Logo of jester cap with thought bubble.

Image source: The Motley Fool.

PayPal (PYPL 0.33%)
Q1 2023 Earnings Call
May 08, 2023, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon. My name is Sarah, and I will be your conference operator for today. At this time, I would like to welcome everyone to PayPal Holdings earnings conference call for the first quarter 2023. [Operator instructions] Thank you.

I would now like to introduce your host for today's call, Ms. Gabrielle Rabinovitch, senior vice president and acting CFO. Please go ahead.

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

Thank you, Sarah. Good afternoon, and thank you for joining us. Welcome to PayPal's earnings conference call for the first quarter of 2023. Joining me today on the call is Dan Schulman, our president and CEO.

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'll 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.

10 stocks we like better than PayPal
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and PayPal wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of May 8, 2023

We will make forward-looking statements that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties. These statements include our guidance for the second quarter and full year 2023, our planning assumptions for 2023, and our comments related to anticipated foreign exchange rates, operating margins, and share repurchase activity. 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 the most recent annual report on Form 10-K and quarterly report 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, May 8, 2023. 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, Gabs, and thanks, everyone, for joining us today. We had a good start to the year with stronger-than-expected growth across our key financial metrics. And I'm particularly pleased to see the TPV from our branded checkout meaningfully accelerate to 6.5% growth FXN, up 200 basis points from Q4, while our unbranded TPV growth also accelerated from Q4 to post year-over-year growth of 30% FXN. Even with the strong start, there remain many challenging issues to navigate as we look forward.

Both the macroeconomic and geopolitical environments are complex and difficult to predict. In these times, the strong message I'm giving the PayPal team is to focus on the things we can control. We know that job number one is to invest and innovate to improve our value proposition to our merchants and consumers. Since we honed our strategic priorities last year, we have consistently executed and delivered against our road map.

And this work is beginning to reflect in our results. Of course, we still have room to improve in multiple areas, but we are making large strides in upgrading our merchant and consumer experiences, which are both significantly strengthened from a year ago. We are focused on executing in the most cost-effective and efficient way possible. As you can tell from our non-transaction-related opex performance, we are more than delivering against our plan.

As encouraging as these early results are, I would point out that we are just at the beginning as a multiyear efficiency journey. For several years, we've been at the forefront of advanced forms of machine learning and AI to combat fraud and to implement our sophisticated risk management programs. With the new advances of generative AI, we will also be able to accelerate our productivity initiatives. We expect AI will enable us to meaningfully lower our costs for years to come.

Furthermore, we believe that AI, combined with our unique scale and sets of data, will drive not only efficiencies but will also drive a differentiated and unique set of value propositions for our merchants and consumers. So despite the fact that today's macro environment is difficult to forecast, we believe we are well-positioned to deliver a strong year and enter next year poised to reap additional revenue streams from the investments we are making in our products while continuing to drive efficiencies and reduce our overall cost structure. Let me now turn to our Q1 results. As I said, we were quite pleased with the quarter.

Our revenues grew by 10.4% FXN to $7.04 billion in Q1, nearly 1.5 points better than our guidance. Consequently, we anticipate our full-year revenues to be stronger than we expected, with the back half of the year being roughly similar in growth to the front half. We processed $355 billion of TPV, an acceleration of nearly 300 basis points sequentially from Q4 to 12% FXN driven by 5.8 billion transactions in the quarter. With our branded checkout growing by 6.5%, we believe we improved our global share of checkout and gained share in unbranded processing.

We saw our monthly active base slightly increased in line with our expectations, while TPA grew by 13% year over year. Importantly, our core PayPal consumer transactions per user improved throughout the quarter and, in March, was 400 basis points higher than in March of last year. In addition, we saw a consistent improvement in the quality of new cohorts in Q1 versus last year. For instance, our March cohort of new accounts had 24% higher TPA and 40% higher ARPA than in March of last year.

These results strongly reinforce our decision to focus our resources on engagement and driving high-value accounts. Driven by continued discipline and execution, our non-GAAP EPS for Q1 grew by 33% to $1.17, exceeding the high end of our guidance by $0.07. As a result, we are increasing our non-GAAP EPS guidance for the year to $4.95, up 20%. Our three strategic priorities remain consistent: improve our core checkout proposition, grow our unbranded processing, and drive adoption of our digital wallets.

We are making good and steady progress on each of these interrelated goals. I'd like to highlight our unbranded suite of services, including Braintree and our newest platform for SMBs and channel partners, PayPal Complete Payments. Within the highly fragmented processing ecosystem, our PSP offering across unbranded and other merchant services is growing faster than the market, and we are taking share. We believe that in an apples-to-apples comparison, our volumes in these areas are now roughly equal to that of Android and Stripe.

There are four points I want to make regarding our unbranded momentum. First, unbranded processing is a strategic imperative for us. Enabling our merchants with our unbranded service helps ensure that we have a deep relationship with our most important merchants. It enables us to bring our latest and most technologically sophisticated checkout integration across PayPal and Venmo and our buy now, pay later service to our merchant base.

Going forward, we will primarily focus on enabling unbranded processing and our latest branded checkout experiences through Braintree and PayPal Complete Payments. Based on our early observations, our share of branded checkout stabilizes or grows when our latest checkout integrations are in place. Second, we will continue to invest to help ensure our unbranded platforms are best-in-class, enabling our merchants to reduce fraud and increase their sales conversion rates. We will do this while providing a comprehensive orchestration layer that enables our merchants to have a single point of contact and integration in a multi-PSP environment.

Our platform reliability is now among the best-in-class, and our integrated servicing capabilities are increasingly differentiated. Third, we are focused on substantially improving the margin structure of our unbranded business. Our PayPal Complete Payments platform opens a new $750 billion TAM in the small and midsized business market, with a significantly enhanced margin structure compared with our largest enterprise customers. Our Braintree and PayPal Complete Payments platforms are also expanding overseas where we can drive higher margins.

And we are adding value-added services to our platform like risk-as-a-service, full omnichannel capabilities, payouts, and FX-as-a-service to both enhance functionality and add incremental margins. And finally, enabling merchants with our unbranded services will provide a constant stream of incremental data to feed our AI engines and fuel our next-generation checkout platform. We believe no other company will be able to replicate the unique nature and scale of our data set. And in the future, our AI engines will use that data to drive differentiated capabilities to improve the entire checkout experience for our merchants.

We anticipate that this combination of initiatives will enable our unbranded services to become a clear market leader, drive additional growth in our branded checkout, enable our next generation of checkout, and provide new sources of margin growth. And I would add that we continue to win and expand services with new marquee customers like Live Nation, Booking.com, and Adobe. Our focused efforts in improving our branded checkout are clearly making a difference in the market and in our results. Our product and engineering teams have driven substantial improvements in availability, latency, and passwordless login.

We also expect that our in-app native checkout solution via our APIs and SDKs, along with the deployment of our PayPal Complete Payments platform to our largest channel partners, should begin to bear significant fruit in bringing our legacy base to our latest integrations. Buy now, pay later continues to provide meaningful value to both our consumers and merchants. Over 32 million consumers have used our buy now, pay later since inception at nearly 3 million merchants. We are now one of the most popular buy now, pay later services in the world with $6 billion of TPV in Q1, growing at 70% on a currency-neutral basis.

Consumers spend 30% more on our branded checkout when using buy now, pay later, and we believe we have among the highest authorization rates and lowest loss rates in the industry. Venmo continues to grow its revenues by double digits, and we were pleased to see its TPV accelerate 550 basis points from Q4 to $63 billion. We're continually working to improve the Venmo P2P experience. This quarter, we launched an easier, more intuitive way to split P2P payments across multiple people, and we also increased the ad funds limit for Venmo to $10,000.

We recently added the ability for Venmo customers to transfer crypto to other users and external wallets, bringing it on par with the experience on PayPal. Later this year, we will add the ability for a Venmo user to pay a PayPal user and vice versa, bringing more utility to both customer bases. We are currently piloting the upcoming launch of Venmo teen accounts, which have been requested by both parents and teens for some time. Our Amazon and Starbucks experiences continue to grow nicely, and we recently launched PayPal and Venmo with McDonald's and just signed a deal with Microsoft to launch both Pay with Venmo and buy now, pay later for Microsoft's Xbox store.

Finally, I'd like to briefly touch on the search for my successor. The board has formed a subcommittee, and we are working with a leading search firm. We have detailed sense of criteria and skill sets to access both internal and external candidates. We still plan to announce my replacement before year end, and the process is well underway.

One of the most important criteria influencing my decision to retire was that felt that PayPal was on the right path to emerge from this economic climate in not only strong financial health, but also as a clear market leader in payments. Our results this quarter are another solid proof point that we are on that path. I'd like to thank all of our employees for their hard work and excellent execution. We still have a lot to accomplish and prove, but our customers are responding to our efforts, and that is and will always be our North Star.

And with that, I'll turn the call over to Gabs.

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

Thanks, Dan. I'd like to start off by thanking our customers, partners, and global team for helping us to deliver a great quarter. Our results demonstrate the relevance, diversification, and strength of our payments platform. We are reporting healthy volume and revenue growth. This solid top-line performance, in conjunction with expense management and efficiency gains, resulted in outstanding earnings growth.

Notably, we accelerated our revenue and earnings growth on both a year-over-year and sequential basis. Relative to the first quarter targets we shared with you in February, both our revenue and EPS outperformed. The foundation we established last year for cost discipline and to realize productivity gains allowed us to expand operating margins and deliver profitable growth. Before discussing our outlook for the second quarter, I'd like to review our first quarter results.

As Dan mentioned, revenue increased 10% on a currency-neutral basis and 9% at spot to $7.04 billion. This represents a three-year revenue CAGR of 15% and 20%, excluding eBay. Transaction revenue grew 6% to $6.4 billion, driven primarily by our unbranded processing volume. Other value-added services revenue grew 39% to $676 million, predominantly due to higher interest income on customer store balances and, to a lesser extent, solid performance from consumer and merchant credit.

In the first quarter, U.S. revenue grew 13%. International revenue grew 3% spot and 7% on a currency-neutral basis, accelerating both year over year and sequentially. Transaction expense as a rate of TPV came in at 93 basis points, 5 basis points higher than Q1 last year.

This increase was primarily driven by 30% growth in our unbranded processing volumes. These volumes grew approximately three times faster than our overall TPV growth. As a result, transaction expense dollars grew 17%. Transaction loss as a rate of TPV was 8 basis points for the quarter, a 2-basis-point improvement versus last year.

Transaction loss dollars declined 7%. Our ongoing risk mitigation activities and our mix of volumes drove this improved performance. Credit losses were $142 million or 4 basis points as a rate of TPV. We ended Q1 with $7.5 billion in net receivables, flat sequentially.

Originations were primarily driven by the strength of our buy now, pay later franchise. As we have discussed, later this year, we plan to externalize a significant portion of this portfolio, reducing our balance sheet exposure as securing a long-term partner to support sustainable and healthy growth. Our reserve coverage ratio increased sequentially to 7.8% in Q1 from 7.4%, reflecting growth in the consumer receivables portfolio and some deterioration in our PayPal business loans portfolio. Relative to Q1 2022, our reserve coverage ratio improved 50 basis points.

Similar to the broader industry, overall, we're seeing a normalization of our credit portfolio to pre-COVID delinquency levels. We continue to be pleased with the quality and diversification of our credit portfolio and are closely monitoring the macroeconomic environment while making appropriate adjustments to ensure we continue to perform within our internal risk appetite. Continuing the trend from 2022, growth of unbranded processing volume outpaced growth in branded volume, resulting in slower transaction margin dollar growth. Volume-based expenses in the aggregate increased 17%, and transaction margin dollars grew 1% to $3.3 billion.

Transaction margin declined to 47.1% from 50.9% in Q1 last year. While we do anticipate ongoing mix shift, we believe that this performance will improve as we execute against the strategies that Dan outlined to drive increased profitability across our unbranded processing volume and accelerated growth of our branded franchise. Strong discipline across non-transaction-related operating expenses more than offset the contraction in transaction margin. On a non-GAAP basis, non-transaction-related operating expenses declined more than 12%, with reductions in sales and marketing, technology and development, and customer support and operations expenses contributing significant leverage.

This expense performance resulted in 19% growth in non-GAAP operating income to $1.6 billion. This is the highest growth in operating income that we have experienced in eight quarters. Non-GAAP operating margin reached 22.7%, expanding 201 basis points from the first quarter of 2022. In addition, we're pleased to be reported $1.17 in non-GAAP earnings per share for Q1, representing 33% growth year over year.

We continue to be in a very strong position from a balance sheet and liquidity perspective, ending the quarter with cash, cash equivalents, and investments of $15.3 billion. During the quarter, we generated $1 billion in free cash flow. Cash taxes related to the intra-group transfer of intellectual property reduced operating cash flow by approximately $430 million. And in Q1, we allocated $1.4 billion to share repurchases.

For the full year, we continue to expect to generate approximately $5 billion in free cash flow and to repurchase roughly $4 billion of our shares. I'd now like to discuss our guidance for the second quarter and update our outlook for the full year. For the second quarter, we expect revenue to grow approximately 7.5% to 8% on a currency-neutral basis and 6.5% to 7% at spot. In addition, we expect non-GAAP earnings per share to be in the range of $1.15 to $1.17, representing growth of approximately 25% at the midpoint of the range.

For the full year, given our earnings outperformance in the first quarter, we are raising our outlook. We now expect non-GAAP earnings per share to grow 20% to approximately $4.95, an increase of 2 points of growth from the guidance we shared in February. At the start of the year, we indicated that our framework for 18% non-GAAP EPS growth in 2023, contemplated revenue growth coming in as low as mid-single digits. We also shared that our objective was to deliver revenue performance that exceeded this baseline.

Our first quarter performance and the guidance for the second quarter are meaningful steps toward achieving this objective. As Dan indicated, assuming that current macro conditions continue, we now expect our back-half revenue growth to be roughly in line with our performance in the first half of the year. Additionally, based on the expected contribution of unbranded processing volumes to our growth, we now expect at least 100 basis points of operating margin expansion in 2023. We are encouraged by our start to the year, and at the same time, mindful that the environment remains dynamic.

We're focused on execution and will be agile and responsive to how the macroeconomic environment is playing out. And we plan to continue to guide revenue one quarter at a time. To wrap up, we entered the year as a more focused business with strong fundamentals. We're off to a great start in 2023 and believe we're well-positioned to deliver revenue and earnings growth, expand margins and generate strong free cash flow.

We're continuing to invest to accelerate our growth and capture the meaningful opportunity ahead of us. In addition, our expansive scale enables us to realize additional efficiencies and productivity gains. We believe our digital payments platform is unrivaled in breadth and depth, which creates a powerful competitive advantage for us. And we have conviction that our strategy to accelerate our branded checkout franchise, improve the margin profile of our unbranded processing platform and strengthen our digital wallet will result in significant and enduring value creation for our shareholders.

We look forward to continuing to share our progress with you. With that, I'll turn it over to the operator for questions. Sarah, please go ahead.

Questions & Answers:


[Operator instructions] Your first question comes from the line of Tien-Tsin Huang of J.P. Morgan. Please go ahead.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Hi. Thanks a lot. Nice performance here on revenue. So I'll ask one question there.

Looks like Q1 clearly had -- like you talked about the second quarter revenue growth is in line with what we have in the model. It's 3 points lower than what was just reported here. And then you're calling for second half in line with the first half, which is better than what we modeled and better than what you guys talked about before. So my question is, how much of this change is macro-related versus maybe some momentum with some of the new products and integrations that, Dan, you're talking about as well as curious on share gains, if your thinking is different there.

And we've been curious if you've seen any sort of benefit from flight to quality with all the stresses in the banking system. Somewhere every work suggests that. So love to hear your thoughts on that, if you don't mind. Thanks.

Dan Schulman -- President and Chief Executive Officer

Sure. That was one question.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Yes. No, it's a lot. Sorry.

Dan Schulman -- President and Chief Executive Officer

So let me start with that and then Gabs can come in. First of all, obviously, we had a real strong start to the year, was stronger than our expectations, but we just missed around 11% FXN revenue growth at 10.4%. It's still 150 basis points better than our expectations on that. And I think what really pleased us on that is all parts of the business accelerated.

You had TPV gone up 300 basis points sequentially from Q4 to 12%. Branded grew by 200 basis points to 6.5%. Growth unbranded just continues to fire on all cylinders at 30%. And even Venmo was up almost 600 basis points.

And so it's a good strong start. And the other thing that we didn't mention is our Net Promoter Score, which is kind of how do our customers feel about us, is at a five-year high this quarter. So obviously, a lot of things are going the way that we hoped they would be. I think if you look at second quarter coming down, third quarter, and then fourth quarter, we're lapping some one-time events in Q2 and Q3.

That put pressure of about 1 point to 1.5 points on our growth. Normalized, you'd have Q2 off of those one-time things growing 8.5%, 9% or so. So that's kind of the normalized growth in the quarter. As we look out to the rest of the year in the back half what's changed in our outlook, first of all, we're one-third of the way through the year as opposed to just coming into the year.

And there are two things that we think are happening right now. First of all, our initiatives are taking hold in the market. There's no silver bullet on any one thing that comes in. These are a number of small things, whether it be improving latency 40% in the last year.

Our goal is to improve it by 50% by the end of this year. Our availability being at an all-time high. We are pretty much at 5.9s almost all the time. We're fixing bugs all over.

We're reducing friction. There are less calls coming into service unbranded. We put a lot of investment in that, and it is taking off. And we have very high expectations for what PCP can do in the small and midsized market and with our channel partners as well.

And we're seeing things like new cohort strength, as I mentioned in my remark, that are significantly higher than cohorts we've seen in quite some time. And so we know we still have a lot to go -- to do there. But when you have scale like ours, Tien-Tsin, and you start making small incremental improvements, it has a flywheel effect. And so we're pretty pleased with what we're seeing there.

The other thing is, look, we came into the year with really muted expectations around e-commerce global, e-commerce growth. We thought it could be anywhere from like negative 2% to maybe positive 2%, call it flat in general. We saw that pickup in first quarter. We think it could be low single digits, maybe mid -- as high as mid-single digits.

Clearly, consumers are turning more of their spend to e-commerce, and I think many of us expect it. And as long as we continue to see those trends, we think now it is very different than what we thought coming in that the back half growth is going to be equal to our first-half growth. So it's a much-improved outlook than we have before. Gabs, anything you want to add?

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


Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Thanks so much.

Dan Schulman -- President and Chief Executive Officer

Yes. You bet.


Your next question comes from the line of Lisa Ellis with MoffettNathanson. Please go ahead.

Lisa Ellis -- MoffettNathanson -- Analyst

Terrific. Thanks for taking my question and thanks for all the detail on the unbranded strategy. Just a couple of follow-up questions there, Dan, for you. One, can you elaborate a little bit on what's driving the 30% growth in unbranded TPV and how sustainable that is? Meaning, like, is it a couple of large clients that will eventually lap? Or is this more broad-based growth? And then second, can you just talk a little bit more about PayPal Complete Payments competitive positioning downmarket and where exactly you think that's going to win and what -- how quickly that will ramp? Thank you.

Dan Schulman -- President and Chief Executive Officer

Yes. So Braintree continues to do extraordinarily well. And it's not just winning incremental clients, but we are growing our share of the overall PSP volume in our largest clients as well. Look, we did expect Braintree and we do expect Braintree to moderate its growth, lapping some big deals last year.

But honestly, we're working on some big deals this year, too. And we've got a lot of momentum in Braintree. And I think its success -- it's differentiated. It's driven by an open architecture where we are perfectly willing to orchestrate transactions to third-party services and other PSPs.

And we've got our integrated servicing. We've got our availability. I think now it's among the best-in-class. I think we've got the lowest loss rates fraud in the industry, some of the highest loss rates may be up to 390 basis points better than others.

And we've got a number of great value-added services that others have, but we're expanding to, whether they be APMs or vaulting real-time card updates on payouts, and we're adding more and more that are really valuable to clients and also are very high margin like FX-as-a-service. If you look at audience results and you see how much comes from their profits come from FX-as-a-service, you can see why we're eager to add that. On the PPCP side of it, there are obviously some benefits as you move into the small and midsized market. First of all, you obviously have a higher margin structure than you do with your large enterprises.

And we clearly see that even in the PayPal button dynamics that we have. It's a really flexible, simple integration. It's fully featured as well. It's got all the APMs, including Apple Pay.

It's got vaulting IP plus, real-time account update or it's got all of our latest integrations. And it's integrated with Zettle for omnichannel capabilities. And it also is targeted at channel partners. And that's a really important thing.

And we're making some really, good progress in our initial conversations with last of our major channel partners. If those channel partners are hosted, they run their services as a hosted service, once we upgrade them to PPCP, our latest checkout integrations very quickly move into that merchant base, that's part of those channel partners. And it's a way of moving our long tail of merchants onto our latest checkout integrations. We're now, fully live with PPCP here in the U.S.

We'll expand to EU and to Australia next quarter. And the other really important thing about our unbranded services besides, the fact that they've got a deep relationship with our most important clients, if they drive a ton of data into our machine learning and AI engines, it's why we have among the lowest loss rates in the industry, the lowest instances of fraud, the highest conversion rates. And so we're not looking all of that together, it's why I really spend time calling out why unbranded is a strategic imperative for us. People have asked us about our transaction margin, what's happening with that, looking at our growth of unbranded.

To me, that is a high-class problem for us to have. We are winning in that market faster than we anticipated. We have a very well-thought-through strategy and set of actions to drive margin in that business. And we're very focused on making that happen, and we're seeing the beginnings of that already happening.

So I appreciate the question, Lisa. I think it's a really important one.

Lisa Ellis -- MoffettNathanson -- Analyst

Thank you.

Dan Schulman -- President and Chief Executive Officer

You bet.


Your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.

Darrin Peller -- Wolfe Research -- Analyst

Hi, guys. Thanks. Braintree growth and mix obviously were a factor on the take rate in margins, but if you could just help us understand the dynamics of margins in the second half. I know you're lowering incremental margin guidance by 25 bps to 100 basis points despite with obviously very strong expense management results.

Maybe you could just help us understand how much of that is related to either the Braintree mix versus any other variables in the second half we have to keep in mind. And just as a quick add-on to that, when would we expect the strength of the Braintree volume, we're seeing to actually translate to some higher-margin offerings at a faster pace? Thanks again, guys.

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

Yes, you bet. I'll start. You're right. So we have some margin dynamics that are worth calling out, as it relates to first-half versus second-half performance, specifically as it relates to operating margin.

Our Q1 operating margin performance was very, very strong with about 200 basis points operating margin expansion. In Q2, our expectation is actually that it would be ahead of that from an expansion standpoint. And so we're really delivering the vast majority of the margin expansion on the year from an operating margin standpoint in the first half of the year. The back half, we actually have some lapping dynamics and some nuances that will result in much more modest operating margin expansion for 2H overall.

Within that, I'd say it's worth highlighting that Q3, I'd expect to see some pressure on operating margin, maybe some slight pressure. And then in Q4, we'll see expansion again, but more modest expansion than you're seeing in the first half of the year, and really sort of what the drivers of that are, and Dan highlighted a few of them. We do have some lapping dynamics in the back half of the year. In Q3, specifically, there were some benefits on the TE side.

We're also beginning to really lap, the benefit from increased interest rates. And the increased revenue that we earn on customer store balances, that really starts in Q3 continued in Q4. So as we lap that, don't expect to see as much operating margin expansion in the back half. In addition, we began to really lap a lot of the cost savings work that started in the back half of last year.

And so while we do expect to see a meaningful decline in non-transaction-related operating expenses in both Q3 and Q4, from a percentage decline standpoint, it will not be as great as what we're seeing in Q1 and Q2. And so all that taken together will result in that differential between the first half and the back half op margin expansion for the full year. Again, we do expect to see at least 100 basis points of op margin expansion. That change that you called out between the 125 and at least 100, that is predominantly driven by the fact that when we're talking about our revenue being slightly ahead.

A lot of the benefit that we're seeing is coming from the Braintree business and having a lot more visibility in that pipeline, and that's contributing to our top line, but also having some margin impact. Dan, do you want to talk a little bit about the strategies in unbranded?

Dan Schulman -- President and Chief Executive Officer

Yes, I think maybe I'll take a step back for a second. I mean I think, look, our strategy on average and over time is to deliver double-digit EPS growth year after year after year. And we've had a good track record in general of doing that. We've got a well-thought-through strategy and a set of actions that's going to deliver increased transaction margin dollars, along with opex reductions, to make sure that we do that.

We've talked a lot about the initiatives that we're focused on, and we've been focused on the same thing for over a year now. Its drive branded checkout that's our No. 1 priority. All of our initiatives are linked to that.

It's our highest-margin service. It's our bread and butter, and we're absolutely determined to have that be best-in-class. We want to drive unbranded, because of all the things I talked about in my remarks. It helps us on branded share of checkout.

It helps us in our data collection and all of the things we can do with those, unique sense of data. In unbranded will be a new source of margin generation for us, without question. We are beginning to put those services already into place. Many of them will go into place by the fourth quarter, and I expect to see the majority of those things start to take effect in 2024.

And then clearly, we're managing our opex extremely well. And I can talk with more detail on that if anyone has a question on it. But we said-we thought it would be, negative high single-digits this year. It's likely to be 10%, negative 10% plus.

And if anybody thought costs were going up, they'll go down again next year as well. I can talk more about that. But we've got a real set of initiatives and strategies focused on this. We're executing against it, I'm confident that we'll be able to deliver on what we set out to do.

Darrin Peller -- Wolfe Research -- Analyst

It's really helpful, guys. Thank you both.

Dan Schulman -- President and Chief Executive Officer

You bet.


Your next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead.

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

Thanks, guys. Good to see the improved revenue outlook here. I actually wanted to switch over to the branded side of TPV growth. As you mentioned, you had a couple of points of acceleration there.

Wanted to understand which countries or verticals or other drivers, what was behind that.Would you attribute any material amount of the improvement through the rollout of advanced checkout? And then just any directional comments on how branded checkout TPV growth may trend during the balance of the year in support of the revenue outlook you talked about? Thanks.

Dan Schulman -- President and Chief Executive Officer

Yes. Thanks, Jason. I think maybe I'll grab that one. So if I just take a step back for a second, like we're the market leader in online checkout, right? We've got 35 million merchants, except those 80% of the top 1,500 online retailers in the U.S., except as there's no other is wallet that comes close to that acceptance.

Yes in general, our auth rates are about 600 basis points better than the industry average. It means every time a hundred things that a consumer does to buy from a merchant we approved six more of them. And we've got consumer trust and brand trust in that when a smaller midsized merchant puts PayPal on their website. They see a 44% conversion lift by doing that.

So these are really strong advantages that we're going to leverage going forward. But obviously, there's a ton of stuff we can still do, right? We're optimizing presentment. We're making sure that our best-in-class integrations are out there, whether that comes through our branded checkout, whether that comes through the new SDKs and APIs that we have, whether that comes through PPCP, going into channel partners. So-because we know when we have our best-in-class integrations, we either have stable share or growing share of checkout.

Our availability, as I mentioned, is closing in our 5.9s of latency, improved it by 40%. We'll improve it up to 50% better, makes a giant difference in conversion rates. Our passwordless login improved by 10 full points last year. We intend to grow that again this year, whether that be through pass keys or other ID, or forms of biometrics.

Buy now, pay later, we're taking share there, and we are intending to continue to take share there. Our auth rates are higher, we think, than anyone else is because we know the customers coming in -- over 90% of the customers coming in to buy now, pay later are already PayPal, customers that's why we think we also have the lowest loss rates. And we know-somebody mentioned flight to quality-that people are coming to PayPal and our buy now, pay later services. And we are targeting all of the largest merchants.

We know when our competitors contracts are up, and we are going after that business because we see a clear shift in market share as well as spend when we have buy now, pay later in our checkout flows. And obviously, we're now full GA on our mobile checkout with our SDKs and APIs. And we are now beginning to experiment with the first generation of what we call AI-powered checkout, which looks at the full checkout experience, not just the PayPal checkout experience, but the full checkout experience for our merchants. So we have a lot of things underway in our branded checkout.

But I will just say this, the team is executing extremely well here. When they say they're going to get something done, they do. They have a road map that they are consistently executing. What they think will happen is happening in the market.

And so I've got a lot of confidence that we'll continue to see branded share of checkout be strong. And we saw, by the way, in U.S., U.K. Germany, France, it'll expand most of the EU markets, Australia and improvement in our share position. Of course, there's odd one uniform measure of market share, but any way you look at it when you're a branded share or your growth goes up sequentially by 200 basis points, that's a lot of momentum.

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

Thanks, Dan.

Dan Schulman -- President and Chief Executive Officer

Yes, you bet.


Your next question comes from the line of David Togut with Evercore ISI. Please go ahead.

David Togut -- Evercore ISI -- Analyst

How are you thinking about the opportunity for cost savings and opex reduction beyond 2023? And in particular, if you could maybe weigh that against potential transaction margin dynamics as well to the extent those will continue next year based on the trend we saw in Q1?

Dan Schulman -- President and Chief Executive Officer

Yes. I'll start off, and then Gabs can attack the last part of your question. First of all, obviously, we had good solid progress against what we said we're going to do, negative 12% in Q1. I think our opex for the full year could decline as much as negative 10%, which is a bit higher than we expected.

And as I said in my remarks, we're just beginning on this efficiency journey. I think you're going to see our costs continue to come down year over year over year. And this is not just about efficiencies. By the way, it's not about cost reduction.

It's about doing things better. There's no question that AI is going to impact almost every function inside of PayPal, whether it be our front office, back office, marketing, legal, engineering, you name it. AI will have an impact and allow us to not just lower cost but have higher performance and do things that is not about trade-offs. It's about doing both in there.

The other thing that the teams are doing and doing extremely well is they're improving processes. Right now, they're removing friction with a much simpler onboarding process, first transaction resolution. We're seeing better engagement as a result, fewer calls, as I mentioned, higher NPS. You're seeing that in our newest cohorts coming in with significantly higher TPA and ARPA.

And so I think this is going to be a cost journey that we'll be on for a long time to come. And I think at the same time, we'll just be doing things better than we've ever been doing them before as well.

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


David Togut -- Evercore ISI -- Analyst

Understood. Yes.

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

Oh, please go ahead, David.

David Togut -- Evercore ISI -- Analyst

Yes. No. Just the second piece of that as well, Dan, which is, is there an inflection point you see coming in terms of transaction margin dollar growth accelerating at some point later this year or in early 2024?

Dan Schulman -- President and Chief Executive Officer

Do you want to take that?

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

Yes. So I really think about it as a multiyear journey that we're on to continue to transition the business and really drive more profitable volumes through the unbranded processing side, while at the same time accelerating the growth in branded. We're off to a really good start. Q1, we saw acceleration in the branded business.

It was very broad-based in terms of what we were seeing. And we continue to see very strong growth on the unbranded side of the platform. Sequential acceleration on unbranded given its size and scale is very impressive. Given the beta business that we run, it will take some time to see what I would see an inflection point in the overall sort of TM dynamics.

I would say Q1 did have some nuances to it, which included about 130 basis impact just from normalizing our credit provisions. So that's not specifically related to unbranded, branded mix. It really was sort of credit loss provisioning that impacted the TM rate as well. But to your point, as we move through the year, we do continue to expect to see a continuation of the TM dynamic that's put out in Q1.

There are some exciting trends that we're seeing in the business, however. So I'd say what we saw in cross-border in Q1 and the growth in that business is quite encouraging. It was the strongest quarter we had for cross-border really since Q4 of 2021. That, of course, has a higher yield to it overall.

So as we start to see some of those pieces of the business pick up, that will also help. And then just from a TM standpoint, we did see some pressure as well in Q1 specifically on the unbranded side for PayPal. And this is not Brain business. This is the transitioning of our unbranded processing on the PayPal side to PPCP has created some pressure in the quarter, which we don't to be sort of ongoing as we think about how we exit the year given what our expectations are for PPCP.

So we're continuing to be disciplined about the growth of the business. We do expect all these strategies to start to play out and start to help turn the overall TM profile, but I would expect it's going to take a number of quarters before we see what we would call an inflexion point.

David Togut -- Evercore ISI -- Analyst

Thank you.

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

You bet.


Your next question comes from the line of James Faucette with Morgan Stanley. Please go ahead.

James Faucette -- Morgan Stanley -- Analyst

Hi. Good afternoon, Dan and Gabrielle. Thanks a lot of time this afternoon. I wanted to follow up on one of the comments or topics you've mentioned quite a bit on this call, Dan, that's around engagement.

I wonder if you can give some update. You've mentioned that there's been some improvement in engagement, but I'm wondering if you can give an update on those initiatives, more specifically, how that's helping engagement and conversion, especially things like advanced checkout, etc.? And what kind of lift you're getting from that? And maybe give a little more detail of how we should think about the tie into some of the unbranded initiatives and if we think there can be further at least improvement in those engagement levels or uptake by merchants, etc.? Thanks.

Dan Schulman -- President and Chief Executive Officer

Sure. So first of all, as I mentioned, kind of we've got these three initiatives, they all tie together, and they all lead to driving more share and volume of branded checkout. So as we do more and more on our unbranded, we put out our latest integrations into the market. And when we put out our latest integrations in the market, we take away friction, we take away latency, and we see more engagement and a lot more checkout go through our latest integrations.

But one of the initiatives that we haven't really spent time talking about point is what we're doing on our digital wallets. So those are the three, right, drive engagement and monthly active users and ARPA through our digital wallets, drive our checkout, drive our own brand, and they're all linked together and then keep a tight envelope on our cost structure. Those are the four things that we're focused on. In the wallet, we're making good solid progress, whether that be on our Venmo wallet on the PayPal side of it.

Look, the PayPal app is already one of the largest commerce and payments apps in the world. It's used by about 55% of our base right now. That's up about 600 basis points year over year. And our app users are predominantly our monthly active users and our power users.

They've got 35% more ARPU. They've got 58% greater transactions for active on it. And their churn is at least 25% less than the rest of the base. And the thing that I'm really pleased to see what John Kim and his team are doing is that the velocity of experimentation in our wallets now is like nothing that we've seen in quite some time.

We have constant champion challenger, hypotheses going out, replacing challengers that have been overcome by the champion, and that just starts to lead to more and more engagement going through. As I mentioned on the consumer side, we saw consumer transactions per user increase every single month in the quarter. In March, they are 400 basis points better than March a year ago. And the whole idea of the apps right now are three specific areas.

One, upfront prepurchase, call that shopping, where it's really about discovery, saving, and rewards. We introduced rewards recently. We have over 6 million monthly active users in our rewards right now. Those that are using it have an increase in the 6 million of 45% in their transactions per active.

I mean these are huge numbers. We obviously need to go from 6 million to 10 million to 25 million, but that will happen over time. Then we have purchase, which is all about being the most flexible, easy way to purchase. Buy now, pay later really plays into that.

And there, we're clearly taking share. We clearly intend to drive that. And then we have post purchase, which is like things like how do I track my packages? How do I get refunds easily? How do I put that right into my wallet? And there, I talked about this in the last earnings call, on package tracking, we're now 100% ramped in iOS. We do all the package scraping now off of Gmail.

So in one place, you can see all of your PayPal purchases and non-PayPal purchases. So you can track all of that in one place. And again, for those users that have started to do that, their app engagement is up 32%, and their transactions are up 20%. And so all of these things, James, when you think about what we're doing on just being better in checkout, driving unbranded so that we can drive better integrations going forward and what we're doing in the wallet, they all link together to really drive our MAUs, which are our most valuable customers by far and away, and they went up slightly in Q1.

They are 20x, 30x more valuable than just an active user out there and to drive transactions and ARPA. So this is a flywheel. As you have said, it takes time to drive it. But a lot of the things we're seeing right now, the reason we are taking up our expectations for what we think our revenue growth will be, taking up kind of our EPS as well is because we're seeing distinct improvements take place in the market.

James Faucette -- Morgan Stanley -- Analyst

That's all I have. Thanks for that, Dan.

Dan Schulman -- President and Chief Executive Officer

Yes, you bet. My pleasure.


We have time for one last question from the line of Bryan Keane of Deutsche Bank. Please go ahead.

Bryan Keane -- Deutsche Bank -- Analyst

Hi. Thanks for taking the question. I wanted to ask about credit. Are you managing to book any different on credit given the macro and exposure to BNPL and merchants and just thinking about maybe the impact of provisions for credit losses for the rest of fiscal-year '23 maybe as a result of managing the book any different? Thanks.

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

Yes, you bet. Thanks, Bryan. So you'll see in the Q, which will be filed tomorrow, we did increase the provisions on the PBPL portfolio, which is the PayPal business loans portfolio. Overall, that portfolio is about 17% of our overall receivables, so sort of a sliver of our overall book.

We did widen our credit box in the middle of last year. We have seen some performance that was less strong than we would have liked that is working its way through our system. And so we increased the provisions. We've already started to see an improvement overall in a box.

I mean that's something that we'll just work its way through our systems. We expect delinquencies to worsen through Q2 peak in this quarter and improve throughout the remainder of the year based upon the origination strategy. But really, that piece of the book is a very small component of the overall portfolio. And I'd say more importantly, the area that we're really growing where we're really growing where the originations are quite strong continues to be the buy now, pay later portfolio.

And there, we've seen very broad-based strength. And so that's a really important part of our strategy. It supports the improved checkout performance in our business on the branded side, and we're excited about the continued growth of that business overall. We did mention in the prepared remarks that our expectation is to externalize part of that portfolio during this year and work with a partner to really provide sort of longer-term sustained support for growth in that portfolio.

As I say, overall, we continue to be very pleased with our credit portfolio. We've seen very good performance in -- across the book. We are seeing some normalization, which we expected to see as it relates to just sort of kind of normalization post-COVID and really getting back to what we historically seen in terms of performance. But in terms of reserve coverage, when we take a look at reserve coverage today versus when CECL started, which was the first quarter of 2020, we're actually a few hundred points -- a few hundred basis points better overall.

And so the book itself continues to be quite healthy.

Bryan Keane -- Deutsche Bank -- Analyst

Got it. Thanks so much.

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

You bet.

Dan Schulman -- President and Chief Executive Officer

All right. Well, I think we're at the top of the hour. So I just want to thank everybody for your great questions. Thank you for your time, and we look forward to speaking with all of you again soon.

So thanks, everybody. Take care. Bye-bye.


[Operator signoff]

Duration: 0 minutes

Call participants:

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

Dan Schulman -- President and Chief Executive Officer

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

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

David Togut -- Evercore ISI -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Bryan Keane -- Deutsche Bank -- Analyst

More PYPL analysis

All earnings call transcripts