Good day, ladies and gentlemen, welcome to PayPal's Q4 2015 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, instructions will follow at that time. If anyone should require assistance during the call, please press star then zero on your touch-tone telephone to reach an operator. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Mr. Tom Hudson, VP of Investor Relations. Sir, please go ahead.
Good afternoon. Thank you for joining us, welcome to PayPal Holdings' earnings release conference call for the fourth quarter and the full year of 2015. Joining me today on the call are Dan Schulman, our President and CEO, and John Rainey, our Chief Financial Officer. We're providing a slide presentation to accompany the commentary during the call. All growth rates mentioned in these prepared remarks represent year-over-year comparisons unless they clarify otherwise. In all segments, results are adjusted for the effects of foreign currency exchange. In discussing year-over-year comparisons, including guidance growth rates for the first quarter and full year 2016, we have chosen to present non-GAAP pro forma metrics, which reflect items that are factually supportable, directly attributable to the separation of the company from eBay Inc.
on July 17th, 2015, and expected to have a continuing impact on the company's results of operations because we believe that these metrics provide investors a consistent basis for reviewing the company's performance across different periods. This conference call is also being broadcast on the Internet, both the presentation and call are available through the investor relations section of the PayPal website at investor.paypal-corp.com. You can visit our investor relations website for the latest company news and updates. In addition, an archive of the webcast will be accessible for 90 days through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures in talking about our company's performance, including the non-GAAP pro forma metrics mentioned above.
You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties. These statements include, but are not limited to, the future performance of PayPal, including the expected financial results for the first quarter and full year 2016. Our actual results may differ materially from those discussed in this call for a variety of reasons. You can find more information about risks, uncertainties, and other factors that could affect our operating results in our registration statement on our Form 10 as amended and our subsequent annual reports on Form 10-K and quarterly reports on Form 10-Q, available at our IR site, investor.paypal-corp.com. You should not rely on any forward-looking statements.
All information in this presentation is as of today's date, January 27th, 2016. We do not intend and undertake no duty to update any information. With that, let me turn the call over to Dan.
Thanks, Tom. Good afternoon, everyone. Thanks for joining our call. I'm pleased to report that PayPal had a very strong Q4, topping off a solid year. We delivered every one of our 2015 commitments to shareholders, driving payment volume, revenue growth, operating margin, and free cash flow above or at the high end of our guidance range, despite considerable pressure from foreign currency headwinds. We exited the year with considerable momentum. In Q4, we acquired more customers than in any other quarter in PayPal's history and further accelerated our payment volume and revenue growth rates. Payment volume increased 29%, and revenue grew 21% on an FX neutral basis. Our merchant services payment volume accelerated to 36% FX neutral growth, substantially greater than the rate of e-commerce, leading to another quarter of increased market share gains.
For the full year, we delivered $282 billion in payment volume, up 27%. FX neutral revenue growth of 19%. We also continued to strengthen our lead in mobile payments. In 2015, almost 30% of the payments made on our platform were from a mobile device. We operate a complex global business. PayPal is a full-services technology platform where we acquire both consumers and merchants and perform all payments processing. This includes risk and fraud prevention, customer service, and new products like international remittances across online, in-app, and in-store environments. Despite that complexity, our business model success can be reduced to four key metrics: our top-line growth, our net active customer base, the engagement of that base, and our ability to produce strong free cash flow. In 2015, in the face of a constant stream of competitive announcements, PayPal accelerated the strength of our business across every key metric.
We grew our top line, posting full-year revenue of $9.24 billion. As I mentioned, this was up 19% on an FX neutral basis, which was above the high end of the 15%-18% full-year guidance we communicated during our roadshow. Q4 revenues accelerated to 21% to $2.56 billion. We expanded our customer base in Q4 with a record-breaking 6.6 million new accounts, including 1.6 million from Xoom. As a result, we ended the year with 179 million active accounts, adding over 17 million net new accounts this year. Our continually expanding customer base strengthens our competitive position and makes our platform deeply relevant to merchants and partners around the world. In addition to attracting more customers to our platform, we increased the level of customer engagement by significantly enhancing our consumer value proposition.
We measure consumer or customer engagement by the number of transactions per account, and I am pleased with our progress on this front. We ended the year at over 27 transactions per account, driving nearly 5 billion transactions across our platform for the full year. We continued to generate strong free cash flow. In 2015, we generated $1.8 billion in cash and over $1 billion of that in the second half of the year alone. This cash flow provides us the flexibility to pursue multiple options and opportunities. Our accelerating performance, combined with our increasing ability to execute and innovate, provide us a high degree of confidence in our future. As a result, today, we are announcing a 2 billion share buyback program, which John Rainey will discuss in more detail.
There are two massive changes underway in the world, the digitization of cash and the mass adoption of mobile phones. This dynamic is creating a seismic shift that is transforming money and the very nature of commerce. PayPal is playing a leading role in this transformation, and we feel our assets are well-suited to drive further differentiation. These trends present us with the opportunity to be at the center of people's daily financial lives and position PayPal to become the go-to platform for digital payments globally. We are in the lead because no other payments technology platform offers the combination of advantages that PayPal does. We benefit from our unmatched and growing global scale, our rapidly expanding customer base, our trusted brand, our unique two-sided network, our open platform and technology-agnostic offerings, our risk management, and our global customer service capabilities.
All of these assets drive the success we witnessed in the quarter and throughout 2015. While many others are attempting to play in this space, PayPal continues to gain market share quarter after quarter, attracting new customers and increasing the engagement of our existing base. It is becoming increasingly evident that payments is a hard business to crack. The combination of strong secular tailwinds and our increasing ability to execute across multiple fronts provides us a long runway for growth, and we are working hard to greatly expand the value of our technology platform for consumers and merchants around the world. For consumers, we are focused on using our technology platform to facilitate the movement and management of money. That means more than simply enabling commerce. It means we are reimagining what basic consumer financial transactions can be in a world dominated by mobile and software.
We want to leverage our globally trusted brand and define digital money. This allows us to extend our platform to reach underserved markets and expand our value proposition to include international remittances, bill payment, person-to-person payments, and charitable giving. We made a significant step forward in the expansion of our platform with the close of our Xoom acquisition. Xoom is the latest example of PayPal adding new capabilities to acquire new customers and increase engagement. It is a mobile technology leader that enables customers in the U.S. to send money to and pay bills for family and friends in 41 countries around the world. The cross-border P2P opportunity is significant, and Xoom will accelerate our growth in that market. Of course, we continue to be a preferred way to enable consumers to shop online.
This year, Cyber Monday was our biggest online shopping day in PayPal's history, with our platform processing almost 450 payments per second in our peak hour. The power of the PayPal platform is also demonstrated in other ways, such as our ability to help consumers drive social impact. Throughout this year's holiday season, $857 million was raised globally for charities through our platform. This unprecedented level of year-end charitable giving was driven by the generosity of more than seven million people from 183 countries who supported more than a quarter of a million charities. These are amazing stats, and they demonstrate the power of our platform in helping to make a real difference in the world. The growth of Venmo clearly conveys our ability of our platform to connect people to each other by offering simple and engaging ways to move money.
This past year, Venmo processed $7.5 billion in payments, up 213%, with $2.5 billion of this volume being processed in the fourth quarter alone. We made good progress in setting up the technical infrastructure to allow customers to pay online merchants with the Venmo app. This new feature became available to select merchants for pilot implementation in December, we are now live with two merchants, Gametime and Munchery. We plan a robust rollout of Pay with Venmo throughout 2016, we will continue to introduce and expand features that will allow us to monetize our Venmo asset, providing our customers the ability to use Venmo to pay friends, shop, and eventually access a host of other basic financial services. We also made progress expanding the ability of consumers to use PayPal in-store by making it easier for merchants to accept PayPal's tokenized payments.
PayPal signed a strategic agreement with First Data to enable the acceptance of PayPal tokens in-store for First Data's acquiring clients and businesses. This is an important step forward in driving availability of PayPal at the point of sale, as First Data is the largest U.S. merchant processor. We believe the shift towards tokenization is an opportunity that will significantly help our business, enabling PayPal to expand and grow our ubiquity. PayPal was the first company to introduce tokenization and has always tokenized customer data to make payments safer for customers and simpler for merchants to accept. PayPal's tokenization capabilities allow portability of tokens with greater safety and security than most solutions today. We also handle more payment types than just credit cards. This means merchants don't have to process a different set of parameters for credit card, PayPal, or any other new payment method introduced.
It can all be done with one token. With more than one billion tokenized payment instruments and a 17-year head start with tokenization, we intend to leverage our expertise and scale to further enhance our growth across multiple channels. For our merchant customers, PayPal has evolved beyond being just a button on their website. We are slowly but surely being recognized as providing a full suite of payment solutions to help their businesses grow. By doing so, we continue to further differentiate our value proposition from other competitors. This includes a robust set of APIs from our platform that allows a merchant to easily integrate across multiple payment types, as well as a rewards and offers module into their own app.
We are providing our merchant base the options they need to propel their business forward, to connect with their customers in new and powerful ways that go well beyond substituting the tap of a mobile phone or a card swipe. We are providing the tools and platforms to help power new and engaging value propositions. One Touch has been a driving force in helping merchants and consumers to interact in a frictionless manner. In just over six months, more than 15 million consumers have opted in to use One Touch, and today, PayPal is processing millions of One Touch transactions each month, showing true innovation at scale. More than 50% of the Internet Retailer 500 and more than one million merchants in 23 countries have One Touch enabled to make it easier for their customers to check out quickly and securely.
We expect that number to grow significantly throughout the year. We will roll out to an additional 100 countries in the next six months. Importantly, we continue to see a significant lift in conversion when One Touch is used, and we see increased consumer engagement. Braintree's v.zero platform, now fully integrated with PayPal's merchant and consumer technology stacks, continues to make substantial strides in the market. As we enter 2016, the backlog of merchants that are waiting to go live to site has never been stronger. To put that into perspective, the implementation pipeline is equal to 100% of the merchants that went live to site in 2015. We are also seeing strong growth in our PayPal Credit products.
PayPal Credit is available at millions of online stores as a funding option through the PayPal wallet, giving consumers enhanced flexibility for how they pay, while often boosting basket sizes for merchants. In addition, we have tripled the originations of our PayPal Working Capital product and helped to boost the Net Promoter Score for merchants who use PayPal Working Capital to almost 80%. In the past few months, we've made great strides to broaden our universe of strategic partners, which now includes some of the world's leading social media networks, mobile carriers, commerce platforms, and financial networks like First Data. In Q4, PayPal continued to expand our business relationship with Alibaba, launching a pilot program for select vendors who sell on alibaba.com, the B2B section of Alibaba's website, to accept PayPal. In December, PayPal announced Braintree is powering the commerce experience for Facebook's Messenger platform with Uber.
With this new feature, users can request a ride from the car service without ever needing to leave a conversation or provide new payment information. The service uses Braintree's tokenization to process the payments regardless of whether the consumer has an Uber account. Increasingly, we're enabling merchants and consumers to connect and transact on demand virtually anywhere, anytime, and within any context. 2015 was a foundational year for PayPal. We completed our separation from eBay. We are now largely complete with the re-platforming of our technology stack, allowing us to innovate and bring new experiences to the market with major product releases every two weeks. We established our vision and mission to redefine the new PayPal, and most importantly, we are aligned as one team and executing against our game plan, and our results demonstrate that.
As much as we accomplished in 2015, I believe that 2016 will be the year in which our new value propositions and experiences begin to demonstrate how PayPal can widen its lead in a world rapidly moving towards digital and mobile payments. It will take us time to fully execute against our full potential, but I firmly believe we are strengthening our set of assets, capabilities, and value propositions for both consumers and merchants, and we look forward to demonstrating that in the year ahead. With that, let me turn it over to John.
Thanks, Dan. I also want to thank all of PayPal's customers and our 17,000 employees worldwide for making 2015 a great year. We had a strong fourth quarter and exited the year with good momentum, growth in active accounts, payment volume, and revenue, all accelerated from the previous quarter. We grew faster than the market and gained market share. Total payment volume for the year was $282 billion, an increase of 27% on a currency-neutral basis, which accelerated one point over 2014. Our share gain demonstrates that our strategy is working as we focus on being the customer champion and move from being a payment button to an end-to-end payment solution for merchants of all sizes. In the quarter, we added 6.6 million new active accounts, including the acquisition of Xoom. This was our highest increase ever.
Excluding the acquisition of Xoom, we added over five million new accounts in the quarter, which was a high-water mark for the year. At the end of the quarter, 56% of the total active accounts were outside of the U.S., demonstrating our global reach. By adding capabilities and services like credit and remittances, we are becoming more relevant in our customers' daily lives. As a result, the number of payment transactions per active account increased to 27, up 12% from a year ago. We expanded our merchant footprint and simplified the checkout experience for our customers through the continued rollout of our One Touch product. We extended our reach in the quarter to 75 of the 100 largest North American internet retailers and continued to add important retailers internationally, like IKEA. We continue to drive the growth of mobile payments.
During the year, we processed 1.4 billion mobile transactions and $66 billion of mobile payment volume, which was up 44%. Turning to our quarterly results. For the fourth quarter, PayPal generated $2.6 billion in revenue, up 21% on a currency-neutral basis. Xoom contributed approximately one point of growth or $26 million. Transaction revenue increased 20%, while other value-added services grew 31%. Transaction revenue benefited from rising engagement as reflected by the increase in the number of payment transactions per active customer account. This increase reflects the growing relevancy of Braintree's unbranded product and the evolution from a payment button or tender type to payment partner, where we capture all of a merchant's processing volumes. Other value-added services benefited from the growing penetration of PayPal Credit, as well as the amended contract with Synchrony Financial in the previous quarter.
The number of payment transactions in the quarter increased 25% year-over-year, driven by Braintree and growth in the media and travel verticals. Total payment volume was $82 billion in the quarter, up 29% on a currency-neutral basis. Of that, U.S. payment volume grew 29%, while international growth was 28%. We continue to demonstrate good control of our expenses. Total expenses were $2 billion, up 15%, less than the 17% growth in revenue. Our volume-based variable expenses, which are transactional expense and transaction and loan losses, were up 25%. However, we gained economies of scale on our other expenses, which grew at less than half of revenue growth.
As we continue to execute on our strategy to expand our presence with large merchants, which increases our relevance with consumers, the revenue benefit we receive from those large merchants is partially offset by a lower take rate due to volume-based pricing. We also experienced a higher mix of credit card payments on our fast-growing Braintree platform, which increases our transaction expense. Because of this, our overall transaction margin for the quarter declined 250 basis points. While large merchants and Braintree contribute to a lower overall transaction margin, they drive increased utilization of our PayPal-branded product and increase the overall bottom line. In the quarter, we expanded our operating margin 90 basis points from the same quarter a year ago.
This demonstrates our ability to maintain and even grow our margins with the economies of scale that we have in our business, as well as this management team's discipline around controlling costs. As the mix of our business shifts, we will continue to achieve expense leverage. When looking at our full-year results, total expenses per transaction declined 8%. However, our non-volume-related expenses declined 12%. With CapEx coming in at 6% of revenue, free cash flow in the quarter was $564 million, representing $0.22 of free cash for every dollar of revenue. We ended the quarter with cash equivalents, and investments of $5.7 billion, including approximately $1.5 billion in the U.S. Now to guidance. Our business is performing great, and we are executing on our strategy and delivering on our commitments. Our strong performance in 2015 only reinforces our conviction in the opportunity that we have.
Let me give you some context with how we're thinking about the business looking forward. We are investing to expand our footprint and grow relevancy. Areas of investment include product, brand, global reach, Xoom integration, and security. We expect this to translate into an acceleration of volume growth in 2016. As I stated earlier, this will result in a decline in our take rate, but not our operating margin. We expect that the lower take rate will be driven by our strategic initiatives as we look to gain market share and integrate Xoom. In 2016, based on current exchange rates, we would experience less impact from currency than last year, net of hedging gains. We expect it to be a three-point headwind to revenue growth this year versus the four-point headwind in 2015.
We expect Xoom to contribute approximately $200 million in revenue, but it will be dilutive to operating margin as we integrate it into the platform. We will continue to gain economies of scale and achieve cost efficiencies in customer support, technology, and other areas of our business. At the time of our spin, we provided guidance for 2015 and guidance over the medium term. We met or exceeded our guidance in every aspect for 2015, and our performance last year only increases our conviction in the medium-term guidance of mid-20s growth in payment volume, 15% constant currency revenue growth, stable to growing operating margins, and free cash flow that grows in line with revenue.
For the full year 2016, we expect revenue between $10.5 billion-$10.7 billion, representing currency neutral growth of 16%-19%, with the currency translation impact on the full year revenue to be approximately three points, resulting in spot revenue growth of 14%-16%. I'd like to provide a little color on the shape of revenue for the year, though. We expect our revenue growth to be very similar in the first half of 2016 versus the second half of 2016. For the first quarter of 2016, we expect revenue growth on a currency neutral basis to be between 19% and 21%. However, we expect to have some lumpiness in our second quarter revenue growth as a result of the sale of our credit receivables and amended Synchrony agreement last year.
Because of these items, we expect a six-point decline in revenue growth from the first quarter to the second quarter. We expect to return to a more normalized growth rate in the third quarter, however. We expect our full year 2016 non-GAAP EPS to be between $1.45 and $1.50, representing growth of 14%-18%, and we expect full year free cash flow to grow faster than revenue growth for the year, coming in above $2.1 billion. We expect our CapEx as a percent of revenue to decline one to two points from 2015 to approximately 6%-7% of revenue, and the non-GAAP effective tax rate to be between 18% and 19%. For the first quarter, we expect non-GAAP EPS to be between $0.34 and $0.36, representing growth of 18%-25% year-over-year.
As I mentioned on our last earnings call, there are a few companies of our size with our balance sheet and growth rate that are generating the free cash flow of PayPal. We have a tremendous opportunity to increase shareholder value with the deployment of that cash flow. Today, we announced a $2 billion share repurchase program. I want to be clear about our cash flow priorities. They are, in order, to invest in organic growth, grow through strategic acquisitions, and then to return capital to shareholders. With our balance sheet and cash flow generation, we can address all three of these to maximize shareholder returns.
The share buyback program will enable us to offset dilution from stock-based compensation, which we expect to be 1% to 1.5% of our shares outstanding. We will also be good capital allocators and have the flexibility to be more aggressive with repurchases when we see the opportunity to purchase our stock at a level that is well below its intrinsic value. In closing, I'm very excited about the opportunity we have at PayPal to grow as the leading payments platform worldwide. Our trusted brand, global breadth, and growing installed base of engaged customers are driving the digitization of payments and the transformation to a connected mobile world. We are laser-focused on executing on our business plan. We have created a leading technology platform with a sustainable financial model that allows us to keep innovating and growing at scale.
Our unparalleled combination of scale, growth, and cash generation provides us with a tremendous opportunity to increase shareholder value. With that, let me turn it back over to the operator for questions.
Ladies and gentlemen, if you'd like to ask a question at this time, please press the star then the number one key on your touch-tone telephone. If you wish to withdraw your question, please press the pound key. Again, that's star one to ask a question at this time. In the interest of time, we ask that you limit yourself to one question. Our first question comes from the line of Sanjay Sakhrani with KBW. Your line is now open. Please go ahead.
Thank you. I just wanted to make sure I understood the operating margin trajectory. I guess when I back into your numbers, it doesn't look like there's a whole lot of margin expansion. You did mention some dilution coming from Xoom. Could you just talk about the trajectory or the reconciliation into 2016, and then how you expect it going forward? Thanks.
Sure, Sanjay. This is John. If you look at the last three years, we've demonstrated very consistent operating margin performance, and we're very excited that we expanded that 90 basis points in the fourth quarter this year. From one quarter to the next, it's fair to assume some lumpiness in the margin trajectory. To your point, I think Xoom is a great example of that. As we continue to demonstrate the ability to achieve operating leverage in our business, we still are going to invest in areas of growth like Xoom. That's a great example, and at the time, for 2016, we expect Xoom to be a little bit of a drag on our margin. We're extremely excited about the capability that it provides and how it dovetails into the overall PayPal platform and expect it to be accretive in the not-too-distant future.
Of course, as with any management team, our hope is that we can continue to execute on all of the initiatives that we have and deliver the kind of performance where we can continue to expand those margins.
Thanks.
Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Your line is now open. Please go ahead.
Hi. Great. Thanks. Great quarter you got here. Just to follow up on Sanjay's question, just to clarify, how about margins, I guess, ex the impact of Xoom? Just on the, I guess we want to follow through on your comment around just next year and your confidence that your value proposition is going to drive sort of bigger share gains. Should we see then an increase in transactions per account, for example, as a way to measure if that's going to be the case or not in 2016? Thanks.
Yeah, I understand. You had a couple of questions in there. First of all, I do expect that our transactions per active account will continue to grow. That is a part of our value proposition. Honestly, as I look at the growth trajectory for the business, whether it be more net new actives that we're bringing in, increasing the engagement of those actives through things like One Touch, in which we're seeing a lot more engagement and growth of that, whether it be through new partners, new markets, new adjacencies like international remittances, just honestly secular tailwinds. For the first time ever, on Black Friday, more people shopped online than in store. You've got a tremendous amount of growth levers, and our value proposition is growing in both its sophistication and what we're able to offer both merchants and consumers. I do expect the engagement
- per customer to continue to grow nicely. Second thing on the margin. We said this on our roadshow, I'll repeat it here. The margins in our business want to move up. That is kind of the tendency of the margin structure in our business. We just brought on $200 million approximately of revenue from Xoom coming in this year that basically is dilutive to that. If you normalize for some of the one-time events that came in, you'd see margin continuing to grow this year like it did last year. You've got some one-time moving things coming through the income statement this year, but we are very confident in the medium-term guidance of flat to growing margins, and we have and are experiencing those economies of scale in the 50% of our cost base that's fixed, that we can affect on that.
We feel good about that medium-term guidance, and you should understand kind of the one-time nature of some high revenue things, margin revenue that's leaving us that were one time last year and Xoom. We expect Xoom margins to grow over time and to be in line with our margin structure as well.
Got it. Thanks.
Yeah.
Our next question comes from the line of Bob Napoli with William Blair. Your line is now open.
Thank you. Welcome, Dan. The question I have is, your account additions this quarter were really strong, excluding the Xoom, the 5 million ex-Xoom. First of all, is there some seasonality into the account additions, and where are those accounts coming from? Is it more international versus U.S.? Is it Braintree or is it Venmo? Maybe some color on that, then kind of your expectation for account growth in 2016.
Bob, great question. We basically said that we bring on between 3 million and 5 million accounts a quarter. We've been averaging about 4 million over the last couple of years. We, in the last two quarters, have seen an increase in the organic growth of new accounts coming in. I would put that to basically two or three things that are happening. First of all, our value proposition is definitely getting stronger. Things like One Touch are increasing engagement. We have a large chunk of our base right now that's quite engaged, therefore, our churn is going down. That's one thing. Number 2, the PayPal brand is beginning to resonate even more so across the world, we're seeing a higher number of people coming into the top of the funnel.
Because we've really made substantial strides on the technology infrastructure, we are able to do a tremendous amount of A/B testing right now to increase the top of the funnel going all the way through to making their first transaction. Truthfully, I think we're at the beginning stages of all of that, I still think it's wise to model in around 4 million or so, but if you had to ask me where my bias is, my bias is that we'll probably be slightly higher than that given the trends that we're seeing. It's not seasonality. It is the trends that we're seeing through kind of the strength of the business.
Great. Thank you.
Yeah. You're welcome.
Our next question comes from the line of Craig Maurer with Autonomous Research. Your line is now open.
Yeah. Good evening. Thanks. Two quick questions. If you could discuss how transactions per account trended excluding Venmo. Secondly, should Visa introduce a 2-stage wallet fee that would obviously be a lot further reaching than Mastercard, how would you respond? Thanks.
Yeah. We're seeing transactions per user expand throughout the base. We don't break out kind of where that is from a Venmo perspective, but Venmo's still a smaller part of our overall base. In terms of where we fit in with the ecosystem, we clearly have quite a number of conversations across a number of partners through the financial systems ecosystem. I believe that we are getting closer with all of those participants as we look at how we could be great partners. Craig, we drive a tremendous amount of volume for our network partners. We have over 13 million merchants on our platform. The vast majority of them, overwhelming majority of those are the long tail. We enable card acceptance at all of those small to mid-size merchants.
We drive a large number of incremental transaction volume over the networks. We also are beginning to do a lot more in terms of things like One Touch, where once you default to a payment type, you stay defaulted to that payment type. We are increasingly believe that a customer should have choice of their payment option. We want to be the customer champion on that. If they choose to use whatever form of payment they want, that's fine with us. Consequently, I think our relationships are improving with everybody across the financial services ecosystem. Obviously, anything can happen at any time on these things, we're in lots of conversations with lots of partners, including Visa.
Okay, thanks.
You're welcome.
Our next question comes from the line of Bryan Keane with Deutsche Bank. Your line is now open.
Yeah. Hey, Dan. Just to follow up on that, lots of confusion around tokenization. How does PayPal's tokenization compare or compete with EMVCo's tokenization? Is PayPal at some sort of disadvantage on interchange if they have their own tokenization? Maybe you can just clear the air on that. Thanks.
Yeah. We're going to give more and more information on tokenization and the benefits that we think that it provides for us. In general, we think that the shift towards tokenization is only going to help our business. It enables us to expand and grow our ubiquity, as I mentioned. We were a pioneer in tokenization in the payments industry, so we have a tremendous amount of tokenized payments instruments. We have over 1 billion tokenized payments credentials on our platform, and we use that to make payments safer for customers, make it easier and simpler for merchants to accept. The rest of the payments industry right now is beginning to adopt tokenization, it opens up a bunch of new opportunities for us.
We believe that we can leverage the expertise we have, the embedded credentials we have, some of the advantages we have to enhance our growth. As we move into this, we'll begin to provide a lot more details around that for you to basically be able to see that. That's all I'm going to talk about right now on the tokenization front, you'll see a lot more details to come forward. Suffice it to say, we think it's a growth opportunity for us.
Okay. Congrats on the results.
Thank you so much. I appreciate it, Bryan.
Our next question comes from the line of Dan Perlin with RBC Capital Markets. Your line is now open.
Thanks. My question around Venmo and Pay with Venmo, it looks like in the quarter, Venmo volumes were still only about 3% of TPV, but it accounted for 23% of your take rate, transaction take rate degradation in the quarter. I'm wondering what kind of assumptions you're making in your guidance for your take rate to decline, given the fact that you said you're going to be aggressively rolling out this Pay with Venmo. I don't expect it to be a big maybe driver of revenue, but it should offset some of the take rate degradation. The other part of the question I have is, you noted in your slide deck that the European regulation doesn't You think it's going to be negligible as an impact to you guys for your transaction expense line?
I'm wondering why that would be if U.K. is 13% of your revenues. You've been operating under those levels already, or do you just not expect to pass it through to margins? Thanks.
Yeah, great questions. Thanks for those, Dan. First of all, Pay with Venmo. We're just beginning on that. I expect little financial impact in 2016. I would expect to start to see financial impact in 2017 and 2018 as we go out. First of all, I'd say a couple of things. First, Venmo is not just another buy button. I've seen some of this commentary out there. It is the most beloved way to pay for millennials. It is a highly desirable demographic for merchants, and there is large demand for it outside of next-gen merchants. You already are seeing Papa John's use it as a splitting mechanism, and there's tremendous demand for merchants for Pay with Venmo. Through v.0, which is where we'll initially integrate this, the integration of any payment type is easy.
It's a really small effort, and quite frankly, quite soon, we expect zero coding required for a merchant to integrate with a Pay with Venmo button. As we go into the third quarter, just like we did in fourth quarter, just like we did with One Touch, we start to expand Pay with Venmo into the PayPal merchant base. There, basically, somebody with Venmo will be able to click on a PayPal button and just pay with Venmo, not actually have to put another button onto their site. Many merchants want the Venmo button because it is the way millennials think about managing and moving their money. Many merchants may just want to keep the PayPal button, and we'll integrate that user base of Venmo users right into that. One other thing.
We started in-app, but obviously, like One Touch, we're going to grow it on mobile web and other web-based pieces of this quite quickly. We've got a very engaged Venmo base, and they've been asking to expand that to move into shop. You're exactly right. That is going to be a large amount of TPV, a reasonable amount of TPV right now, that is zero take rate. That take rate will obviously go up over time, and that will be a counterpressure to take rate decline over time. It won't completely eclipse it, obviously, but it will be a counter to it. Absolutely. We think this is just the beginning of the ways that we can start to monetize what is a rapidly growing segment of the market that really thinks of Venmo as the way they manage and move money.
I'll let John talk about the next question.
Sure. Dan, if you think about our funding mix internationally, obviously as you realize, there's a much lower card penetration rate over there. That combined with the point that you alluded to, that in many ways we're already realizing the benefit of some of that lower cost. We expect it to have a fairly immaterial impact on our overall financial results for the year. There is some expectation that certain merchants are going to want some of that cost decrease passed along to them as well.
Okay. Thank you.
Yeah.
Our next question comes from the line of Jason Kupferberg with Jefferies. Your line is now open.
Thanks, guys. Just on the points around competition, obviously there have been a lot of newer entrants for the in-app channel in the last 12-18 months, whether it be the Checkout or Masterpass or Apple Pay, and clearly your mobile TPV continues to be very strong, north of 40% here. If we just think about the browser-based channel and the potential for that to get even more competitive than it has, is there any reason to believe that the dynamics would play out differently in-browser as more entrants potentially come in there, relative to what's been happening in-app?
Yeah. Look, there's a number of already stuff going on in-browser, I think you're exactly right. Like, the day that I came here to PayPal was the day that Apple Pay was announced. Those two things are etched in my mind. It's been 18 months, right? In the last 18 months, what's happened? We've added 25 million-plus net new active accounts. We have more engagement than we've ever had in our base. We have accelerating TPV, accelerating revenue. Look, why is that? Honestly, it's because payments is really hard, and it is hard to crack. The other thing is that there are value propositions out there that focus on a piece of payments, and we have a very comprehensive value proposition. I will say this, we are not standing still.
I have operational reviews every single month with my team, the last thing that I said to the consumer and the merchant team is, I truly believe that what they've done and where those teams are going will widen the distance in terms of our value prop. I think you can see some of that with One Touch. I hope you'll see other things as we move forward. This has not been an easy journey for PayPal. We've had to fully upgrade our technology platform. But we've done most of that. Because of that, really for the first time, the innovation that's always been here, but just was not able to get through our pipeline, is now actually coming into the market and innovating at scale. You've seen the backlog of sales that we have right now.
That's because of demand and demand for the value proposition that we have on the Braintree side. One other thing I would just say. At this point, the more announcements that come out, actually the better off I think it is for us. It is so confusing out there for a customer. You have another announcement coming out. There's a lot of balkanization going on, a lot of confusion. You can only use this pay in this retailer, this pay with this technology, this pay with this device. We've got a real trusted brand. We have a base of almost 180 million customers right now, I think that the more confusing it is out there, the more people turn to brands that they can trust and that work across any OS, any device, any POS technology out there.
I actually think at this point, although I respect every one of those competitors greatly, and we watch everything carefully, our biggest competition is our ability to execute against our game plan right now. We have a good game plan. We have a really good roadmap to increase our value proposition for both merchants and consumers, and we just need to stay focused on that and get those things out into the market. Our results, hopefully, will continue to do the same thing that we've done over the last 18 months.
Okay. Well, nice numbers here. Thanks.
Yeah. Thank you very much.
Our next question comes from the line of Ashwin Shirvaikar with Citigroup. Your line is now open.
Thank you. Guys, great results, good guidance. I wanted to just ask about last year's capital allocation, especially good acquisitions, Paydiant, Modest
Xoom. Can you talk a little bit more about the Paydiant one? It's nine, 10 months in, I guess. You had some traction. I'm assuming that's the piece that works with First Data. How does that work? How are your conversations with merchants changing with regards to implementing omni-channel?
Yeah. Ashwin, it's a great question. You're right, we had Paydiant, Modest, Xoom. Modest, you're starting to see some of that already with what we've been able to do on Pinterest, what we've been able to do with Facebook, what we've been able to do with contextual commerce. Stay tuned on that front because we've got a lot more coming out on that piece of it. Xoom just closed. We're obviously moving to integrate that, put that onto the PayPal platform. When we're able to do that, instead of it just being U.S. send out, we'll start to integrate other countries, other corridors, cross-sell. We think there's a tremendous leveraging that we can do on the Xoom side. Paydiant, we've spent a bunch of time now integrating Paydiant into the PayPal and Braintree stacks. I just had a review again last month.
We're largely complete with phase 1 of that. What that really allows us to do is take a white label platform. Just think of a lot of our offline movement is to provide a white label platform to allow merchants to write their own apps, right? Because merchants understand their consumers better than we will ever do that. They know their consumers. They know the value prop that a consumer will respond to. They drive people to that value prop, like Subway is a great example, right? They can customize their sandwich. They can define the pickup time. They can come in, skip the line, get immediate rewards, then decide to pay with those rewards right at the time of the sale or split tender that. All of that is powered through our unbranded platform. It's not just payment types, but rewards and offers is paid.
That's sort of the ultimate way that we're thinking about it. I think we are going where the trends are going. We're not trying to react to, oh, let's NFC over here or whatever it may be. That doesn't mean that we won't have NFC on as part of our wallet, but we don't think that that's a winning strategy, just substituting tapping a phone for swiping a card. What we think is a winning strategy is allowing merchants to use the power of mobile to get closer to their customers, and we want to help power the difficult plumbing of that. All the payment processing of any payment type, rewards, offers, et cetera. We are having substantially different conversations with our merchant base as a result of that platform. Much more strategic in nature.
Much more about where the industry and the nature of commerce is going, as opposed to, as John said in his remarks, as opposed to just being a tender type, a part of checkout, and which that's really a commodity or an increasing commodity element versus the digitization of commerce going forward. I couldn't be happier actually with that Paydiant acquisition. It is the engine piece of that in-store element. You connect that, which I think was really the leading in-store platform player with us, PayPal traditional, which I think was a leading player in online, and Braintree, which is a leading mobile player. Combine those together, and combine then almost 180 million consumers that we can bring to light up that platform by doing credentialization of identification, et cetera, to take friction out of the sign-up process.
It's a pretty strong set of assets that we bring to the offline market. That's a tremendously large opportunity for us, but we are just starting here. I don't want to oversell it at all. I love the set of assets we bring to it, but it's very early innings on that.
Hey, operator, we have time for just one last question.
Our last question comes from the line of Bill Carcache with Nomura. Your line is now open.
Thank you. Dan, it sounded like you're saying that the payment-agnostic position that you're taking has made the nature of your discussions with the different players across the payments ecosystem more partnership-oriented rather than antagonistic. Is that a fair characterization of your earlier comments? Also following up on the earlier question regarding competitive threats, are you seeing any evidence of Braintree merchants demonstrating a growing willingness to add Apple Pay or Android Pay to the payment options on their checkout pages?
Yeah. The first one is that is an accurate assessment. We are just beginning on those conversations across the ecosystem. The answer to that is yes, and more to come on that as we move forward. In terms of Apple Pay and Android Pay, we don't release that information. As we talked about on other conferences or calls, when Apple Pay first announced, half the brands that they announced were integrated through the Braintree platform. When Android Pay first announced, half those brands were integrated through our platform. We have a really good insight as to those different services, but we wouldn't release those publicly.
Thank you.
Yeah. I think that's it. Thank you, operator. Thank you everybody for joining us this afternoon.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.