Good afternoon. My name is Gabriel, and I will be your conference operator today. At this time, I'd like to welcome everyone to PayPal's Q2 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the Ms.
Gabriela Rovinovich, please go ahead.
Thank you, Gabriel. Good afternoon and thank you for joining us. Welcome to PayPal Holdings earnings conference call for the Q2 of 2020. 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. Please note that we are taking this call from separate locations.
We appreciate your patience as we adjust to these new logistics. 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 the Investor Relations section of our website. We will discuss some non GAAP measures in talking about our company's performance. You can find the reconciliation of these non GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call.
Management will make forward looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include our guidance for the Q3 and full year as well as the impact of our acquisitions. 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 ks and quarterly reports on Form 10 Q filed with the SEC and available on the Investor Relations section of our website. You should not place undue reliance on any forward looking statements.
All information in this presentation is as of today's date, July 29, 2020. We expressly disclaim any obligation to update this information. With that, let me turn the call over to Dan.
Thanks, Gabrielle, and thanks everyone for joining us on today's call. And I hope that all of you are safe and well. I'm pleased to say that PayPal just had its strongest quarter since becoming an independent public company 5 years ago. Simply put, our business has never been more relevant and important than it is today. In the midst of the The world has accelerated from physical to digital across multiple industries, including retail.
Merchants are embracing a digital first strategy and these trends have fueled the rapid rise of digital payments. These are durable and meaningful tailwinds and we are fortunate to have the scale, scope of services and brand reputation to capture the benefits of these trends and extend them to our customers. Consumer behavior has shifted in a discontinuous manner and PayPal clearly has a unique opportunity to accelerate its path to becoming an everyday essential service. The strength that we saw across our business in April continued to gain momentum throughout Q2. Our transactions grew by 26% to 3,700,000,000 dollars consistently rivaling the volumes that we usually experience during the 5 days between Thanksgiving and Cyber Monday.
Transactions on our PayPal checkout experiences remained especially strong, growing almost 40% year over year. TPV grew at 30% on an FX neutral basis with a record $222,000,000,000 of processed volume in Q2. TPV accelerated throughout the quarter and June marked our highest growth rate since our separation from eBay. We added a record 21,300,000 new customers in the quarter, increasing nearly 140% year over year. To put this in perspective, this quarter's net new actives were greater than our total net new actives in 2016.
Nearly 1,700,000 merchants signed up for PayPal in Q2 and Honey net new actives were nearly 3 times that of Q1. Importantly, we continue to see increased levels of engagement. Our 10 day adoption rate for our newest cohorts grew by 20% to 30% over last year. And across our PayPal base, our daily active users have accelerated by almost 40% from last year. We ended Q2 with 346,000,000 active accounts and with over 26,000,000 merchant accounts.
Given our momentum, I believe that we will add approximately 70,000,000 net new actives this year. These trends drove record financial performance in the quarter. Revenues grew by 25% on an FX neutral basis to 5 point $26,000,000,000 accelerating after our strong 20% revenue growth in April. This is the first time our quarterly revenues have exceeded $5,000,000,000 Due to the strength of our PayPal branded transactions, our non GAAP operating As a result, our non GAAP EPS grew by 49% year over year to $1.07 And all of this led to record free cash flow of $2,200,000,000 in the quarter, up 112%. In the first half of twenty twenty, the penetration of e commerce as a percentage of retail sales outpaced prior external forecasts by an astonishing three to 5 years.
In this environment, the demand for our products and services has dramatically increased and unleashed multiple opportunities. We are focused on several key initiatives to fully leverage this unique moment in time. 1st and foremost is our push to accelerate in store contactless payments. Both consumers and merchants are rapidly moving towards digital payments across their online and offline experiences. This is an existential issue for merchants who realize that reopening their retail stores depends on touchless forms of payments to keep both their employees and customers safe and healthy.
There are numerous market research studies highlighting that consumers no longer want to handle cash or other forms of payments that require any physical touch at checkout. We are significantly investing to accelerate our presence in all forms of omni channel commerce from point of sale in store to buy online and pick up in store, order ahead, pay at table and home delivery. In addition to iZettle, contactless cards and integration with both Google Pay and Samsung Pay, we announced that our QR code functionality is now available across 28 countries for small and micro merchants. And we are working with leading retailers throughout the U. S.
And Europe to aggressively roll out an integrated point of For instance, we are working with CVS Pharmacy to enable PayPal and Venmo QR codes for payment at their cash registers and we expect a full national rollout to their 8,200 standalone store locations by the end of the year. Our merchants and our consumers want us to expand in store and we will not let this opportunity pass us by. The rollout of QR functionality will also accelerate our Venmo monetization efforts. Venmo also had a very strong Q2 with record 60,000,000 consumers. In Q2, Venmo grew its TPV by 52% to almost $37,000,000,000 Revenues continue to outperform our expectations with year over year growth rates of greater than 60% during the 1st 3 weeks of July.
We are seeing substantial increases in the use of Venmo as the pandemic continues on, as more consumers turn to Venmo to live their financial lives, including adoption of direct deposit functionality and later this year the Venmo credit card. We recently introduced business profiles, a unique new way for consumers and merchants to connect on Venmo and exchange goods and services with the same protections enjoyed by PayPal customers. These initiatives will drive significant additional value to Venmo users and consequently drive new vectors of monetization. We are also expanding functionality beyond omni checkout in both our PayPal and Venmo digital wallets. We will roll out additional services over the next several quarters, including bill pay, subscriptions and rewards management, shopping tools from Honey and new forms of credit and budgeting tools to name just a few.
Our goal is to meaningfully expand the range of services provided inside our wallets. We believe these and other actions will bring us closer to having a full set of capabilities for consumers to use on a daily basis. Our rapidly increasing scale makes us highly relevant to merchants of all sizes and provides us with large sets of data to offer customized services and solutions. Over the last few years, we have developed, acquired and grown a strong and diverse portfolio of capabilities that address many of the current needs of our merchants. These range from end to end digital payment processing to sophisticated risk management and shopping tools that ultimately help to drive increased sales and engagement so that our merchants can thrive in the era of digital commerce.
And it's the combination of these assets together that provides unique competitive differentiation for our enterprise merchants, channel partners and small business customers. Providing merchants with a comprehensive, consistent, simple and unified experience remains a guiding principle for us as we continue to add new products and services. And as is evident by the number of merchants signing up for PayPal, our integrated platform has never been more relevant or needed. We continue to extend our platform capabilities around the world. We recently entered into an important commercial relationship with Gojek, a leader in mobile commerce in Southeast Asia with 170,000,000 users.
In Brazil and Mexico, PayPal is available as a payment option in the MercadoPago online checkout for shoppers. And PayPal is now available for cross border transactions on Riccardo Libre. And we continue to build our team and capabilities in China as we integrate with our GoPay platform, partner with China Union Pay and other leading Chinese players. COVID-nineteen was not the only set of issues we addressed this quarter. As all of you know, we are witnessing an outpouring of emotion and determination to address centuries of systemic racism.
In June, we announced a comprehensive $530,000,000 commitment to support black and minority businesses and to fight economic inequality. We felt it was necessary to not just condemn racism, but to commit to doing the necessary work over the long term to help create a more socially just society. Even as we navigate these unprecedented times as a business, we have the ability to act in a way that clearly represents our values, especially around inclusion. We still have lots of work to do, but we are fully committed to a future where all people can live with dignity and respect. This is also a special quarter for PayPal because it marks our 5th anniversary as an independent publicly traded company.
During that time, we've dramatically expanded our platform capabilities, value proposition, geographic footprint and our market leadership. However, I believe the next 5 years will bring about even greater opportunities. We have an ambitious vision for PayPal to be a central player in the future of the digital economy. I'm confident we can drive towards that goal. We have a solid track record and an unwavering dedication to delivering essential differentiated and best in class services to merchants and consumers.
This is our time and we intend to seize the moment. Our products and services have never been more important and we are ready and well positioned to capture the opportunities that lie ahead of us. And with that, I'll now turn the call over to John. John?
Thanks, Dan. I'd like to start by thanking the entire PayPal team for their efforts to serve our customers and execute on our priorities during these unprecedented times. Since our last earnings call, the encouraging business trends that we've called out have persisted, and we're reporting the strongest quarterly results in our history. As Dan discussed, in the current operating environment, our business has inherent advantages. By many estimates, the pace of e commerce penetration has accelerated by several years in a single quarter, and there is greater demand for contactless payments than ever before.
These shifts play directly to our strengths and will enable us to advance our competitive positioning. At the same time, there is ongoing uncertainty as it relates to both the progression of the coronavirus as well as the state of the macroeconomic environment. We are carefully monitoring the pace of recovery and these interconnected dynamics. This overall level of macro related uncertainty has resulted in increased complexity and building our forecast. It is with this backdrop that we're updating you today on our business and our outlook for the remainder of the year.
Our 2nd quarter performance highlights the benefits of PayPal's diversification and scale and our resulting earnings power. We delivered 25% revenue growth on a currency neutral basis, 49% growth in non GAAP earnings per share and generated $2,200,000,000 in free cash flow. We did all of this while absorbing ongoing pressure from reduced travel and event spending and lower revenue from our credit products. I'll now provide the details of our financial performance for the quarter and then our expectations for the rest of the year. Revenue in the 2nd quarter increased 25% on a currency neutral basis to $5,260,000,000 Transaction revenue grew 30% on a currency neutral basis, the strongest growth we've ever reported.
Growth accelerated 13 points year over year and 15 points sequentially. Transaction revenue growth was primarily driven by strength across our PayPal checkout experiences, which more than offset the approximately 60% decline we saw within our travel and events volumes. For context, travel and events represented slightly more than 10% of our TPV in the Q2 last year. In addition, cross border volumes increased 24% in the quarter, which also supported transaction revenue growth. Other value added services revenue declined 26%.
Lower credit revenue in the quarter resulted from a number of factors. These included customer relief actions, fewer merchant loan originations, the lapping of $58,000,000 of interim servicing revenue from Synchrony recognized in Q2 last year, and an approximate $17,000,000 impact from increased expected credit loss provisions related to macroeconomic adjustments. Lower interest income due to lower interest rates globally also contributed to this decline. Revenue from Honey, also part of this line item, only partially offset these headwinds in the quarter. In the 2nd quarter, transaction take rate was 2.23% and total take rate was 2.37%.
Compared to the Q2 last year, these declined 2 basis points and 13 basis points, respectively. Transaction take rate increased sequentially and excluding the effect of person to person volumes increased year over year as well, reflecting strong volume growth from PayPal checkout experiences. Moving to our volume based expenses. As a rate of TPV, we are reporting record low transaction expense and transaction loss performance. Transaction expense was 83 basis points as a rate of TPV, a decline of 11 basis points versus Q2 last year, primarily due to the funding mix on our platform in the quarter.
Transaction loss was 12 basis points, an improvement of 2 basis points year over year and the 5th consecutive quarter in which we performed in this range. Risk mitigation strategies and risk model enhancements continue to drive this improved loss experience across our platform. Together, transaction expense and transaction loss provided 3 35 basis points of leverage. At the same time, given current economic forecast, we increased our macro related reserves for expected credit losses by $117,000,000 This flows directly to our income statement, increasing credit losses by $100,000,000 and reducing other value added services revenue by $17,000,000 After taxes, this adjustment to our provision represented a $0.07 per share impact to earnings. Entering the quarter, our reserve coverage was 17%.
With this additional increase in our reserve, we exited the quarter at 22% coverage. Overall, the combination of our strong revenue and volume based expense performance resulted in transaction margin dollars increasing 26% to approximately $3,000,000,000 Our transaction margin expanded 179 basis points to 56.6 percent, 3 35 basis points of margin expansion from transaction expense and transaction loss was partially offset by 156 basis points of deleverage from loan losses. Non transaction related expenses increased by 10%, resulting in 326 basis points of leverage. Customer support and operations as a line item contributed more than 40% of this leverage. Excluding the impact of our recent acquisitions, non transaction related expenses increased 3% or only $0.04 for every incremental dollar of revenue, once again demonstrating the scalability of our business and our operating discipline.
Operating margin for the quarter was 28.2%, improving more than 500 basis points year over year, the highest level of operating margin expansion we've reported in our history. Strength across all parts of our business contributed to this performance. Non GAAP other income in the quarter declined by $60,000,000 relative to last year, predominantly driven by increased interest expense from a higher debt balance and reduced interest income from lower interest rates. For the 2nd quarter, non GAAP EPS increased 49% to $1.07 Our earnings performance demonstrates our ability to successfully execute in the face of a more challenging operating environment as well as the strength and resilience of our platform. Excluding the macro related charge for expected credit losses, non GAAP EPS would have increased 59%.
We ended the quarter with cash, cash equivalents and investments of $16,200,000,000 In May, we raised $4,000,000,000 in long term debt with a weighted average effective interest rate of 2.26 percent. We ended the quarter with $9,000,000,000 in long term debt. In addition, we generated $2,200,000,000 in free cash flow in the quarter or approximately $0.42 of free cash flow for every dollar of revenue. And year over year, free cash flow grew 112%. We're very well positioned from a balance sheet and liquidity perspective.
This solid footing gives us the flexibility to successfully navigate this environment and emerge stronger. We've identified several opportunities to accelerate our long term growth and advance our leadership position in digital payments. As a result, in the back half of the year, we plan to invest heavily in support of these plans, which I will discuss in more detail shortly. I now want to shift to our expectations for the rest of 2020. With more than half of the year behind us, our strong results and ongoing momentum as well as the secular tailwinds that have accelerated this year, we are reinstating our full year guidance.
While the timing of the end of the pandemic and the eventual path to economic recovery remain unclear, we have more visibility and confidence in our trajectory for the remainder of 2020. Our updated full year outlook is a significant raise relative to our prior guidance for revenue, earnings and free cash flow. For the back half of the year, our overall expectations are that TPB and revenue will perform in line with the 2nd quarter, with 30% volume growth and 25% revenue growth on a currency neutral basis. We also believe non GAAP EPS will grow approximately 25% on a spot basis in both Q3 and Q4 based on the strong leverage we're seeing and our investment plans. As a result of these expectations, for the full year, on a currency neutral basis, we now expect TPV to grow in the high 20s percentage range and revenue to grow approximately 22%.
In addition, for the full year, we now expect to grow non GAAP EPS in the range of 25%. I'd also like to note that included in this guidance for 25% EPS growth is our expectation that the other income line item will reflect a net expense for the year, given lower interest rates on our corporate cash and the debt we recently raised. Relative to the guidance we provided in January, our updated guidance represents a raise of approximately 3.5 points of growth to revenue and 9 points of growth to earnings. In addition, we now expect to generate more than $5,000,000,000 of free cash flow this year, an increase of $1,000,000,000 relative to our prior guidance. I'd like to give some context for this improved outlook.
The revenue growth we expect reflects continued strong performance in transaction revenue, partially offset by ongoing pressure in our credit products. It also reflects a 1 point headwind to growth from the eBay managed payments migration. The rate of growth we're expecting for the year represents a 7 point acceleration from 2019 and is indicative of the elevated and sustained engagement we're seeing across our platform. In addition, we now expect our operating margin to expand by at least 100 basis points relative to our prior guidance that would have been flat versus last year. Based on the mix of transaction volume and our strong business trends, we expect to continue to show transaction margin expansion throughout the rest of the year.
At the same time, included in this guidance and partially offsetting transaction margin expansion are our plans to invest approximately $300,000,000 in the back half of the year to advance our key priorities and accelerate our growth initiatives. We believe that we have a unique opportunity to strengthen our competitive positioning and extend our leadership. We've never been more relevant to our customers around the world, and we're focused on doubling down in several areas to help ensure that we sustain and enhance our strategic advantages. This is quite possibly an inflection point in the growth of e commerce and digital payments. And as a result, we're electing to invest much of our margin improvement to help ensure our long term success.
We believe that the guidance we're providing today is consistent with the significant advantages from which our business is currently benefiting. Relative to when we last reported earnings nearly 3 months ago, we have more confidence in the sustainability of the elevated e commerce trends we are seeing. When at first felt like a potentially short lived phenomenon resulting from initial panic and pantry packing and even stimulus checks has become a much more durable and profound behavioral shift. We've seen the strongest and most encouraging new customer volume and engagement trends in our history. At the same time, given our exposure to travel and live events, we've watched demand in these verticals essentially grind to a halt.
Our business has demonstrated its ability to withstand exogenous shocks. And the diversity and scale of our platform is allowing us to outperform even while absorbing meaningful pressures. 3 months ago, the idea that our PayPal branded experiences would enjoy TPD growth for an entire quarter at a level consistent with and only previously seen during high velocity holiday selling days like Black Friday and Cyber Monday was bold and even somewhat inconceivable, especially in the midst of a global pandemic and the highest levels of unemployment in our lifetime. And while we know more today than we did a few months ago about both the virus and the economy, there continues to be palpable uncertainty. As we sit here today, the concept of normalcy is being redefined and at times feels elusive.
What we do know is that this is a pivotal moment in PayPal's history. We believe that we've never been better positioned to realize our ambition for greater relevance, ubiquity and impact as a global payments leader. We recognize that this is our time to capitalize on our strategic position and financial capacity to serve our customers better and to advance our platform. And we're committed to achieving our full potential. In addition, through this period, we've learned a lot about our organization and its resiliency and what we can accomplish when we're focused on delivering against a defined set of key objectives.
We're committed to continuing to support our employees, our customers and our communities through these challenging times and to create sustainable long term value for all of our stakeholders. I'll now turn it over to the operator for questions.
Thank Thank you. Your first question will come from the line of Tien tsin Huang of JPMorgan. Please go ahead.
Thanks so much. Really terrific results here. Just trying to think about what to ask upfront here, but with you've got record new ads, volume, engagement numbers, all great. So is there a way to maybe hone in on what changed since April? What's driving the performance?
If you had to rank the biggest factors enough to give you confidence to reinstate guidance and call for sustainability in the Q3 in relation to what we talked about last quarter? Just trying to maybe summarize that if you don't mind.
Yes, sure. I'll take a crack at that. So obviously, our best quarter by far both on the NNAs and engagement particularly. Just to give you some color around it, Simpson, $21,300,000 you knew what April was, but May June were equally strong in our net new actives. And these are high quality LTV NNAs that come from our core markets around the world.
Merchants were up about 3 times what we typically see. This is really a reflection of industries moving towards digital first strategies. And we see that continuing. Honey, I talked about being up 3 times Q1. It's got the perfect value proposition for these economic times.
Venmo obviously had a record NNA quarter. Zoom, which we didn't talk about last time, Zoom, which has a great value proposition. Zoom, NNAs were up over 600% in Q2 versus Q1. And because of all that, we're beginning continuing to see substantial year over year growth and we believe we'll add about 70,000,000 NNAs, which is at least double what we typically do in a year. On the engagement side, I think it's possibly even better news than the NNA side.
We look at 10 day engagement for our new cohorts, like how many of our new cohorts are doing 4 or more engagements within the 1st 10 days. And that's up even further than what we saw in April. That's now up 20% to 30% versus previous cohorts. Our daily active user versus last year is up and consistently so by about 40% versus last year. And our churn, which is a really important number as we think about NNAs going forward, has also meaningfully declined, as well.
And so why is all of that happening, I think. And obviously volumes, I talked about very quickly, but I think what's important on the volumes is that April was our low, June was our high in terms of volume growth. So you can see the acceleration throughout the quarter. And that by the way is with travel and ticketing events down 60% or so. And outside that, Braintree is experiencing some of its best growth in a long, long time.
So volume continues to accelerate. But the reason for all of this from my perspective is the following. First of all, we see a tremendous amount of new cohorts coming in that have never used e commerce before. That's mostly Silvertech. We talked about that.
That continues to be the fastest growing segment of net new actives. We're also seeing a huge amount of new use cases. People are giving in different ways. They're basically doing P2M activities for like workouts that are streaming. We're seeing new industries come on to digital because like the digital economy is everything right now.
And so you're seeing healthcare, education, fitness, restaurants, entertainment, all swinging dramatically. Now for the first time sell directly to consumers online. And verticals that have been online, but people had been experimental with them like groceries and home and garden are booming at close to triple digit percentage growth. And if it basis, with the scale we have now and the corresponding network effects, it's very hard for a merchant not to have PayPal on there. When they have PayPal, they see a sales lift as a result of that, sometimes up to 50% plus.
And by the way, our placement in merchants now is improving as well as they see how critical PayPal is. And then our brand giving new products and services that we have right now, including QR codes coming out. All of that kind of gives us so that the results we're seeing as we look forward, which is why we felt comfortable reinstating guidance for the year. John, do you want to maybe add a little bit to that?
Yes. So I just had one small comment, Tien Tsin. I think for everyone, the sustainabilities of e commerce and digital payment trends is the big question. And I think one of the things that gives us a little more conviction is we're 3 months further along than we were on the last call, is just seeing the elevated levels of the community and regions that have relaxed some of their shelter in place or social distancing measures. And even when consumers are going back to somewhat normal activities eating out at restaurants or shopping in grocery stores, the level of e commerce penetration is still much, much higher than what we saw pre COVID-nineteen.
And so I think that's one of the things that we've watched closely that I think is a fairly good indication of the trends going for the rest of the year.
Yes. That sounds like it. Thank you both.
Okay. Thanks, Senza.
Your next question will come from the line of Heath Terry of Goldman Sachs. Please go ahead.
Great. Thanks. Dan and John, really appreciate the level of detail in all of that. To dig into one area with the eBay expiration, can you update us on the strategy and positioning in marketplaces, particularly how you're servicing some of the faster growing ones like Shopify, given what's going on there today. What does the strategic roadmap look like and what does it mean for PayPal?
Yes. It's a good question, Heath. I'll start off with that. I think first of all, eBay is going to remain a very important customer over the foreseeable future. Jamie and I have had good conversations about that.
They've been quite positive. And I thought you saw that reflected in some of his comments yesterday about our partnership. It is what our mutual customers want. And the impact of managed payments has been forecasted by us for quite some time. John mentioned it's part of what we're putting into our guidance for the rest of this year.
And honestly on that front, from what we see with a very high share of checkout with merchants who have moved to intermediated payments. Our checkout share can be from 50% to 75% depending on the country. And when we do research and we do a lot of it with merchants who use both PayPal and eBay, The difference in NPS in terms of how they think about an intermediated approach and the PayPal approach is quite substantial in favor of PayPal. And so we really have seen obviously some merchants move, but not a large number to date. And if anything, we're feeling better about our projections than we have, but we're just beginning the end of the operating agreement right now.
So we feel comfortable that this is a very manageable transition going forward. I think your point is a really interesting one about other marketplaces. And if you look at the top 15 marketplaces that we serve today, Shopify being one of them, Etsy for instance being another, and you look at their growth rate, the growth rates of all 15 of those marketplaces that we're quite close partners with approached 100% in Q2. Yes, it's just amazing growth to go and see that. It was 3 times the growth of what we saw on eBay.
If you look over the last year or so, it's something like 7 times the growth of eBay. And we have spent a lot of time working with those marketplaces to be quite close partners with them. From Shopify to some others that are just being meaningful marketplaces like Facebook and Google, were formed for Facebook marketplaces and Insta Shopping. We just announced a partnership with Google and we are working with other major marketplaces as a result of the operating agreement. Huge growth vector for us.
We are participating in that growth and our roadmap is quite focused on value added services for those marketplaces. But things like payouts, which we really have taken a good lead in and other things are elements around the world that we can provide services and capabilities to those marketplaces because we are a global player. John, anything you'd add on that? No.
Nothing to add, Dan.
Okay. Great.
Thanks, Dan.
Thanks, John.
Your next question will come from the line of Lisa Ellis of MoffettNathanson. Please go ahead.
Good afternoon. Thank you for taking my question. Hey, Dan and John, can you elaborate a little bit on the QR code strategy? Specifically, what types of merchants are you targeting? What steps are you taking that are going to drive consumer adoption of actually whipping out the PayPal or Venmo Wallet at the physical point of sale and for QR, meaning in which cases is PayPal versus being a pass through?
Thank you.
Yes. I think I'll take the first crack at that. Look, obviously, and you heard this in my remarks upfront, this is a key strategic priority for us. I think it's critical in driving daily use. And we will make the investments we need to do in order to be successful here.
This doesn't happen overnight in the next quarter or 2, and we have the conviction that this can be a meaningful part of our business as we look over the medium term. Part of the reason for this is, this is really demand driven. In other words, reaching out to us, with us to implement this and I'll talk about why that is. But look, 70% of people have health concerns about shopping in person and touchless payments in store. Retailers realize that consumers want it.
And we are now to small and micro merchants across 28 countries and by the way seeing very expected but very encouraging growth and expected because we know that the demand is there. But we are actively working right now, Lisa, with more than 100 large enterprise merchants across the U. S. And Europe. That doesn't mean that all 100 happened this year, but over 100 large merchants as well as quite a number of channel partners.
And those range from terminal providers to point of sale providers to acquirers to networks to distribute our QR codes, all of that across Venmo and PayPal. And of course, we announced today our partnership with CVS. And those are the kinds of merchants that we want, merchants where people shop there every day, they're highly known merchants or use cases that people use touch us every day. So why do I think it will be successful? First of all, as I said, it's demand versus push.
And by the way, we are going to put aggressive marketing dollars behind this to make sure that consumers know they can use QR codes, promotions around it. And as John said, it's a large part of the investment that we'll do in the back half of this year. 2nd, merchants love the scale and the brand that we have. In the U. S.
Alone, we've got between Venmo and PayPal, call it 150,000,000 to 170 5,000,000 people who are using our digital wallets. They can go after the Venmo demographic And by implementing this QR code, unlike some of the other touchless tap and pay options that have much less customers associated. Here you have the scale and that is something that they are eager to tap into right away. 3rd, this isn't just about touchless payment, just scanning a QR code, this is about the value proposition around that. This is about being able to use rewards, being able to have the integration of some of our Honey capabilities into that.
So merchants can do proximity messaging in it, offers inside of that. You can use your wallet and do full funding of any of the funding instruments, including your rewards points in that QR code. And so that's the functionality that we'll roll out over the next 6 months. So this value proposition is one that I really like a lot as well that goes beyond just be safe and healthy when tapping or scanning your phone. And of course, QR codes are platform and OS agnostic, any handset, any operating system.
And in terms of the economics, for the most part, it's a certain percentage, a little bit like what we have in online, not necessarily exactly the same percentage, but even at LEs, larger merchants, it will be similar rates to other in person rates that you have. So we think the economics over the medium term are quite positive for us. Some will be pass through, but most will be incremental economics. John, anything?
Thank you.
Elyse, I would just add one other thing. As we think about what this offering provides for our consumers, but also the economic benefits of PayPal, It's not just in the direct unit economics that come through a point of sale transaction. Very importantly to us is what this will do to the overall level of engagement for consumers. So if you're using us in an offline setting, you're much more likely to use us when you have the opportunity online. So there is a halo benefit that comes along with this usage that is very important to us as well.
Terrific. Thank you. Congrats, guys.
Thanks, Lisa.
Your next question will come from the line of Darrin Peller of Wolfe Research. Please go ahead.
Thanks, guys. Nice results. Just look, just given these substantial incremental margins, we're seeing margins overall up over 500 basis points.
What can you just touch on your strategy on
the balance between the investments you want to make in the business versus margin expansion? It's great to see the higher base, but when we think about we're hearing from clients that you guys really should be stepping out on the gas in terms of the opportunities you can have. So just love to hear more in terms of where you're going to be putting those dollars and the balance. Thanks, guys. Yes.
Thanks for that, Darren. I'll start off and then John can come in. Look, 1st of all, just in general, we invest where we see opportunity. That's been what we've done over the years. I think it's why we've had the results that we had.
We could always have higher margins without investing in the business. But that's not what I think all of you and our shareholders want from us. There is huge opportunity in front of us. I think probably more opportunity than we've ever seen before. And we have the opportunity to invest in new areas of the business that we think can be meaningful contributors to our growth as we look forward, but even more importantly, meaningful to our customers, merchants and consumers in terms of the capabilities that they are asking for us.
And so as John said, plus or minus in just in the back half of the year, we're investing an incremental $300,000,000 or so. And the places we're investing in is in store. I just talked about that and why that's so important. But also we want to invest in our digital wallet capabilities. We have an aspiration to be an everyday use case and to be a central part of a customer's life in the digital economy.
And so in the next several quarters, we plan to roll out quite a number of additional capabilities, not just in store from QR to tap to pay to cards, but rewards capabilities. By the way, rewards are being used much more because people aren't being able to use their rewards for travel. And we're seeing an uptake in people using their rewards points to check out using PayPal. Well, obviously, are pretty much now almost 100% complete with our Paymentus integration. The next step is bill pay into our apps and that we intend to have probably towards the end of this year.
We're going to integrate Honey shopping tools around wish list, coupons, rewards into our PayPal apps, eventually into our Venmo apps as well, subscription management and other capabilities, other financial services that I won't really go into any detail around today. But I think you can think about like a substantial change in the amount of capabilities that we offer through our digital wallets across PayPal and Venmo. And then finally, there are a couple of international markets where we think investment makes a ton of sense, whether that be China, which we're obviously investing in through GoPay. We're seeing explosive growth in Mexico, Japan, Brazil, really frankly across Western Europe. It's been amazing to see what's happened there.
So we will invest continually in this business and we invest what we think is the right amount to drive results. And if we need to invest more, we will invest more. And if we don't have things to invest in, we'll return that back to shareholders. But we've given guidance that we believe enables us to do the proper amount of investment, to take advantage of the opportunities in front of us because this is a moment in time for us.
Darren, if I can just add quickly. You referenced our margin profile in your question. And I think that's pretty important to this discussion because what we're demonstrating right now is the real scalability of our operating model. And you know Darren, like I frequently focus on the incremental margins in our business, How much profit did we bring in for every incremental dollar of revenue. And in the quarter, those incremental margins were the highest they've been for us ever at 50%.
But actually, I think that there's a better way of looking at that, that is more apples to apples. And that's if you exclude the losses related to the credit reserve and you exclude acquisitions, that incremental margin was actually 70%, seven-zero. And what that does is result in free cash flow like you saw us generate in the quarter at over $2,000,000,000 And so as it gets to how we spend that, we've always been balanced between M and A, organic investment and returning cash to shareholders and we've also been opportunistic. And to the points that Dan was making, this is a time that we think it's very important to invest in a lot of these initiatives because as I said on the last call, while these trends are seemingly changing right in front of us, we don't want to just want to be on the receiving end of that. We want to help shape the outcome here and so we want to invest into that.
Thanks guys.
Okay. Thanks.
And your next question will come from the line of Bob Napoli of William Blair. Please go
ahead. Thank you and congratulations on everything on the trends. On Venmo, wanted to follow-up on Venmo, 60,000,000 customers now. I think the last revenue number we've gotten was a $450,000,000 revenue run rate exit exiting 2019. There's a lot going on, the direct deposit strategy, commercial strategy, obviously, the QR codes integrating Honey.
What can you give an update on the revenue run rate? And then maybe a little color on the direct deposit strategy or which of these strategies are going to be the biggest movers? And I think direct deposit can be a game changer, but I'm not sure your customer is in Venmo is going to be easy to crack on direct deposit. So some color on Venmo and the different strategies and revenue trends would be really helpful.
Sure, Bob. It's good to speak with you. We don't provide an update on BMO's revenue each quarter, and we don't have one this quarter. But want to say that, I think across the board, this was one of Venmo's best quarters ever. We saw growth on their platform reaccelerate from the dip in Q1 to where it was over 50% growth in volume.
And I think what's notable about that is we all recognize that much of the Venmo usage historically has been around social experiences. And as those have by and large gone away for the most part, we're seeing new use cases developed with Venmo, which really demonstrates relevance and importance to our customer base, I think is as good as anything. And so with respect to the monetization strategy, it's not just one strategy. It's a multifaceted approach that includes things like direct deposit to increase usage, include things like business profiles, include things like QR code and then of course, we're eventually launching the Venmo credit card later this year. Right.
And we'll continue our efforts as well around the pay with Venmo in an e commerce setting.
Yes. Just one quick addition to that, Bob. I would not underestimate how zealous the customers of VIMOR about living their financial life on the platform. I think each of these capabilities, whether it be direct deposit, whether it be business profiles, the credit card and a number of other things that we'll be adding. You are being rapidly adopted.
The new use cases, as John said, are so interesting to see as millennials, instead of going to the restaurant are now eating at home or outside or at the table instead of going into a gym or doing fitness classes through streaming, instead of going to concerts or other entertainment are now doing things online. And we're seeing all of that reflected in the usage of Venmo. And so I think as John said, this was obviously its best quarter. But I think Venmo as we're continuing to invest in Venmo because it's got a really bright future and is really a crown jewel of ours.
Great. Thanks, Dan. Thanks, John.
Your next question will come from the line of David Togut of Evercore ISI. Please go ahead.
Thank you. Good afternoon, Dan and John. Could you drill down into the sequential tripling of the drivers of the sequential tripling in net new accounts for Honey? And any pull through benefits you see on the for the PayPal ecosystem as a whole?
Yes. I think in this economic environment, frankly, and even before this, because you had so many people struggling to make ends meet at the end of the month and that's just been made even worse by the economic ramifications from the pandemic. But Honey's capabilities are a perfect fit for consumers and merchants at this time. And increasingly, I see the possibility to establish Honey as one of the most efficient market making platforms for both shoppers and merchants. I mean, consumers get the best price on the merchandise that they want and then they receive rewards based on that, which incents them to do additional activities, build out their demand curves.
And then merchants can customize offers right into that demand curve. So they know exactly what to do to get X amount of demand off of that. And it's really interesting when you think about we've always known the identity of people and we've always known that they've made purchases. What we haven't seen is intent upfront and you really have this perfect set of data that helps both sides of our 2 sided network when you put all of that together. And it wasn't just that Honey's NNA's grew 3 times.
By the way, the revenues were up basically triple digits or so, almost double as well. And I'd just say a couple of quick things on that. One, the integration is fully on track. There's been no delays in any of our initiatives. We will start to export through APIs, the Honey tool sets into our PayPal wallets and within QR codes.
And this to your point about part of the PayPal ecosystem, we hope to have a seamless one click PayPal checkout experience when shopping at Honey Merchant. So I'd just say all in, yes, I'm really pleased with the integration so far. It's right on track and I think we've got a real powerful set of capabilities ahead of us.
Thank you. Congratulations.
Yes. Thank you.
We have time for one last question from James Faucette of Morgan Stanley. Please go ahead.
Hi. Thanks a lot for taking my question. Dan, John, you guys have highlighted a lot of the strong trends and your increased confidence that those can sustain. If we look at your second half guidance and the strength you're anticipating there, How should we think about extrapolating that into the future in terms of what makes sense to think about from a growth and margin expansion perspective going forward and kind of what are the key things that we should be looking for in 2021 beyond? Thanks a lot.
Sure, James. This is John. I'll take that. There's still some uncertainty out there. I think macroeconomic uncertainty as well as how the overall path of the virus plays out.
And so it's still a difficult environment to forecast in. We feel comfortable enough about the things that we're seeing in our business right now though to provide second half guidance. But I think the broader question is like what is this due to our medium term guidance. And I think it's very difficult to argue that there are not structural benefits to what's happening to our business. I mean, there are definite secular tailwinds that I think are going to have us really rethink what that growth trajectory is over the longer term.
We're obviously not prepared to provide that today. We're just updating or reinstating our guidance for the year. But there are definitely compounding benefits that are coming to our platform. And some of the things that we've all talked about, contactless payments in store, they're happening right now. We've talked about the depth of cash for years.
So maybe this is that inflection point, that seminal moment. And so we believe that PayPal, given our position, is a structural winner in that scenario. And certainly, I think it gives us cause to rethink that medium term guidance, but it's definitely premature to do that at this point in time. Yes. If I
can just add into John's comments. I think it's clear that we've tipped into a digital first economy. Look at the number of merchants that are coming on to our platform, 1,700,000 in just 1 quarter. We have conversations with merchants around the world, large and small, all of them, all of them trying to figure out how do they implement their digital strategies in an accelerated fashion. If you look at market research that just came out from, for instance, the Business Roundtable that where 70% of consumers say they're going to shop online more frequently and expect to continue to do so because it's easy and convenient.
And so I look at all the different industries, we are clearly becoming a digital everything world and that acceleration has happened and it's going to continue to happen going forward. And there's sort of one market research study after another. And as John said earlier, when we look across the world, we look at countries that have opened, where now 80% of retail is open before there is maybe only 30% of retail open. You're still at very, very high levels and still high levels of daily active users compared to last year. So my view on our medium term is there are way more opportunities than there are challenges around that.
We need to see another quarter or 2, but it's likely that that goes up. I mean that's probable and we are investing into our growth as well. And when we invest, we expect a return on that investment. And so I would say, we feel good enough right now that we've reinstated 2020. We feel great about the opportunities.
We're investing in them. And give us another quarter or 2, and we'll provide updated guidance on medium term as well. Okay. Well, listen, I just want to thank everybody for your time today. I just want to say again that I hope all of you and your families are safe and healthy and we sure look forward to being able to see all of you Have a good rest of the evening.
Bye bye.
This concludes today's conference call. You may now disconnect.