Ramsey El Assal: In terms of operating margin performance, were there any factors besides credit that had a bigger impact than you expected in Q2? And then separately, can you just talk about the overall health of the credit business? Give us more color on the steps you’re taking to maybe manage it a little bit differently. It sounded like that was the plan.
Gabrielle Rabinovitch: Absolutely. So for the quarter, we expanded our operating margin by about 228 basis points to 21.4%. This was a slight miss to our guidance of approximately 22%, and it was predominantly driven by increased pressure from PayPal business loans. There’s no other items that really contributed to that miss. Overall, PayPal business loans was about a 90 basis point drag to transaction margin and to operating margin, and this is approximately 2x what we expected at the beginning of the quarter. So it really was a real impact — as it relates to our broader credit business, we’re in a really good position. Like the rest of the industry, we’re seeing some reversion back to pre-covid levels of performance. But across our diversified portfolio of consumer and merchant credit, we’re seeing relatively stable delinquency and charge-off trends The largest growth area for us continues to be our Buy-Now-Pay-Later solutions, where our performance continues to be very strong.
Of course, going forward, given our partnership with KKR, the majority of the originations are going to be funded off-balance sheet for us, and we’ll be able to support the sustained growth of that business. On the PayPal business loan side, this is really the part of our portfolio where we have seen deterioration. This portfolio represents less than 15% of our overall net receivables. We’ve historically seen consistently strong performance in this book. And last year, we widened the credit box and the performance has not been within our expected risk appetite. We’ve taken steps to improve performance. We significantly tightened originations. Today, the book is down about 30% in total receivables, and we expect this pressure to continue through the back half of the year, but then really to abate as we move into next year.
That said, the overall strength of our business and the momentum we’re seeing is allowing us to maintain our operating margin and EPS guidance for the year while we’re absorbing this credit pressure.
Ramsey El Assal: Thanks so much, VERY helpful. Appreciate it.
Operator: Your next question comes from the line of Jason Kupferberg with Bank of America. Your line is open.
Jason Kupferberg: I wanted to come back to branded TPV growth. So you had 6.5% in the month of June. You were over 8% in July, you’re expecting further acceleration during the balance of the year. So can you just talk more specifically about the drivers of and the visibility on that ongoing improvement? Like how much of it is better macro? How much is traction with PayPal’s own branded checkout initiatives and which among those branded checkout initiatives is moving the needle most materially here in 2023?
A – Daniel Schulman : I’ll take a crack at that, Jason. Thanks for the question. It’s an important one we are really pleased, obviously, to see branded checkout accelerate like it is. And we have good confidence that the initiatives that we’re putting into place are going to continue to drive that growth. As I think about what is driving that growth. It’s hard to delineate exactly what is happening because of macro, in terms of e-commerce, improving in general, as I mentioned, to Tianjin’s first question around e-commerce and what is due to our initiatives, but we are clearly putting a lot of time, effort and resource into improving the checkout experience. And my adds off to that entire checkout team for all that they’ve done here.
And I say, look, first of all, as e-commerce is growing, we’re going to grow with it because we are clearly one of the market leaders, if not the market leader in digital payments around that. We do have a scale advantage over anybody in terms of 30 million-plus merchants that we have out there, 80% of the top 1,500 Internet retailers. We have a performance advantage in checkout up to 600 basis points better in auto rates than the industry average. And we have a trust advantage. When small businesses put PayPal on their site, they see their online sales go up by almost 44%. So those are things that we are building upon. But as we mentioned in our Investor Day on June 8, we’ve — the amount of acceleration in the amount of innovation we’re putting into the market has improved dramatically.
