benefits from the growth of global marketplaces. Within branded checkout, large enterprise and international markets were the biggest contributors to growth. We remain laser-focused on driving deeper adoption of our best-in-class solutions with small- and medium-sized businesses and improving mobile experience, which are critical, particularly in markets like the U.S. and the U.K. PSP processing volume grew 26% in the quarter driven by continued momentum from Braintree compared to 29% in the fourth quarter. Conversations with merchants have been encouraging as we shift our focus to a more disciplined go-to-market and renewal process that emphasizes a focus on profitable growth. Merchants recognize the product and performance improvements we have already started to make and are excited about the pipeline of upcoming innovation. As I noted earlier, revenue in the first quarter increased 9% at spot and 10% on a currency-neutral basis to $7.7 billion. Transaction revenue grew 11% on a spot basis to $7 billion driven by Braintree and branded checkout. Other value-added services revenue in the quarter declined 2% on a spot basis to $665 million. Within other value-added services, interest on customer balances continued to be a meaningful tailwind. Our credit business performed relatively in line with our expectations with revenue lower because of 2 main factors. First, we are carrying lower merchant receivables after tightening originations last year. Second, we have had lower revenue share on our off-balance sheet U.S. consumer revolving credit portfolio due to ongoing normalization of loss rates. Transaction take rate declined 5 basis points to 1.74% driven primarily by lower foreign exchange fees and lower gains from foreign currency hedges. In addition, mix shift to large merchants continued to impact our branded checkout take rate. Transaction margin dollars increased 4% in the first quarter. Higher interest on customer balances, branded checkout, better transaction loss performance and lower credit losses were the largest contributors to growth. While the performance of the core business has been relatively consistent, we expect that a few of these tailwinds are likely to be less meaningful as we move through the year. Specifically, we expect to see lower year-over-year benefit from interest on customer balances and lower year-over-year improvement on transaction and loan loss performance. Non-transaction-related operating expenses declined 2% as we continue to actively manage our cost structure while reinvesting into key strategic initiatives. Part of the decline in operating expenses is a result of certain corporate and marketing investments deferred to the second half as well as lower stock-based compensation. Non-GAAP operating income grew 15% in the quarter to $1.4 billion, and non-GAAP operating margin expanded 84 basis points to 18.2%. PayPal generated $1.8 billion in free cash flow in the first quarter or $1.9 billion, excluding the impact of held-for-sale accounting related to our European Buy Now, Pay Later externalization. In the quarter, we completed $1.5 billion in share repurchases, bringing share repurchases over the past 12 months to approximately $5.1 billion. We ended the quarter with cash, cash equivalents and investments of $17.7 billion and debt of $11 billion. I'll now move to our second quarter and 2024 guidance. Consistent with the approach we shared in February, we will continue to provide revenue guidance 1 quarter at a time. For the second quarter, we expect revenue to increase approximately 6.5% at spot and 7% on a currency-neutral basis. In addition, we expect non-GAAP earnings per share to increase by a low double-digit percentage. For the full year, we continue to plan for a relatively consistent macroeconomic and consumer spending environment. With respect to earnings per share, we now expect 2024 non-GAAP EPS to grow by a mid- to high single-digit percentage. As Alex said earlier, we are in a transition year, and we do not expect that our quarterly progression will be linear. To help bridge this outlook compared to our prior guidance for approximately flat non-GAAP EPS, there are 2 main factors I would point you to. First, our inclusion of stock-based compensation expense within non-GAAP results is expected to benefit EPS growth by approximately 3 percentage points this year. Second, we saw meaningful outperformance in the first quarter relative to our plans. We intend to reinvest a portion of this performance back into the business. We expect earnings growth to be more muted in the second half of the year due primarily to less benefit from interest income on customer balances, normalization in transaction and loan loss performance as we progress through the year and the expected timing of investment actions. Underpinning our outlook, we now expect transaction margin dollars to be slightly positive for the full year. We expect non-transaction operating expenses to increase slightly. Embedded within this outlook is the flexibility to make key strategic decisions to invest and reinvigorate profitable growth within components of the portfolio and accelerate go-to-market efforts. For the full year, we expect other value-added services revenue to be roughly flat year-over-year. This excludes any potential impact from the CFPB late fee regulation, given pending litigation across the banking industry and uncertainty on both timing and implementation. As a company, we have already taken steps to mitigate the future impact, though these take time to fully take hold. Consistent with the approach we shared last quarter, our guidance includes minimal impact from the new innovations rolling out this year. Our focus is on execution as we begin moving from test and pilot phases into launch. We continue to expect free cash flow for 2024 to be approximately $5 billion and for at least $5 billion in share buybacks. In closing, 2024 is off to a solid start as we drive significant change across the company. We have clear opportunities to lean in further. We are doing the hard work now to position PayPal for profitable growth in the years ahead, and it has been incredibly energizing to see the team's commitment to this goal. With that, I'll now hand it back to the operator to begin Q&A.
Operator
[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang with JPMorgan.
Tien-Tsin Huang
Just I wanted to ask on transaction margin dollars, if you don't mind, the acceleration there. Maybe can you give us a little bit more detail on the growth across the main businesses, branded checkout, unbranded and what we've been calling other? And of course, on the other side, love to hear if there's any change in thinking there on the strategy to reclaim growth or even divest some of those assets.
James Chriss
Yes. Thank you, Tien-Tsin. Let me hand it over to Jamie to walk you through transaction margin, and then I'll take the more strategic piece on other and how we think about the year.
Jamie Miller
I'll just walk you through the drivers for transaction margin growth during the quarter. We were happy with the positive growth progression. I mentioned in my prepared remarks, we've got a lot underway to really position the company for positive TM growth over time. In the quarter, just to walk it a little bit, interest income on customer balances was the highest contributor. Branded checkout continued to grow profitably and was a nice contributor to our growth this quarter. We did benefit from leap day, but we also benefited from strength in large enterprise and international. We've been very focused this year on PSP profitability, and that will ramp over time, but it wasn't a meaningful contributor this quarter. And we just had small but I'd say steady ongoing product improvements in Venmo and P2P. So we saw some shifting there and better transaction and credit loss performance. And then lastly, to the last point of your question, we did see a smaller drag from the other smaller parts of the portfolio. I don't know, Alex, do you want to talk through that a little bit.
James Chriss
Yes. Let me just sort of take a step back, Tien-Tsin, and talk about how we've been thinking about the year. You've heard us talk about this as a transition year. The way we've really been focusing the team is on sort of 3 different components to make sure that we're set up well for profitable growth into the future. The first is accelerating innovation and ensuring that we've got best-in-class innovation, whether that's on the consumer side and ensuring that our customers have a frictionless, incredible experience in checkout; to an unbranded side where we allow our merchants to have, again, best processing available. So really accelerating the velocity of our innovation. The second is adoption and ensuring that once that innovation is actually in the market, that our consumers are using it, that our merchants are onboarding to our latest and greatest integrations. I'll give you an example. We talked about in the last call the opportunity for debit card engagement. We changed the onboarding flow inside of the PayPal app this past quarter and saw a 69% higher debit card engagement just by changing that flow. So a big focus on the team on not just delivering our innovation but actually delivering the adoption. And then lastly, as you mentioned, cleaning up some of our underperforming services. I mentioned Xoom on the call. That is a business that we looked at very hard. It's been underperforming for a couple of years now. And we wanted to make a decision on, is this an asset that's strategic to the business that should be a profitable grower for us, or not? And when we looked at it, we realized that there were just opportunities where we had priced ourselves out of the market in a number of different corridors that we could make strategic decisions on and actually make this a profitable, growing business. And so that's just an example. We're going top to bottom throughout the organization. And there will be some businesses or markets that don't meet that cut, and we'll let you know when we make those decisions. And there will be other ones that, with focus and execution, we'll turn around.
Operator
Your next question comes from the line of Darrin Peller with Wolfe Research.
Darrin Peller
I think it would be helpful, if you don't mind, just first revisiting some of the initiatives around unbranded and your conviction and the timing around the impact from them on -- perhaps on transaction margin. But maybe even more specifically, if you've had discussions with Braintree merchants around pricing, and I think you touched on this in the prepared remarks, but more pricing to value than pricing to win, how are those conversations going? And I guess, Alex, market-wide, when we think about the appreciation of the value-added services and differentiator for PayPal's 2-sided network, how has that been resonating in the market lately?
James Chriss
Yes. Thank you, Darrin. So again, just to sort of paint the high picture on unbranded, this is an important segment for us, both on -- for enterprise and for small business. We have to nail the basics, right? So our customers are looking for the best auth rates, the best uptime, the best availability, the best reliability. And those are things that we are now providing. And I think over the last few years, as we've been building the service, whether it's Braintree or now with PPCP, we've been investing in that and establishing a beachhead for our product across the market. In doing so, though, we also have been building value-added services that, to be totally transparent, we haven't been able to price to value or we haven't been able to ensure that we're engaged with our customers in a real end-to-end strategic conversation. That's changing now. And so to your question, we're having great conversations with both enterprise and small business merchants around our end-to-end solutions, the value-added services that we can now bring to bear, really more strategic conversations, as you mentioned, around the 2-sided network, both on unbranded, on branded, and then even things like our new marketing and ad platform in the mix. We're now having really deep conversations with our merchants that, again, are strategic for them and extract the value that -- of the services that we're providing. So very encouraged with these conversations. Obviously, it's going to take time. Especially for some of the largest merchants, it just takes time for them to roll out and adopt. But our teams right now are, as I mentioned on the call, in L.A. with our Customer 360 conference and showing them all the innovations and having really, really good conversations. So encouraged with the start. It's just going to take time throughout the year.
Operator
Your next question comes from the line of Timothy Chiodo with UBS.
Timothy Chiodo
I wanted to [indiscernible], 2 parts really, one around mechanics, one around the uplift. On the mechanics, there might be 2 ways to go about this. One is to make it a part of your unbranded offering, and it could be either part of your negotiations on pricing, it could be a separate fee. But any way you look at it in that scenario, would be more of an, if Fastlane, then Braintree does the processing. But the alternative way would for it to be more of an as-a-service and available on a processor-agnostic basis. Wanted to see, first, if you can give us color on which routes you might be able to take, or maybe both. And then lastly, on the uplift, which is if we think about the range of net take rates with unbranded at the low end and branded at the high end, where do you think Fastlane could eventually reside on that spectrum?
James Chriss
Yes. Thanks, Tim. Let me take the first part and see if Jamie wants to add anything in. We are really excited about Fastlane as it now gets to market. We are live with a handful of early partners, and the results just continue to impress. And just as a reminder, we're now enabling 80% conversion rate for returning users through our guest checkout flow. What's even more exciting, that we've now been able to start to see with these early merchants, is that we're actually seeing unrecognized users, so these are non-PayPal users, opting in to Fastlane at a 40% rate. That just shows the power of our brand, and it shows the power of what PayPal can be. And it goes a little bit to your question around how we think about pricing it and how we think about go-to-market because it's even beyond just an unbranded processing element. I don't want to unveil exactly how our go-to-market will work. But that data point shows that this is not just within a PayPal ecosystem. This is allowing us to actually take the brand that we've established over 25 years and leverage that for our merchants to deliver incredible checkout conversion rate for the 60% of the market that continues to go through a guest checkout experience. So we're really encouraged by the early signs there. In terms of rollout and how we think about it, obviously, on the PPCP side, as we continue to deliver Fastlane to that platform through many of our platform partners, it becomes easy for our small businesses to, one click, turn that on. So that will be a big part of our rollout. And then having good merchant conversations as well on the large enterprise side. And again, those are kicking off really in earnest this week at our C360 conference. So again, the last thing I'd say just on pricing, and then, Jamie, see if you want to add anything, is because we've focused this year on a transition year, we may get very aggressive on the pricing side when it comes to Fastlane for 2024 because we want to drive adoption. We think this is the best in the market innovation that all merchants should have access to. And as they think about winning this shopping season, our encouragement is improve the onboarding for them, create low-code, no-code opportunities for them to get up and running as fast as possible so that they can win this season and really prove to themselves that conversion improvement. And rest assured, we'll be pricing to value over time to ensure that we get the right value from that. Jamie, anything you'd add?
Jamie Miller
No, I think you've said it all. I really think Fastlane reinforces our holistic value prop, both for branded and for unbranded. And the focus on merchant checkout conversion, and that being at our core, I think, drives a strong value prop, and it will support strong pricing over time.
James Chriss
The only thing that I would -- just last point is this conversion rate with Fastlane, what's so exciting to me is not just the 40% that's coming in, it's unrecognized users leveraging our brand and the 80% conversion rate of guest checkout for returning users. But this is just early days. This is with a handful of merchants. This is a network effect. As we gain more and more users coming through, as these users now become returning users over and over again, those rates should continue to improve. And so this is already an order of magnitude better than anything else in the market. And with the network effect and scale that we have, we just expect it to continue to get better.
Operator
Your next question comes from the line of Ramsey El-Assal with Barclays.
Ramsey El-Assal
Alex, could you comment on the European Commission ruling to open up the iPhone NFC hardware on the handset, and whether you see that as a competitive opening for PayPal in Europe? I know there's some rumblings in the U.S. as well about that type of a move. I mean, how ready from a product perspective are you to take advantage of a more open NFC environment?
James Chriss
Yes. Thank you for the question, Ramsey. So let me set the context so that it's clear how we think about it. First, we must play in an omnichannel world. We have established ourselves as the leader in the market in online. And our customers love us and use us globally for online checkout. But they are demanding an off-line opportunity, an omnichannel opportunity, and to get the value that we're able to provide as we start to deliver not only the basics of our security and flexibility, but also as our rewards platform continues to improve, we want to be able to deliver a PayPal service for customers everywhere, anytime, every purchase. So we will be playing in an omnichannel environment. That -- where there are locations where NFC opens up, that obviously becomes a very easy opportunity for us to provide a wallet in an Android or iPhone operating system, and we will be ready. If there are environments where it's not available, we will still operate in an omnichannel. So omnichannel is a strategic initiative for us, it's something that is customer-backed and delivers an incredible PayPal experience, again, for every purchase and every checkout. And we'll take advantage of whatever market, whatever features and functionality we have in whatever market we play in.
Operator
Your next question comes from the line of Jason Kupferberg with Bank of America.
Jason Kupferberg
I just had a 2-part question. The first, just following up on the transaction profit dollar growth. I know you're now expecting slightly positive for the year. I guess that would seem to imply maybe a little bit of deceleration from the Q1 levels, even though the second half comps are a little easier. So just wanted to get a sense of whether that's conservatism or just some normalization of things like transaction and loan loss that helped you in Q1. And then the second part is just is there any change in your full year expectations for branded payment volume growth?
Jamie Miller
So just to walk through a little bit of the first half, second half dynamics on transaction margin dollars. As I talked about before and you noted, I mean, Q1 in particular benefited from a few tailwinds. And we do expect those will be less meaningful as we move throughout the year. First of all, the growth in our interest income on customer balances, it was the largest contributor. But when you start to look at later in the year, the comps just get more challenging. Rates are rising in the latter half of last year. We also saw improvement in transaction loss and credit loss in the first quarter. Transaction loss in particular may not sustain -- or may not be as material as we move throughout the year. And we saw, as you pointed out, a meaningful benefit in loan losses in the first quarter, and we don't expect that to continue either. So I'd say those few things are some of the dynamics. And then our initiatives and some of the new innovation that Alex talked about, it will take time to ramp. So right now, we're focused on execution. We want to keep expectations measured until we see really steady execution results.
James Chriss
And just to underline Jamie's point, we have not put -- or we have put limited upside to this innovation that we've talked about in these expectations. And so again, this is about us having the flexibility, us ensuring that we take the right time and do the right thing by the customers as well as building the long term. But those are not built in to the rest of the year.
Jamie Miller
Yes. And you asked about branded as well. And when we look at that, we had a nice quarter in terms of TPV and revenue. It was a healthy contributor to our transaction margin dollars. We did have some benefit this quarter from leap day. But by and large, we expect branded revenue trends to be pretty consistent with last year as we look at that. And I guess the other comment I might make is that, when you think about take rate for us, we saw a decent drop last year. We do expect take rate will come down again this year, but not nearly to the same extent. And a little bit of that as it comes through on the branded trend line is just that we're seeing a little bit of mixing towards large enterprise from SMB. And that's impacting the take rate side.
Operator
Your next question comes from the line of Mike Ng with Goldman Sachs.
Michael Ng
Just 2 for me. First, I was just wondering if you could just talk a little bit more about the drags on the smaller part of -- from the smaller part of the portfolio and transaction margin dollars. When does that kind of work itself out of the system? And then related to transaction margin dollar growth, you talked about balance-funded Venmo transactions contributing to growth in the quarter. Could you expand a little bit on that? Do you see that scaling over the next couple of years? And what are the opportunities to improve card attach for Venmo users?
Jamie Miller
Great. On the smaller parts of the portfolio, I guess what I'd say at a macro level, we had seen a pretty significant drag on that last year. It is coming through this year at a smaller rate. I mean, part of these are products we've deprecated. Some of these are, frankly, acquisitions that we just haven't invested in. And as Alex mentioned, we're going through a process of really looking hard at these. Candidly, some are just in decline, but the declines are smaller. And some, we're investing in or making decisions to really put in more in maintenance mode, which is really shifting the profile going forward. But it will be smaller this year, and it will take a few years for that to burn off.
James Chriss
Yes. Let me talk about -- up-level and talk about Venmo for a minute and the opportunity there. So again, on the positive side, we have the leading P2P platform with incredible customer base with disposable income 22% higher than the U.S. average, 60 million monthly active users and 90 million 12-month actives. So this is an incredible platform for us to work at. As we talked about in previous calls, and I'll reiterate here, I'm dissatisfied in how we've really thought about monetizing the platform and really thought about delivering, in many ways, just customer experiences that they're looking for, right? Customers of Venmo are looking for dollars and looking for an alternative to traditional mechanisms when dollars are flowing in. And they want to be able to use Venmo for all of their expenses. Just to give you -- put some numbers behind it. There's $18 billion of net new funds that flow into the platform of Venmo every single month. 80% of those dollars leave within 10 days. That is just unacceptable. And so our ability to provide the products and services that our customers need when those dollars come in, whether that's improving debit card penetration, which you've heard as a focus, and you've heard we already, in some of our onboarding flows, are starting to make significant improvements on; or providing other opportunities for money in or money out opportunities and access to capital for our Venmo users. This is just a clear opportunity and a clear focus area for us. So again, early days. The team is focused on it. Hopefully, you hear sort of a reinvigoration in my voice of what Venmo can be and the opportunity ahead of us. But very, very excited about where we're taking it.
Operator
Your next question comes from the line of Bryan Keane with Deutsche Bank.
Bryan Keane
Solid first quarter results here. My question is just still more on the big picture. The naysayers on PayPal would say the company is structurally challenged with the rise of payment methods like Apple Pay. Alex, I know you've been at PayPal now for a little over 6 months. What do you think the naysayers are missing on the competitive advantages PayPal still has in the market? In particular to grow branded?
James Chriss
Thank you, Bryan. Thanks for the question. So a couple of thoughts here that I think people are maybe not appreciating enough. The first is 60% of the market is still what I would consider to be nonconsumption. 60% of the market still does not use any mark. So that's what we're playing for. We have the best brand. We have the best products and services and the best ability to be able to deliver. And with products like Fastlane not only delivering a reboarding opportunity for our customers, but that stat that I put in earlier, around 40% of unrecognized customers coming through and taking a Fastlane experience, now gives us an opportunity to be able to remarket to them and turn them into PayPal customers. So step one, 60% of the market is nonconsumption, and I think we've got a leading opportunity there. On the other 40%, we're still the leading player. And to be, again, transparent and I've said this before, we have not delivered the innovation and the experience that I would expect and that our customers expect. We are doing that now. Improvement in the app, an improvement in the branded experience, reducing latency by 50%. Investing in passwordless opportunities and passkeys will improve the conversion rate and improve the experience. And then creating value-added opportunities and an increased value proposition for our consumers with rewards. I think we're the only player out there at the scale that we have to provide that end-to-end experience. And again, we provide everything for our customers. It's rewards. It's Buy Now, Pay Later. It's the debit experience. And back to what I mentioned earlier on the call, with an omnichannel play now, PayPal can be the solution that you can use anytime, anywhere. So our ability to now start to play in an offline world and take the same brand and the same experience to every purchase, I think, is something that, again, gets me excited. But we've got to prove it, and we've got to continue to execute and create great experiences in the market for our customers.
Bryan Keane
That's great. And just had one follow-up. We are getting a few questions on the pending CFPB regulation on late fees. Any impact on PayPal from CFPB caps on late fees?
Jamie Miller
So first, while PayPal is not directly impacted by that regulation, we are indirectly impacted through our revenue share with our consumer credit partner. There's a lot of uncertainty right now around both timing and implementation of that. And as I mentioned before, our guide excludes the impact of that, just given the uncertainty. The industry expects that, if implemented, the impact would be largely offset over time. And we have been very focused on mitigation. We have actions underway. In -- but really, in any scenario, it takes time for those offsets to fully set in. But I guess what I'd say in terms of impact is the date that's being debated right now is the May 14 implementation date. And if that were to be implemented, it would be approximately a 3 percentage point impact to EPS growth for the year, but that is before mitigation. So by 2025, we would expect roughly half of that impact to be offset, and then more over time.
Operator
Your next question comes from the line of James Faucette with Morgan Stanley.
James Faucette
Wanted to go back to Fastlane. And Alex, you made the comments around making Fastlane available to all merchants and deriving -- so that they can derive the benefits of it. How should we think about that in terms of what needs to be done, timeline for progression, et cetera? It sounds like you're going to start moving beyond at least those initial merchants that are using it now. But just trying to think about like how that ultimately could end up with most of the first -- the merchants served by Braintree, and then ultimately, the merchants served by PayPal more broadly.
James Chriss
Yes. Thanks, James. Here's the best way to think about it. First and foremost, we have to have the best innovation in the market. We -- it was important for us to get some early customers up and running and using it. And the data continues to hold and certainly delight these merchants. And look, in this world, they all talk to each other. And so the ability for our merchants to now be rabid fans of the checkout conversion improvement that they're seeing through Fastlane is great proof points for us as we now start to scale it, and again, think about price to value. The second leg will be, okay, now that we've proven this out and we've started to really -- I mean, just to be clear, we're talking about driving conversion rate for some of the largest merchants in the world. We need to make sure that this was proven and that it works before we roll this out at scale. There's a lot on the line to be able to nail this, which is why we're moving at a measured pace and ensuring that, in Q1 and Q2, we've really proven it out. The conversations we're having at our C360 conference right now, the conversations we're having with some of our PPCP platforms that are now rolling it out to small businesses, is okay, what is the way that, as we get to the second half of the year, we can really enable the merchants to have this up and running so that they can win the shopping season, holiday season in the back half of the year? So that's how we're thinking about it. Merchant demand is very encouraging. As you would imagine, when you have a product that improves conversion rate and provides a double-digit lift in guest checkout conversion, that's a game-changer. And so demand is high. We want to make sure that we have as low friction and onboarding experience as possible, which is why we wanted to make sure that the ability for folks to upgrade to new integrations would make sense and be easy for them. And we wanted to make sure that customers could onboard. So the plan is, back half of the year, get as many merchants on so that they can win the holiday season. This will still take time. Not everyone will get on for this holiday season, and we expect that will continue into 2025. But at some point, there will be a tipping point. If I think about over the next year or 2 years, where we are going to expect all of our merchants to be on the latest and greatest integration, which includes Fastlane. And we will then move to deprecate our old integrations. And that's going to be an important milestone for us as we take what is really 15 years of legacy integrations and consolidate them on a more modern stack and a more modern integration for our customers. That allows us to continue to build innovation, continue to drive the best experiences for merchants, for customers, and obviously the best transaction margin results for the company as well.
James Faucette
That's great. Appreciate the color there, Alex. And then you mentioned you're getting a little bit of improvement in Venmo transaction margin. How much of that is coming from increased acceptance of Venmo as a payment option versus finding ways to reduce costs in transacting Venmo and P2P transactions, et cetera? Just trying to understand kind of what the drivers there are and what the potential could be.
James Chriss
Yes. It is a combination. What I'd say is we're seeing Pay with Venmo really starting to take off. Obviously, it's -- in the U.S., it's an incredibly well-loved brand. And when people see that button, it's an opportunity for them to use those dollars that I mentioned earlier that are in their account. So that's an exciting piece online. The piece that, again, I'm sort of dissatisfied with but excited about the future is the offline piece, right? When I talk about omnichannel, it's for PayPal and for Venmo. And so those billions of dollars that are coming in every month into the Venmo ecosystem, we have to continue to give our customers opportunities, whether it's debit card penetration or other innovation that we come up, with for them to be able to tap and pay and check out. And so all of that will move towards improving transaction margin. That said, we're also getting better with our risk models and leveraging AI. We are -- there's a lot of AI conversations in the market. I would say we are one of the leaders when it comes to leveraging the data that we have at scale to improve our transaction losses, improve the customer service ability for our customers and improve our transaction margin over time. So still, again, early days. There's a lot of work to continue there. But again, my excitement for the path and the direction for Venmo is pretty high.
Operator
That is all the time we have for questions. I will turn the call back to Alex Chriss for closing remarks.
James Chriss
Fantastic. Thank you, Sarah. And thanks, everyone, for joining us today. As you can tell from our results and the comments today, we're making steady progress on our transformation efforts. We had a good first quarter, and we are deep in execution mode. And with time, we will return this company to profitable growth that I know we can deliver. So thank you all.
Operator
This concludes today's conference call. You may now disconnect.