We're gonna get into it. We have lots of topics to get into. Just to give kind of a rundown on what we're gonna attempt to cover, we're gonna start with a little bit of a one-year reflection on Jamie's first year at the company. Then we'll talk about sort of more recent or near-term trends, macro, what's happening with PayPal in Q4 and what they're seeing from consumer spend. Then we'll get into, in the spirit of making the most important thing the most important thing, we'll hit on the Branded Checkout button. We'll then move on to Braintree, Fastlane, PayPal Everywhere, and we'll talk a little bit about the initial gross profit guidance for next year. So with that, Jamie, again, thank you to you and the team for making the trip.
If you could start by giving us an update on how things have gone in your first year, a little bit of reflection.
Thanks. Well, first, thanks, Tim, for having us. We're happy to be here. You know, it's hard to believe it's been a year. But when you, when you look back, I think that, the one big thing I think most folks at PayPal would say, it just feels very different. The energy inside the company, you know, we've changed the entire team, at this point, and really changed how we run. And the last year has been focused on just restructuring that and really reformulating back into investment and innovation and really getting our execution muscle around how we innovate, how we bring to market, and, and how we really reinforce and reinvigorate some of our products. You know, with respect to finance, it was super interesting when I got there because, you know, our finance organization was very much built for total PayPal.
Almost every metric you looked at was a total PayPal metric. So, you know, one of the first things we did was deconstruct the function and really push it into the business and push it into the product. The amount of visibility and transparency we have now around unit economics, around, you know, market-based levers, around just our product performance, and how we're really pushing into deal construct, deal pricing in totally different ways than we were a year ago, I think, is really significant. In addition to that, the company has reinvented, re-architected all of its operating mechanisms.
And so how we bring that together in terms of the market cohort, cohorts we serve with consumer, with small business, with large enterprise, how that intersects with the products, and how that intersects with the geographies that we have too, all of that is a very structured review process with data, which, you know, we have all the business leaders going through every month in a very detailed way. And I think those things, coupled with just being very focused around our prioritization of engineering spend and marketing spend and how we're pushing that through, I think all of that is really what gets you back to just the different place. We're really excited about what we're investing in and really excited to see it start to have impact.
Excellent. Thank you, Jamie. That was a great way to start things off. Let's get into more of the macro kinda Q4, how things are trending, what PayPal is seeing.
So, 2024, we've seen continued consumer strength. You know, when you look at Branded Checkout TPV as an example, just very healthy through this year for us. Q4 is a little unusual this year, just the timing of the Christmas holiday, the timing of the Cyber Five being so much later than normal. We had a very nice Cyber Five, five days here, in branded. But it wasn't just branded either. It was Buy Now, Pay Later. It was Pay with Venmo. It was small business. So we feel really good about that. If I elevate back to the quarter, you know, I would say we're very comfortable with the guidance we gave at the third quarter call of mid-single-digit growth and feel really good about that.
Excellent. Thank you. That's a good update. Let's move on to Branded Checkout, which you just alluded to. So recently, you've been talking about this business as seeing a lot of strength with enterprise platforms, marketplaces. You've also noted international on multiple earnings calls. Maybe you could dive into some of those areas where you're seeing strength and what the driver is there. And in terms of your growth versus industry, if you look closely in the U.S., it does appear that you've somewhat narrowed the gap versus government e-commerce data, which is an encouraging trend. And maybe you can touch on what's been supporting that.
So as I mentioned in the last couple of comments, for us, Branded Checkout is our number one priority, and when you look at what we're investing in, all of that really is in service of Branded, and I can talk through each one of those things. You know, in the U.S., we've continued to see very strong PayPal engagement with our consumers. You know, we've done a lot this year to really change the PayPal app, to really change the experience, to change how Branded Checkout, the experience flows work for consumers and for merchants. And we're beginning to see just really better selection, better habituation around what we call the Flywheel in terms of how those intersect and work together and see that momentum start to come through. I would say internationally, you know, we're very strong internationally. We're a very global company.
And sometimes I think sitting in the U.S., folks tend to focus very narrowly on the U.S., but it's a very healthy, vibrant product outside the U.S. as well. And so when you look at that growth, it's interesting to me to see all of these same things as they go internationally next year. I think it's gonna be a nice, you know, continued wave there for us. But when you look at Branded itself, our primary focus this year for Branded has been about changing the consumer experience and getting that experience up with our merchants.
But the other pieces of it, bringing Buy Now, Pay Later to our pay sheets, really launching PayPal Everywhere so that, we're increasing the number of debit card transactions that flows through our Branded Checkout in addition to the halo effect that brings, you know, when somebody comes in with a debit card, you know, they're also more likely to transact two or three times that amount in a Branded Checkout transaction online. When you think about Pay with Venmo, where that's a Branded Checkout transaction, but it allows our Venmo users to use their Venmo debit, or their Venmo balance, I should say, you know, in a branded transaction online as well. And we now have Pay with Venmo up with very large merchants like StubHub and TikTok and others.
All of those things really come back to really Branded Checkout being our number one priority and how we invest in it.
All right. Excellent. Let's get into some of this topic around the modern integrations and the modern experience. So the, you've talked about some of the stats on your earnings calls around the 30, the 5%. So let's break it down. Generally speaking, the way the company's been communicating it has been within the US, a 30, 50, 20, right? So 30% of merchants that are on the modern integration, 50 that it's on their roadmap, and another 20 that it might be a kinda further down the road on the roadmap. For that first 30, you've mentioned that 5% of that is at the intersection of the modern integration and the modern experience. And that's the sweet spot where the conversion uptick really happens. So maybe you could talk through one, the benefits of being in that sweet spot.
Number two, how quickly can we get that 30 to be fully realized and then start attacking the next 50?
Yep. So first, let me take a minute and talk about what the latest Fastlane experience really brings, which is for the consumer, it is a much faster, cleaner experience. It is, you know, visually better. The integration with the merchant just happens in a much more seamless way. But more importantly, for the merchant, it provides conversion uplift of up to 400 basis points in terms of what we've seen so far. And importantly, it performs best in mobile. And it is so even better in mobile than it does online, which, as you know, that's an area we've been really focused on investing in our experience there for our merchants. So it's really positive, and we're excited about it. 5% of our merchants had the latest Fastlane experience.
I should say 5% of our transaction flow had our latest experience in play as of the end of the third quarter, and when we talked about it at earnings. The 30% you talk about reflects the number of merchants who are on our latest integration. And what that means is when you're on our latest integration, it means that it's actually pretty easy to get that new experience flow moving through the checkout process. And so it's pretty easy to get those, you know, flipped over and on the latest experience. When you get past that, we've got merchants who are on older integrations. And that is the body of work. You mentioned it as the 50% that is gonna take longer.
And what I'm excited about there, though, is that when you look at our early experience, we've now begun modeling for that bucket of merchants, their specific conversion uplift when they go to this latest experience. And it's really compelling. And so as we go to market, that is already integrated into our go-to-market motions and how we're talking to these merchants about it to really have them work with us to get that on their roadmap. So when you think about 5-30, that we're laser-focused on that right now. And in the coming weeks and months, that is what we fully expect to be able to pull through relatively quickly. I would say that the next bucket is the one that'll take a little bit longer, probably several quarters, to work our way through that. But that is our big project for 2025.
And again, when you flip this conversion uplift through, it just, it pulls right through in terms of branded TPV.
All right. Great. Thank you, Jamie, for running through that. Let's move on to the next topic, which is Braintree, repricing. So essentially, we think about this as talking with the merchant about the prices coming up. You accept lower wallet share, but that's more gross profit dollars netting back to PayPal Inc. And it seems like that's been happening based on the disclosures around volume growth and gross profit growth contribution. So maybe just talk through those discussions and how far along you are in having those with your largest Braintree customer.
So the last couple of years, PayPal, and I would say, up to 2024, the last couple of years, PayPal had made what I'd say is significant investments in Braintree revenue growth. And one of the first things we did coming in is really pivoted the team to profitable growth. I mean, we've been really focused on how we do that. And to your point, third quarter was the second quarter in a row where we've had Braintree contributing meaningfully to Transaction Margin Dollar growth. So it's really good momentum, and we're, and we're really happy to see that.
But what's really happening under the surface is for these really large merchants where we have intentionally gone after, you know, very, very significant percentages of their revenue processing. You know, we're going back to them and having just much more strategic and holistic conversations around just value exchange, really bringing more value to what they do as a merchant, whether it's value-added services, whether it's orchestration or payouts or risk as a service. But having a different kind of relationship with them and not needing to process all of their revenue, but being willing to pull back and taking lower percentages of revenue, so say from 90% back down to say 75%, but in exchange for having a much healthier margin profile on the overall relationship. And we've been successful in working our way through some of those conversations already.
And you see some of that already flowing through. But I think that coupled with the value-added service growth and even international growth are other components of how we expect Braintree to continue to move over the next couple of years.
Okay. Great. Jamie, I do wanna talk about the repositioning of Braintree in the medium term. But before we move on, if you don't mind, just in terms of the near-term modeling on this, the way we've been thinking about is we've got Braintree volumes kinda roughly flattish and maybe even turning negative in the near term, but with still that strong gross profit dollar growth. Is that how investors should be thinking about the near term, and then we'll get into the reset?
That's exactly right, actually, and what we expect to see, beginning in the fourth quarter, is PSP revenue growth and processing growth to come down to be potentially low single digits, potentially negative. But that'll occur for the next couple of quarters, and then we'll have a reset baseline. It's sometime in late 2025 from which we'll continue to grow from. Now, you have to remember, I mean, these are deliberate actions we're undertaking. It's healthy for the business. It is the right thing for us to do. But we are gonna see a little bit of a shifting there as we do it. And to your point about margin continuing to pull through, I used the example before about, you know, what I would say is a typical merchant renegotiation.
That is exactly what we've been seeing step change through as we've gone through 2024 and what we will continue to see ladder through as we go through the next couple of years as well.
Perfect. Thank you, Jamie, for clarifying that. And as we get into the Braintree in the medium term, so we appreciate everything we've been talking about here. It's very much temporary and a reset. And to your point, at some point later in 2025 or in 2026, we'll be back to the kind of steady state growth of Braintree. When investors think about that growth, should they be thinking about it as e-commerce as a base plus a little based on the fact that you still have some advantages versus some of your competitors, meaning the ability to cross-sell other products within the PayPal Inc?
I think it's probably too early to really target what that growth rate would be. But, you know, one of the first things we did when we came in is we really did a competitive tear down of Braintree to really look at how do we feel about who we are, you know, our service levels, you know, what we bring to our merchants, and really how do we think about how we price, the value-added services we offer, which ones we charge for, you know, how we charge for, you know, different fees throughout the process. And I think if I take a step back, what we really became very convicted about around Braintree and PSP in general is that we've got an excellent processing business.
I mean, really best in class in terms of uptime, so reliability, auth rates, all of that, and that we could do a better job with respect to more value-added services. We had some. We weren't charging nearly enough for them, but we had a lot of opportunity around the total business, and so when you start to look at growth, you know, we think about it both in terms of taking on more processing volume, and I see that in the U.S. I also see it as a nice opportunity for us outside of the U.S., particularly in Europe, but I also see value-added services as a really nice growth factor for us too, and, you know, I've mentioned a couple of times here, 2025, 2026, I really see this as a three to four-year continuum of how we can nicely tranche this business over time.
But, you know, how that plays out in terms of revenue growth, transaction margin dollar growth. Candidly, I focus more on the margin side of it and the tranching of that as being durable and growthy. But the revenue side of it, we'll have more view on that, I would say, as we get into 2025.
Excellent. Okay. Thank you, Jamie. Let's move on to PayPal Everywhere. So the debit card program, it offers 5% cashback on a category of the user's choice up to $1,000 per month. So it's a pretty attractive rewards program for a debit card. Maybe you could talk about what PayPal's seeing with PayPal Everywhere.
Yeah. I'm super excited about PayPal Everywhere, partially 'cause I love Will Ferrell, but also because of what it brings to our business, you know, and maybe I'll pause for a minute. You know, PayPal in September, we launched a marketing campaign with Will Ferrell to really launch PayPal Everywhere, which is bringing PayPal debit to tap to pay and having it be more ubiquitous as an omnichannel way to pay in addition to just thinking about PayPal as a branded online way to pay, and it's been really exciting to see it launch. So you mentioned the rewards piece of it. We are giving a rewards program.
It is capped, which means that the unit economics on the program stand alone, meaning when you tap with your debit card, that transaction for us is, from a margin perspective, as good as a branded checkout transaction, which is great. The better part about it is that when you do that, you are also more likely to then transact online either with your balance or with a branded checkout transaction generally. What that means for us is for every one time somebody taps to pay, we get two to three X that in terms of halo effect, with respect to the branded checkout business, which is fantastic. The other side of it is we saw really rapid growth. In the first four to six weeks after launch, we saw more than a million debit card users come into the program.
And so, we've been really excited about the momentum there. And, you know, again, it gets back to all of this is in service of how we bring more habituation around selection, around conversion, and consumers engaging with us so that it not only benefits us just, you know, with this particular product, but really gets us back to where we started in the conversation with branded being the most important thing we're really driving.
Right. Great. Well, also a good segue into Fastlane, which is support of the branded checkout. So let's talk a little bit about Fastlane. So outside of Fastlane delivering volumes to Braintree, you've also made it available in a processor agnostic manner. You've announced partnerships with Fiserv, Adyen, and Global Payments. Maybe just talk a little bit about what you're seeing early with Fastlane, whether it's on BigCommerce or other SMB type of settings, and also when these distribution partnerships start to kick in for next year.
Fastlane is a product that's really designed to help merchants get conversion uplift when consumers opt into guest checkout. It is up live with Adobe, with Salesforce, with BigCommerce, with Woo. We've got about 1,000 merchants or more than 1,000 merchants on Fastlane today. Importantly, it recognizes 170 million consumers. And I think that is the real attraction for merchants who want to use Fastlane is that when a consumer comes in, it is an experience where once they put in their email address, you know, it very quickly recognizes them, does the autofill. It's a seamless process, but it gives merchants about a 50-point conversion uplift, which is really significant. You mentioned Adyen and Fiserv and Global Payments.
And what we're really doing there is making sure that we can bring this same experience to merchants beyond just those that use our own PSP services, so beyond Braintree, beyond PPCP, and it really makes it more ubiquitous around how people can process and latch that into what they're already doing, but when you look at Fastlane, what we're focused on right now is that scale and that distribution as we bring it up.
Okay. Beautiful. So investors often ask about monetization of Fastlane. So, our understanding is that currently, you're more in a price discovery kind of mode, right? Getting the product out there, gaining data, and that we should start to expect maybe some degree of monetization deeper into 2025. Can you talk about how this product or this could be bundled with for some of your larger clients and/or priced on a discrete basis, maybe with some of the SMB channels?
Yeah. So as we've brought this in, we do have a pricing construct that is in the contracts. But I'll start with where I ended on your last question, which is we're really focused right now on scale and distribution. So getting this up with merchants, getting this up with the distribution channel, if you will, and getting it scaled in 2025. So we haven't turned pricing on yet, and we don't expect to probably for much of 2025. Absolutely. When you get into conversations, it is bundled in different ways. In some cases with some of the big players that, you know, we might be co-partnering with, it's more of a rev share arrangement. In other cases, it's actually, you know, priced individually, per TPV that flows through it.
But bottom line is we've got a really good view on the constructs of how we're doing it. We just haven't, we've chosen not to do that yet because we think the network effects come from getting the scale and getting the distribution flow really going.
Excellent. Okay. I think this is a great time to segue into gross profit growth for 2025. So on the earnings call, you gave an initial take and you said we should look at gross profit on total gross profit ex the benefit from interest income earned on customer funds that sits within OVAS. And year to date, that metric has been up roughly 4%. And we should think about it next year being at least that level. So maybe just talk about some of the moving parts that arrived at that initial fiscal 2025 gross profit guidance.
Yeah. So through third quarter, we had Transaction Margin Dollar growth of 7%. And when you back off the interest income benefit, it was about 4%. And the same dynamics with it, with a few changes are really what we expect next year as well. Just to repeat it though, we expect Transaction Margin Dollar growth in 2025 to be at least as much as that. And so I'll start with, you know, Branded Checkout. Branded Checkout is a healthy Transaction Margin Dollar growth contributor, and really, after interest income, the largest contributor to that. But we also see healthy contribution from Braintree and PSP and the initiatives we talked about a few minutes ago, also from Venmo. You know, Venmo continues to be a nice grower in terms of monthly active users.
The transaction volume growing, flowing through Venmo is. It just continues to be a very healthy product for us. The other piece that I would mention where we expect some shifting dynamic is we had a nice benefit this year from better transaction losses, and that rate bumped up by a couple of points. Now, as we launch new product, we're taking a pretty pragmatic view towards what we think loss rates will be, and you know, even in the fourth quarter, we're seeing that tick up a little bit with some of this new product launch we've had, and it would be expected that's what happens, and then we go in and we fix and we keep tuning the product. But as we get into 2025, that tailwind we had in 2024, we don't expect that to repeat.
In fact, we could have a little bit of headwind there. But the momentum we're seeing across these products I've talked about before with branded, payment processing, with Venmo, even the incremental around PayPal Everywhere and Buy Now Pay Later and credit, we think will be nice adders also as we go into 2025.
All right. Excellent. Thank you, Jamie. That was a great rundown. If we have time, we'll get to OPEX, but I think we should, in the time we have remaining, definitely hit the tax rate topic simply because investors are asking about this a lot in terms of the Singapore potential adoption of Pillar Two. So in your filings, it said that PayPal had roughly $444.41 million of savings in 2023, which is roughly $0.40 a share or so. We understand that there are certain mitigating actions that investors shouldn't run out and expect that the tax rate will see this full impact. Can you talk about what investors should expect and what are some of those mitigating actions that can help provide offsets?
Yeah. So we're a very global company, as you know, and we deal with a lot of different complex tax rules, you know, really around the world. But our tax rate really is derived from two primary things. One is US tax law, and the other is our regional mix of earnings. So the one thing I would say is that the disclosure we have in our 10-K, you just can't look at that in isolation. There's lots of puts and takes, and the team has been working a lot of mitigating actions with respect to when Singapore brings up Pillar Two. And so right now, I would say our best view is that we might see a couple of points of upward pressure in 2025 with respect to our tax rate, but it's probably too soon to actually put that in ink and say that's our guide.
I mean, we're still working through some of the offsets and some of the planning items. But when we guide at our February call, we'll bring that back through that.
All right. Thank you so much, Jamie. All right. I think we have time. We could work in operating expenses. So for next year, you also gave some initial thoughts on operating expense growth. So you mentioned sort of low, low single digit growth in non-transaction OpEx is a reasonable way to start thinking about the year. And we would just note that in the first half of the year, the comps are a little bit easier, a little bit tougher in the second half, given some of the deferred spending that was decided by the team this year. Maybe just talk a little bit about what went into that initial take on 2025.
Yeah. So 2024, as you mentioned, you know, first we've had a really good year of OPEX management. And I would say we came in with two things in mind. Number one, we felt like we had a lot of opportunity to drive efficiency in terms of what we did and how we did it. And our headcount, as an example today, is 10% less than where we started the year. So we've done a really nice job of, like, taking cost out in areas where we didn't need to be spending as much, enabling functions. Some of our operational support we've automated. And what we've done is we've reinvested those funds back into engineering, into marketing, and into product. And that's really fueled the investment in, in innovation that we've had this year.
And as we got through the year and really saw some of our progress there, we have greenlit more, more funds as, you know, whether it's in product innovation, we greenlit more marketing dollars for the second half. And so that's one of the reasons as well is why you see first half this year was lower, second half was very intentionally higher, but the second half also doesn't represent the 2025 run rate. And so we've talked before about 2024, we expect to end with about a low single digit, year-over-year increase. That's roughly the same way you should think about it for 2025 is low single digit increase, but more balanced and level loaded as we go through the year, so some of the comparisons to 2024 will be a little bit different. But marketing continues to be a strong focus.
It'll be at least as much as we spent in 2024, as does engineering. Engineering spend will go up as well, and we'll really fund that through some continued operational efficiency actions.
Okay. Thank you so much for clarifying that. I think we have time to work in one more. So there's been some reinvigorated growth and excitement within the company, new products, et cetera, all around Venmo. Maybe you could talk to us kind of in closing here around what's happening there.
Yeah. Venmo is a, I think, a super fun and exciting product. You know, we have more than 60 million monthly active users, and they are very engaged in the product. It is the most popular P2P app in the United States, which is awesome. But more exciting is the consumers are engaged. And when you begin to think about what it can bring to merchants, these are highly affluent young consumers. And so it's a really great cohort for us too. And you know, as we've looked at Venmo this year, we've really been focused on monetizing that platform in just a very methodical way. You know, it's just been something that hasn't been deeply invested in in the past. And you know, so what we've done is we've really refreshed the app.
We've brought in new features, new product features, scheduled payments, Venmo Groups, which you, if you haven't used, it's a really awesome, fun way to split bills with your friends or if you go on a weekend trip to make sure that you can track things. And it's a very, very seamless and easy way for people to share spend. But it's product features like that that have gotten people even more engaged. Our monthly active users are growing healthily, but importantly, our transaction growth has been very nice. But we've now started to bring it to merchants. And so Pay with Venmo as an example is something that's up more than 30% year-over-year. It's another way to pay, you know, when you go to a small business, when you go to, you know, even some of these big companies.
So Pay with Venmo and also Pay with Venmo Debit Card is the other one that is up 20% year-over-year as well. So fun investments, but we just brought in a new Venmo leader a couple of months ago. She's really doubling down, and so I'm excited to see where we can take this in 2025 as well.
That was a great place to end it. Thank you so much, Jamie. But first, I just want to say again, thank you to Ryan, to Steve, to Jamie, to the whole PayPal team for being such a big part of our conference on behalf of our team and all of UBS. We really appreciate you being here.
Thanks for having us here.