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PayPal Holdings (PYPL -0.93%)
Q2 2021 Earnings Call
Jul 28, 2021, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon. My name is Wena, 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 second-quarter 2021. [Operator instructions] I would now like to introduce your host for today's call, Ms.

Gabrielle Rabinovitch, vice president, corporate finance and investor relations. Please go ahead.

Gabrielle Rabinovitch -- Vice President, Corporate Finance and Investor Relations

Thank you, Wena. Good afternoon, and thank you for joining us. Welcome to PayPal's earnings conference call for the second quarter of 2021. Joining me today on the call are Dan Schulman, our president and CEO; and John Rainey, our chief financial officer and EVP, global customer operations.

We're providing a slide presentation to accompany our commentary. This conference call is also being webcast, and both the presentation and call are available on our investor relations website. In discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call.

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Management will make forward-looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include our guidance for the third-quarter and full-year 2021. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our results in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC and available on our investor relations website.

You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today's date, July 28, 2021. We expressly disclaim any obligation to update this information. With that, let me turn the call over to Dan.

Dan Schulman -- President and Chief Executive Officer

Thanks, Gabrielle. And thanks, everyone, for joining us today. I'm pleased to say that on the heels of a record year, our Q2 results once again reflect some of the best performance in our history on both an absolute and a relative basis. It is now clear that customers around the world have embraced all forms of digital payments.

Even in regions where in-person activities are returning toward pre-pandemic levels, in this new normal, PayPal serves as an essential and trusted platform for both consumers and merchants, across all forms of commerce, payments and basic financial services. As a result, we hit a new milestone in Q2 surpassing $300 billion of TPV for the first time in our history, growing 40% on a spot basis to $311 billion with an annualized run rate of approximately $1.25 trillion. This is even more notable given that eBay's TPV on our platform declined by 37%. eBay exited the quarter at under 4% of our volume, and we expect their TPV will approach 2.5% of our total volumes by year-end.

Excluding eBay, our volumes grew by a remarkable 48% on a spot basis. Our active accounts now exceed 400 million, up 16% and to 403 million. We added 11.4 million net new active accounts in the quarter, including an additional 1.5 million merchant accounts. That brings our total merchant count to 32 million.

We still expect to end the year at the higher end of our previous guidance of 52 million to 55 million net new active accounts. Transactions in the quarter grew by 27% to $4.74 billion. And even as our net new actives continue to show strong growth, our transactions per active account accelerated 11% in the quarter to 43.5 times as our consumers engage more frequently across our growing suite of services. We grew our revenues by 19% to $6.4 billion.

This growth comes even as we lap strong results from last year and absorbed 811 basis points of revenue pressure from eBay, as their revenues on our platform declined 51% in Q2. Excluding eBay, our revenues grew at approximately 32%. We now expect that eBay will be essentially 100% complete with their migration to managed payments by the end of the third quarter. We are maintaining our full-year guidance despite the fact that this accelerated ramp puts an additional 100 basis points of revenue pressure in 2021.

The good news is that this pressure begins to ease in Q4 and, obviously, positions us for accelerated revenue growth in 2022. Finally, we delivered non-GAAP EPS of $1.15, even as we continue to invest heavily in our growth initiatives. Venmo continued its strong performance in Q2 with $58 billion in TPV, up 58% year over year, with over 76 million active accounts. Revenue growth accelerated to almost 70% in Q2, our highest growth rate in the past year, fueled by Venmo's product diversification strategy.

More than 500,000 customers have established new business profiles on Venmo with more than 300,000 created in Q2 alone. Pay with Venmo revenues grew by 183% year over year. We're also seeing strong adoption and trading of crypto on Venmo. In this quarter, we expanded the Venmo value proposition to allow merchants and consumers to pay for goods and services and receive buyer and seller protections for commerce transactions.

This has been a very successful feature on PayPal's P2P services, and we expect it will be widely adopted on Venmo. I'm pleased to report that the initial version of our new consumer wallet super app is code complete, and we are now beginning to slowly ramp. In the next several months, we plan to be fully ramped in the U.S. with a host of products and services across payments, basic consumer financial services and commerce and shopping tools launching every quarter.

New features will include high-yield savings, early access to direct deposit funds, new and improved bill pay functionality, messaging capabilities outside of P2P to enable family and friend communications, as well as additional crypto capabilities and customized deals and offers. Each wallet will be unique, driven by our advanced AI and machine learning capabilities in order to enhance each customer's experiences and opportunities. As I previously mentioned, 32 million merchants now rely on PayPal. They trust that our scale, security, tools and resources will help them to grow their businesses in today's rapidly emerging digital economy.

PayPal is the only payments company to offer features like global seller protection and fraud prevention services at no additional cost. We are one of a few payments companies to allow consumers to use cryptocurrency as a funding source to check out on our platform. Our Buy Now, Pay Later offering comes at no additional cost to merchants, while boosting their conversion rates and increasing cart sizes by 39%. And we continue to expand our product differentiation through recent acquisitions like Chargehound and Happy Returns that will drive additional value to both consumers and merchants post a sales transaction.

Our announced pricing adjustments in the U.S. align our pricing with the value we deliver while giving us flexibility to aggressively compete in full stack processing and at point-of-sale checkout. We continue to see strong demand for our in-store services with approximately 1.3 million merchants now accepting our QR codes and continued momentum and excitement across our large enterprise merchants. In fact, every 20 seconds, a new merchant signs up to use our QR codes.

It's also very encouraging to see that consumers who use our QR codes, spend more TPV, in fact, 19% more TPV on the PayPal platform. Our in-store efforts will no doubt be a multiyear journey, but these trends reinforce our conviction to be a seamless omni-channel wallet. In Q2, our overall in-store efforts across QR and cards equaled $6.8 billion in TPV, up 39% year over year. Our in-store suite of services continues to expand with the launch of PayPal Zettle in the U.S.

As in Europe, PayPal now offers small businesses in the U.S., an integrated commerce solution that not only helps them to accept payments in store with the Zettle card reader but also helps them to manage sales and inventory across their various channels all in one place. Our Buy Now, Pay Later product continues its strong growth and is proving to be extremely popular for consumers and merchants alike. Since launch, we have processed over $3.5 billion in TPV with more than $1.5 billion of that TPV in Q2 alone. Approximately 650,000 merchants have customers who use our Buy Now, Pay Later capabilities, and 40,000 have positioned Buy Now, Pay Later upstream on their product pages.

Over 7 million consumers have transacted more than 20 million times with our Buy Now, Pay Later product. Australia is now fully deployed and off to a strong start with additional countries in Europe slated to roll out later this year. Our employees, customers and government officials expect PayPal to be a role model and a responsible corporate citizen. I am proud to say that we are delivering on our commitments to advance social justice and racial equity.

Over the past year, we have committed all of the $535 million we pledged toward advancing racial economic equality. And we recently launched a new $100 million commitment focused on women's economic empowerment. These efforts are a direct reflection of our values and our belief that PayPal must be part of a solution that drives a better future for all of us. I'd like to thank our employees for their passion and their never-ending commitment toward shaping a new and inclusive financial services system.

We are entering a new era, and we couldn't be more excited to help drive an emerging digital future where all small businesses and consumers can participate and thrive in a post-pandemic world. And with that, let me turn the call over to John.

John Rainey -- Chief Financial Officer and Executive Vice President, Global Customer Operations

Thanks, Dan. I'd like to start by thanking the entire PayPal team for their continued commitment to serve our customers and execute on our priorities. We're reporting another very strong quarter. Our results are indicative of the strength, diversification and breadth of our two-sided global payments platform.

PayPal sits at the intersection of digital transformation and e-commerce penetration. As the largest open platform for digital payments globally, we are uniquely positioned to address the opportunity that these secular tailwinds present. Over the past six quarters, our team's focus, collaboration and resilience have allowed us to innovate at scale and deliver our best performance in company history. Globally, the pace and shape of the recovery varies.

As the environment continues to evolve, we are evolving with it to serve the changing needs of our consumers and merchants. During the second quarter, restrictions started to relax across our core markets, and we saw the beginning of a return to normalcy in consumer behavior. Consumers are spending again in verticals that have been severely affected and have become more comfortable shopping in-person and dining out. Merchants are repositioning for the post-pandemic world.

Relative to our expectations, which were for reopening spend to closely track vaccination rates, we've seen travel and events volumes return more rapidly. At the same time, in markets that have reopened, elevated e-commerce spending above pre-pandemic levels is ongoing and indicative of permanent shifts in consumer behavior. On a two-year basis, our business performance is remarkably consistent and very strong. Our second-quarter results last year were exceptional.

We grew revenue 22%, delivered a 28.2% operating margin and grew non-GAAP EPS 49%. Both the operating margin and earnings growth were the best performance we've ever delivered. It's remarkable that, in the second quarter this year when we're lapping this explosive growth, our business is continuing to perform at a very high level. Our results are even more impressive given the transitory headwinds we're facing from eBay.

This year, as part of eBay's managed payments transition, we're absorbing a rapid migration of marketplaces volumes off of our platform. Further compounding this effect is that eBay benefited meaningfully from COVID last year, which makes the comparison this year even more difficult. For context, from 2016 to 2019, the three-year compound annual growth rate for eBay Marketplaces revenue on our platform was approximately 2%. And in 2020, this revenue grew 11%, approximately times faster.

Also worth highlighting is that through this period, as eBay's contribution to our revenue declined from 22% to 13%, we've expanded our operating margin 500 basis points. Given the accelerated pace of migration in 2021, there's a more pronounced effect on our operating margin and earnings growth profile this year. At the same time, this is truly a transitory effect on our results, which we now expect to be very largely contained to 2021 with much less of a tailwind to next year. And as we've discussed over the past several quarters, near-term forecasting continues to be complex given the global macroeconomic backdrop, varied stages of pandemic recovery and differing paths of reopening.

It's with this orientation and mindset that we head into the back half of 2021. Before discussing our outlook for the remainder of the year, I'd like to highlight our second-quarter performance. Total payment volume grew 40% at spot and 36% on a currency-neutral basis to $311 billion. Our Q2 TPV grew at a two-year compound annual growth rate of 34%, accelerating from 33% in Q1 and indicative of the strong momentum in our business.

Versus the second quarter last year, merchant services volume grew 43% currency neutral. A resurgence in travel and events, as well as core payment volumes contributed to this performance. This quarter, eBay had a much greater effect on our TPV than in the first quarter. In Q2, eBay Marketplaces volumes declined 41% currency neutral from last year.

This is in comparison to a 3% decline last quarter. eBay represented 4% of our volume in Q2, down 512 basis points from last year. In addition to lapping elevated growth during the pandemic, we saw a faster ramp of the payments transition than what we had expected earlier this year, which resulted in a larger decline in Q2 volume. Given the speed at which we are seeing intermediation progress, our plans now contemplate nearly 100% completion of the merchant migration by the end of the third quarter.

This accelerated time frame means that while we expect a similar drag to our volume, revenue and earnings growth in the third quarter, this impact lessens in Q4 and begins to tail off from there. As a result, we will have a much cleaner exit to 2021. Revenue increased 19% on a spot basis and 17% currency neutral to $6.24 billion. Transaction revenue grew 17% to $5.8 billion; and on a two-year basis, transaction revenue grew 22.3% in Q2 versus 22.7% in Q1 of this year.

In addition to the consistency of our results, this performance is even more remarkable, excluding eBay. In the second quarter, eBay Marketplaces revenue declined 51% in comparison to Q2 '20 and 27% sequentially. Our revenue, excluding eBay, grew 32%, an 11-point acceleration from last year's already strong second quarter. Other value-added services revenue grew 40% on a spot basis and 36% currency neutral to $441 million.

These results were driven by strengthening credit performance and portfolio growth, partially offset by lower interest income on customer balances. In the second quarter, transaction take rate was 1.86% and total take rate was 2.01%. The mix effect of eBay contributed to more than a third of the 37-basis-point reduction in take rate. The blended take rate on eBay volumes this quarter was 3.22% in comparison to 4.1% in Q2 last year.

The remainder of the decline was primarily driven by reduced currency volatility in the quarter, which resulted in a lower growth rate in foreign exchange fees, a decline of $122 million from foreign currency hedges recorded as international transaction revenue and growth in bill payment volumes. Bill payment is a vertical characterized by both a lower take rate and an overall lower cost of funding than our e-commerce volumes. Q2 was another great quarter of volume-based expense performance. Transaction expense came in at 81 basis points as a rate of TPV this year relative to 83 basis points last year.

Transaction loss as a rate of TPV was a record low 9 basis points versus 12 basis points in Q2 last year. The net effect of credit provisioning on credit losses in the quarter inclusive of originations and reserve reversals resulted in a benefit of $104 million. In the quarter, we had an increase in loan origination activity and ended Q2 with $3.9 billion in gross receivables, reflecting sequential growth of 11%. Strong performance of our loan portfolio, improving macroeconomic trends and the mix of shorter duration originations from our installment pay products resulted in our reserve coverage ratio declining to 14.9% from 21.4% at the end of the first quarter.

As a result, transaction margin dollars grew 19% in the second quarter and transaction margin reached 56.8%. I'd now like to cover our nontransaction-related operating expenses. Overall, these expenses increased 27% and represented 30% of revenue. These are higher growth rates than what we've incurred historically, but as I suggested before, we believe that there has never been a more important time to invest in our business as the secular tailwinds in our business have perhaps never been stronger.

In Q2, we again invested aggressively in product innovation and our go-to-market initiatives. Sales and marketing increased 68% in the quarter, and technology and development spend grew 23%. On a non-GAAP basis, operating income grew 11% to $1.65 billion, and our operating margin was 26.5%. This includes an approximately 12% or $360 million decline in transaction margin dollars from eBay Marketplaces.

Normalizing for the reserve build last year and subsequent release this year, non-GAAP operating income declined 7% and operating margin was 23.9%. And on a two-year basis, the compound annual growth rate for operating income is 29%. For the second quarter, non-GAAP EPS grew 8% to $1.15. This includes an approximate $0.27 per share headwind from the decline in eBay Marketplaces transaction margin dollars.

Adjusting for our increased credit provisions last year and this year's release of reserves, EPS declined 9%. And on a two-year basis, this represents 27% earnings growth annually. We ended the quarter with cash, cash equivalents and investments of $19.4 billion. And in addition, we generated $1.1 billion in free cash flow.

I'd now like to discuss our outlook for the rest of 2021. Our business is performing exceedingly well and overall, consistent with the outlook we provided on our last call. Given our strong year-to-date performance and our expectations for the back half, we're raising our TPV outlook and reiterating full-year revenue and earnings. We now expect TPV growth to be in the range of 33% to 35% given the strong volume trends in our business.

We continue to expect revenue for the year to be approximately $25.75 billion, representing 20% growth on a spot basis. In addition, we continue to expect non-GAAP earnings per share to be approximately $4.70 or growth of approximately 21%. We raised our 2021 revenue outlook by $250 million or approximately 1 point of growth when we reported our first-quarter results in May. We're now absorbing more pressure from eBay than we had previously expected.

Our current outlook contemplates an approximately 7-point negative impact to revenue growth for the year. This corresponds to an approximately $0.85 negative impact to non-GAAP EPS from reduced transaction margin dollars. We're pleased that the strength of our platform and the diversification of our business is allowing us to maintain this elevated outlook. In addition, we expect to generate more than $5 billion in free cash flow or approximately $0.20 of free cash flow for every dollar of revenue.

Now turning to guidance for the third quarter. This quarter, we are up against our toughest revenue comparisons versus last year. In Q3 '20, we reported 25% revenue growth, our strongest performance for the year. As a result of this dynamic, as well as eBay's managed payments transition, our plans had always assumed that, in Q3, we would report our lowest level of quarterly revenue growth for the year.

However, we're now planning for eBay's drag on our revenue growth to be greater than previously expected, resulting from both the accelerated pace of merchant migration in international markets, as well as some additional core pressure, which magnifies this result. For the third quarter, we expect revenue to be in the range of $6.15 billion to $6.25 billion. At the midpoint, this represents growth of approximately 14% at spot and includes about 8.5 points drag from eBay or approximately $465 million negative impact. On a two-year basis, inclusive of this drag, our guidance represents 19% growth.

We also expect non-GAAP diluted EPS and to be flat to last year or approximately $1.07, reflecting increased investments to support our growth initiatives and the pressure we're facing from eBay. Our financial performance over the first half of 2021 has been very strong and consistent with the guidance we've outlined at the outset of each quarter. At the same time, the environment in which we're operating, while more stable than a year ago, continues to be very dynamic and more challenging to predict than normal. Adding to the complexity is this exercise of predicting eBay's transition for which we have less than perfect visibility.

Each quarter, we've tried to provide our best estimate of the level of performance that we believe we can deliver. Overall, our growth remains strong. And importantly, we continue to see the categories that benefited from quarantine measures and shelter-in-place activities last year maintain higher levels of e-commerce volumes in comparison to pre-COVID levels. Our conviction and our ability to drive sustainably strong performance and in the strength of our franchise has never been greater.

This year, we expect to process approximately $1.25 trillion of payments volume. We expect to grow revenue by 20%, more than offsetting pressure to revenue growth of approximately 7 points from eBay and lapping our strongest year with 22% revenue growth. And given the momentum we have in development and innovation, and the pace of scale of the new experiences we're bringing to our customers, we are investing in our business at record levels. Further, last year, we grew earnings 31%.

On top of that performance, this year, we plan to grow our earnings by 21%. Importantly, our team has never been more focused or aligned around the shared goal of being the leading digital payments company in the world. Last year was a pivotal moment in our history; and this year, we're building on that foundation and continuing to realize our ambition for greater relevance, ubiquity and impact as a global payments leader. We look forward to sharing more of our progress with you.

With that, I'll turn it over to the operator for questions.

Questions & Answers:


[Operator instructions] Your first question is from Tien-Tsin Huang of J.P. Morgan. Your line is now open.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Thank you. Thanks so much, and thanks for all details and the slides here. Good, good. Just with the third-quarter guidance being a little bit lighter than trend but you're also reaffirming the year even with eBay expected to be 1 point worse, can you just reconcile that thinking between the third quarter and holding the year? And then also, if you could just help us bridge third quarter to fourth-quarter growth for us given all the moving pieces here, that would be great.


John Rainey -- Chief Financial Officer and Executive Vice President, Global Customer Operations

Sure, Tien-Tsin. I'll start there. Look, third quarter has always been -- was gonna be our toughest quarter from a year-over-year growth rate perspective for a lot of the reasons I outlined. There are a number of reasons that are contributing to the growth in the fourth quarter, but I think before I get into them, it's important to understand that if you look on a year over -- two-year basis, the revenue growth actually is very consistent in each quarter this year.

And for the full year, we'll be growing in the neighborhood of 20%. But of the items that are contributing to the growth in the fourth quarter, there's a few that I think are notable to call out. One is certainly less pressure from eBay. That abates somewhat in the fourth quarter.

We also have some benefit from the pricing changes that we announced that go into effect next month. And then, we have a number of different initiatives that we are rolling out in the second half of the year in which we get most of the benefit or a full quarter's worth of benefit in the fourth quarter. And so all of those things tend to drive, I think, some acceleration in what we're seeing in revenue from the third quarter to the fourth quarter. And then, as usual, we always have some seasonality around the holiday shopping season, which we again expect this year.

Dan Schulman -- President and Chief Executive Officer

Now, if there's one thing I can add to John's comments is Q3 is the height of eBay pressure. And then, as John mentioned, as we go into Q2, those headwinds that have been going against us on eBay turnaround and become tailwinds. So we have something like 850 basis points of pressure in Q3, as John mentioned. That drops to 600 basis points of pressure as we go into Q4, so that's a natural lift of about 2.5 points of revenue growth.

And as we go into 2022, that continues to help our results. And I think if you look beyond the eBay impact and look at our adjusted results, you can see that the core business and the strength of our franchise has really never been performing better. I think John mentioned one thing that I think is worth highlighting, that the elevated spend around online is continuing even as we see economies reopen. I mean, you could see that in our growth rates of our volumes up 40%, 48% without eBay.

But if you even look at things like our daily active users, our daily active users versus pre-pandemic levels are up 43%. They were up substantially last year, and they continue to grow as we go into this year. And so I think we have a lot of strength in the core. Some of that's being matched by eBay, but eBay is all about timing.

We always knew these revenues were moving away. It's just a matter of timing. And now we've got kind of what we think is the right case, 100% in third quarter, and then, from there on in, those pressures abate.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Agreed. No, I think it's just better to rip off the Band-Aid as we say. Thank you, both.

Dan Schulman -- President and Chief Executive Officer

Flush it out of the system, exactly right.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Yeah, Thank you.


And your next question is from Ashwin Shirvaikar of Citi. Your line is now open.

Ashwin Shirvaikar -- Citi -- Analyst

Thank you. Hi. I know you both provided a lot of information on eBay throughout your prepared remarks, but I did wanna drill down further into sort of the overall effect of eBay on your results and if you can kind of speak to the ongoing impact through the back half of the year and into next year. And then, the flip side, obviously, you've mentioned the ex-eBay performance, the 32% growth and so on.

Should one expect that to be coming out of this, that sort of growth rate to be sort of a more normal appearance of what you can do?

John Rainey -- Chief Financial Officer and Executive Vice President, Global Customer Operations

Sure. I'll start, Ashwin. I'm sure Dan will want to jump in. Look, I think there's a couple of metrics that really highlight the true performance of our business.

But to start with, we've always known that 2021 was gonna be the year where we had the most significant impact from eBay. And the fact that we're lapping what was tremendous growth last year and still performing at the level that we are this year in the face of that impact from eBay is really just quite phenomenal. But I'll give you an example that I think really tells the picture here. So last year, in the second quarter, we grew revenue 22%.

And in that number, there was a benefit of 5 percentage points of growth from eBay. So 22% revenue growth with 5 percentage points of benefit from eBay. This year, in the second quarter, we grew revenue 19%, and that number included 800 or 8 percentage points of headwind related to eBay's business. And so that really underscores the strength of the franchise and how well we are performing right now.

And quite frankly, it's something that we're very excited about because this sets us up for, I think, much cleaner performance going forward and an acceleration in some of our growth rates when eBay is a much slower growing and smaller part of our business going forward.

Dan Schulman -- President and Chief Executive Officer

And if I can maybe complement some of John's comments there, first of all, I do want to say this about eBay. Obviously, they remain a very close strategic partner for us. We still have about 60% share of checkout on eBay and, obviously, eBay merchants and consumers want and desire to use PayPal. If you think about -- just to give perspective, historic perspective, if you think about when we split from eBay six years ago, eBay's revenues as a percent of our total were 26% of our total revenues.

And we believe that they're going to end this year around 3% or so and that their TPV is gonna be under 3% as a percent of our overall volumes. And so this is, as I mentioned before, it's a timing issue. And frankly, the sooner eBay transitions, the better it is for our future revenue growth. I'd also say just one other thing.

We are making a lot of progress with a lot of other marketplaces coming out of the eBay restrictions, and we continue to see Alibaba continue to ramp. We're really pleased to watch the growth rates there. And we're making a lot of progress with a lot of other marketplaces that we'll talk about as we get along further in the year. So this eBay transition is behind us at the end of this quarter.

The headwinds dissipate, and we're glad to start to move forward. And as John said, we'll really be able to see the strength of the franchise start to shine as a result of that. Thank you.

Ashwin Shirvaikar -- Citi -- Analyst

Thank you for the comments.

Dan Schulman -- President and Chief Executive Officer

Yeah, you bet.


Your next question is from James Faucette of Morgan Stanley. Your line is now open.

James Faucette -- Morgan Stanley -- Analyst

Good afternoon, and thanks for the commentary, Dan and John. I'm sure there'll be additional questions on the quarterly cadences and eBay. But I wanted to touch on -- or for you to touch on something you mentioned earlier, and that is growing in-store acceptance and QR codes. We've heard some positive things from industry sources recently on growing usage there, and I'm wondering if you can give a little color on what you're seeing from PayPal's perspective and how your acceptance works with the partnership with Clover from Fiserv and what is done to enable that for merchants and consumers.

Dan Schulman -- President and Chief Executive Officer

Yeah, yeah, I think I'll start on this one, and then, maybe John can kick in. So first of all, clearly, pretty much every merchant, whether it's small, mid-size or large, is envisioning a seamless omni-channel feature. And that's where physical and online kind of blur together that they now start to use that to digitally interact with their customers to basically tie in their loyalty programs, customize deals and offers to individual consumers. And that is moving well beyond just checkout.

Before, we were thinking QR codes and other forms of contactless payments were great because it was both fast and maybe more healthy in a pandemic environment, but all of our conversations have -- go beyond checkout. People are looking to drive loyalty. They're looking to drive rewards and coupons, more flexibility, how consumers like order, track, pay for their services, customized incentives. And so that's really the conversations that we are having, and that's why we're getting a ton of traction.

By the way, I do think that this seamless omni-channel efforts by us is key to us doing everyday usage. And if I look at not just multiple millions of consumers that are using our QR codes, but what's happening is they also are spending 19% more TPV on the PayPal platform. And that halo effect is a big deal as we look forward, especially as we look toward the super app, which maybe somebody will talk about later. But the more and more of these services we put together, the more and more of that halo impact that occurs.

And so we, obviously, are up to now 1.3 million merchants. Every 20 second, a merchant's signing up for more QR codes with us. We have a lot of momentum with large enterprises right now, but the conversations have moved to how do we fully integrate their loyalty programs into our app, how do we drive customized deals for them. And so those are taking a little longer to go live to site, but they're much more integrated than we've ever seen before.

And we're seeing with customers like CVS, once you start to integrate that together, once you start to get a habituation, we saw CVS transactions go up 151% on month over month. And so we're really beginning to see some traction in the marketplace around all of these things. Very excited about it. It's gonna be a multiyear journey for us, but we know that both merchants and customers expect us to be fully omni. 

James Faucette -- Morgan Stanley -- Analyst

Thanks a lot.

Dan Schulman -- President and Chief Executive Officer

Yeah. By the way, James, one other thing. You talked about Fiserv Clover. I forgot about that.

So that is rolling out this quarter. We are a default funding instrument on Clover. It's a very close partnership that we have with Fiserv and looking forward to reporting more on that as the quarters go on.

James Faucette -- Morgan Stanley -- Analyst

Such a great idea, yeah.

Dan Schulman -- President and Chief Executive Officer

Yeah,sorry about that.


Your next question is from Darrin Peller of Wolfe Research. Your line is now open.

Darrin Peller -- Wolfe Research -- Analyst

All right. Hey, thanks, guys. Look, it's great to hear that the super app refresh is going well. If you could just give us a little more specifics on the timing of the rollout and then, what you're looking for to mean in terms of engagement or impact on NNA levels.

And I guess, just quickly on NNAs, Dan, you mentioned earlier you're still confident in the high end of the 52 million to 55 million range, which would require a bit of a step-up from second-quarter levels. So just any more color on the conviction there? Thanks.

Dan Schulman -- President and Chief Executive Officer

Yeah, sure, I'll start right with that quickly. We always knew that second quarter was gonna be the low point of the year because we did '21 like 0.3 million or 0.4 million NNAs a year ago. And even though they're performing better than cohorts that we previously had historically, their churn is lower, it's still a ton of incremental churn versus traditional cohorts on the second quarter. And we are clearly beginning to see that dissipate already this year as I look at NNAs coming in, and so I feel really good about that guidance right now.

Q4 is always our high point of the year, and so you'll see it start to build from second quarter up into third quarter and then, up again into fourth quarter. And then, maybe if I can just -- if that answers your question on NNA, I'll go quickly into the super app. We made a really substantial milestone by being code complete on this first iteration of the super app. We're slowly ramping.

This is the first change we've done to the app since I've been here, that we've done to the app. And so we want to kind of measure what the engagement levels are and the uptake of it. But this is gonna be something where -- this isn't a Big Bang theory that this app in and of itself, this version is the be-all and end-all. It, obviously, is going to look across payments, basic financial services and shopping tools.

You're going to see releases and enhanced functionality come out pretty much every single quarter. But early on, that's going to include things like high-yield savings, enhanced bill pay, which will do improved search and a better UX, more billers, aggregators. We're going to do two-day early access to direct deposit, budgeting tools, something we haven't talked about, two-way messaging. So if I P2P you $10 for whatever you're doing and you wanna message me right back without sending me a P2P, you can go do that.

And we think that's going to drive a lot of engagement on the platform. You don't have to leave the platform to message back and forth. Obviously, the UX is being redesigned. We've got rewards and shopping.

We've got a whole giving hub around crowdsourcing, giving to charities. And then, obviously, Buy Now, Pay Later will be fully integrated into it. And by the way, as we go into next year, we got all -- the last time I counted, it was like 25 new capabilities that we were going to put into the super app. And so I don't want to dismiss at all what we've done right now, but it just continues to improve going forward.

And the way that I'm looking at success with the super app is what kind of engagement levels do we get. I fully expect engagement to move up. What's happening to our average revenue per active account? By the way, even with the new services we've recently launched, our average revenue per active account ex eBay went up 13% this past quarter, and that's a really good sign, along with the 11% improvement in TPA, which was really a record in the last four years or so. And so we've got a lot going on, I think, engagement, average revenue per active user, and then, we'll look clearly at all the halo effect as well.

But we're excited to be on the journey right now and be underway. And again, you'll just see it continue to improve quarter over quarter.

Darrin Peller -- Wolfe Research -- Analyst

That's great to hear. Thank you.

Dan Schulman -- President and Chief Executive Officer

You bet.


Your next question is from Colin Sebastian of Baird. Your line is now open.

Colin Sebastian -- Baird -- Analyst

Great. Thanks. Good afternoon. Wanted to follow up on the Pay Later initiatives because, clearly, you're gaining nice traction with users.

I wonder how much of that activity is incremental to volume if that's just a function of the higher conversion rate. And secondarily, we've heard from some merchants that return rates are a little bit higher with Pay Later, so I'm just curious if that impacts merchant adoption at all. Thank you.

Dan Schulman -- President and Chief Executive Officer

Yeah, sure. So look, it was a another terrific quarter, I mean, just in every way for Buy Now, Pay Later. As I mentioned, we did $1.5 billion of TPV in the quarter alone. That's not a $3.5 billion, but this is the amazing piece of stat on that $1.5 billion.

That's up 50% from Q1 sequentially, so you can really see that even if we had so much momentum in Q1, that momentum really accelerated in Q2. We've got a bunch more merchants using it now, 650,000 merchants. More and more of them are presenting it upstream on their product pages. That, obviously, gives us a disproportionate share of checkout when that occurs.

And you could tell by the 7 million customers doing 20 million-plus transactions that, obviously, our repeat rates are extremely high. There's a lot of satisfaction with the product. It's still something like 70% are repeating within six months. And our halo effect is the same as it was last quarter, still a 15% halo effect in TPV, still a substantial reduction in our TE costs, about a 16% reduction.

We're still seeing 80% plus of these funded through debit. And Australia, we put in place just a couple of weeks ago, and bam, it's off to a really strong start right away. And part of the reason that we are getting such strong results is because we have 400 million customers. And when we put something in, it happens at scale.

And we know those customers, so the approval rates are much higher. Returns are lower because we know the customer. And so a lot of the other Buy Now, Pay Later players don't necessarily know the consumer the way that we know the consumer in this. And so we're pretty pleased.

We've got a ton on our road map ahead in terms of expanding internationally, the more and more functionality that we want to put on the product itself.

John Rainey -- Chief Financial Officer and Executive Vice President, Global Customer Operations

Colin, I'd just add a couple of points there, I think, are really encouraging as we look at the early progress there. One is that where we have upstream presentment, we see a double-digit click-through rate from consumers, which is quite encouraging and particularly, when you think about what Dan mentioned in scaling that across all of our customer base. But the other, and it's a very important one and actually ties back into Darrin's previous question around revenue per user and engagement, but we see a 15% lift in overall TPV among those customers that are using Buy Now, Pay Later. So we're early stages here, but as we've repeatedly said, we think that we've got a value proposition that is, frankly, second to none and quite encouraged by some of the early results that we're seeing.

Colin Sebastian -- Baird -- Analyst

Great. Thanks, guys.


Your next question is from David Togut at Evercore ISI. Your line is now open.

David Togut -- Evercore ISI -- Analyst

Thanks so much, Dan and John. Given the new PayPal pricing model on branded and unbranded products effective August 2, can you gauge for us the expected annualized impact on revenue and non-GAAP EPS from these changes? And then, as part of that, could you just elaborate on your physical point-of-sale payment strategy given the size of the price cut on physical credit and debit card transactions is quite substantial.

John Rainey -- Chief Financial Officer and Executive Vice President, Global Customer Operations

Sure, I'll take the first part of that question, David. Look, our pricing change included both price increases and price decreases, and it remains to be seen sort of the volume changes that come from each of those. And so in the context of our $25-plus billion revenue base, I would say that for the year these are relatively immaterial on our results. But I think very importantly, this provides a lot more transparency and clarity to our customer base around how we are pricing and really trying to price to the value that we provide for these customers.

And we've demonstrated time and again where that value comes from and just survey data on customers' willingness to buy when PayPal is presented at checkout that is exponentially greater than when it's not. So this is probably overdue. It's been the first time in 20 years that we've made a change to our base pricing like this. But certainly, I think it puts us more in line with the market and really prices to the value that we're creating for our customer base.

Dan Schulman -- President and Chief Executive Officer

You know I think that's a pretty comprehensive response from John. I mean, we, obviously, carefully review every one of our pricing changes up or down. We do extensive market research before we do any change. And as John said, we look at where we add value and we price in accordance with that.

Clearly, on the branded side, we think we add a tremendous amount of value, things that John talked about, buyer and seller protection, Buy Now, Pay Later at no incremental cost, fraud protection, highest checkout conversion, etc. But we took down rates for basic full-stack processing. That also was reduced somewhat substantially from the 2.9%, plus $0.30 to 2.59%, plus $0.49. And that is going to enable us to aggressively compete for all of the payment processing of the merchants that do business with us.

And you've heard us say time and time again, David, that we were going to move into the in-store space. We're going to move so aggressively in there. We rolled out Zettle in the U.S., is a really beautiful full package. It doesn't just include card reader but inventory management, sales reads out and allows a merchant to seamlessly load inventory in both their online and in-store locations and then, across multiple channels as well.

And so we're, obviously, gonna be very aggressive on moving into in-store, and it's always been part of our strategy. And by the way, if a small merchant does all of their business with us, they can actually see their overall costs come down. And we wanna encourage them to do all of their business with us because we are a trusted platform. They do turn to us, and we price, we think, the right way.

We finally have unbundled some of this branded and unbranded because that's how the market is playing. And we know where we wanna be aggressive, and we're going after that.

David Togut -- Evercore ISI -- Analyst

Thanks so much, Dan and John.

Dan Schulman -- President and Chief Executive Officer

You bet, David. Thank you.


Your next question is from Ramsey El-Assal of Barclays. Your line is now open.

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Hi, Dan and John, thanks for taking my question this evening. Dan, I wanted to get your updated view on crypto and blockchain and see how you guys are planning on engaging with the ecosystem from a consumer product perspective. And I know you just mentioned some new crypto capabilities in the new app. But also from like a balance sheet perspective and internal technology perspective, how will you kind of engage with the ecosystem in the quarters ahead?

Dan Schulman -- President and Chief Executive Officer

Yeah, well, we continue to be really pleased with the momentum we're seeing on crypto. And we're, obviously, adding incremental functionality into that whether -- you probably saw increased limits to $100,000 a week. We're right in the middle of some open banking integration, which will increase the ability to fully integrate it into ACH and do faster payments. We're going to launch, hopefully, maybe even next month in the U.K., open up trading there.

We're working right now on transfers to third-party wallets, and we really want to make sure that we create a very seamless process for taxes and tax reporting. And so we're really looking at how do we integrate that into both the trading and the buy with crypto on our platform. But I will say this, like all of that is interesting, but it isn't the main course in terms of what we are trying to do with our blockchain and digital currency business unit. We are clearly thinking about what the next generation of the financial system looks like, how we can help shape that.

We are working with regulatory agencies, central banks across the world, the number of countries that are looking at CBDCs. Central-bank-issued digital currencies is increasing rapidly. You're like at 40 countries like six months, a year ago. You're almost up to 100 countries looking at it right now.

And clearly, there is an opportunity to think about a new infrastructure that can more efficiently read that to be a lower cost, do transactions and also getting money to people much faster than happens today. I mean, the other day, I sent an EFT from one bank to another bank, and that bank told me we're taking three days to access that money on the EFT I sent. That's crazy. It needs to be instantaneous.

And there's a lot of desire by governments to really think how can you create a more efficient system using new technology to bring in more citizens, more underbanked, underserved citizens into the financial system because they disproportionately pay a higher take rate than those who are fully banked or higher income levels. And there's a lot of connections between digital wallets And central-bank-issued digital currencies. Imagine not having to send out stimulus checks but sending those directly into a digital wallet where you instantaneously receive it, and you don't have to go into a check cash-in location and exchange that and get charged for that exchange. There's just so many benefits to that, as well as just plain utility to payments.

How can we use smart contracts more efficiently? How can we digitize assets and open those up to consumers that may not have had access to that before? There are some interesting DFI applications as well. And so we are working really hard. And by the way, as you probably have seen, we are trying to pick off the very best talent in the ecosystem to come work here at PayPal. We have a list of names and phone numbers, and we are slowly but surely building a team that I think is going to really shape the thought process around this.

And I'm really pleased with at least the early returns on that. Hopefully, that helps you.

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

It does sound very interesting. Thanks so much.

Dan Schulman -- President and Chief Executive Officer

You bet.


And we have time for one last question from Jason Kupferberg of Bank of America. Your line is now open.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey, thanks, guys. Just wanted to ask a couple here on margin. And for starters, can you just reconcile for us the unchanged revenue and EPS guidance for the year with the lowered operating margin guidance? And talk about how much of the guidance change on margin is from eBay versus perhaps elevated opex growth expectations. And then, just as a quick follow-on, give us a sense of how we should think about the margin potential of your business beyond this year as the eBay conversion moves into the rearview mirror.


John Rainey -- Chief Financial Officer and Executive Vice President, Global Customer Operations

Sure, Jason. I'll take this, and it's great to speak with you. So starting with the first part on the change this year, really two things to note. One that we talked about is eBay.

eBay, we expect to have an $0.85 impact to our EPS this year. And the fact that we are performing and expect to perform for the back half of the year at this level and being able to weather that impact is, I think, really speaks to the strength of the overall business. But the second area, and this sort of gets into the second part of your question as well, but we're also investing aggressively in our business. I would argue that there's never been a more important time in our business to invest right now, to invest for a future where we believe in the primacy of digital wallets.

We believe in the permanent pull forward of e-commerce. We believe in the ubiquity of digital payments and to -- we wanna help shape that outcome. We wanna be a leader in that space. Now it happens that the structural nature of our business, our margins want to go up, and by the way, they will, to be very clear about that.

But at the same time, we don't want to be a prisoner to expanding operating margin one quarter to the next, because we wanna be able to appropriately invest in our business to create the most shareholder value that we can over the long term and become the company that we all believe that we can be. And so close out, our margins will go up. We said this year that we expect to have a flat to maybe some marginal improvement in our margins. But as we noted at our investor day earlier this year, our margins will go up over time.

But we want to invest for growth and invest to be that leading digital company -- payments company that we know we can be.


I would now like to turn the call back to Dan Schulman for closing remarks.

Dan Schulman -- President and Chief Executive Officer

Thanks so much. Well, thanks, everybody, for those great questions, and I want to thank everybody for your time. We hope that all of you and your families are staying healthy and I hope that you're having a great summer as well. and we look forward to speaking to you soon.

Take care, and thanks again for your time.


[Operator signoff]

Duration: 67 minutes

Call participants:

Gabrielle Rabinovitch -- Vice President, Corporate Finance and Investor Relations

Dan Schulman -- President and Chief Executive Officer

John Rainey -- Chief Financial Officer and Executive Vice President, Global Customer Operations

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Colin Sebastian -- Baird -- Analyst

David Togut -- Evercore ISI -- Analyst

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

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