PayPal’s branded checkout growth slows: Can financial services and AI agents provide new opportunities?

Why is branded checkout still weak?

In the third quarter of 2026, PayPal’s global branded online checkout volume grew approximately 1% year over year on a currency-neutral basis, below approximately 2% in the second quarter and approximately 5% a year earlier. It was also at the low end of the company’s 1%–2% guidance revised in September.
US branded checkout growth improved for a third consecutive quarter and Germany stabilized, but changes to Europe’s duty-free rules for low-value imports reduced overall growth by approximately 0.7 percentage points. The company expects this impact to persist and branded checkout growth of approximately 1%–2% in the fourth quarter.
PayPal has improved its checkout share at some US merchants by updating the checkout experience, expanding buy now, pay later and conducting joint marketing. Bernstein notes that these reinvestments could reduce transaction profit from the merchants concerned; the company expects branded checkout investments to take 2–3 years to bear fruit, and approximately 3 years for the largest merchants.

Third-quarter transaction profit was 4 billion dollars, up 2% year over year and above market consensus; adjusted earnings per share were 1.45 dollars, 11% above consensus. Net revenue grew 2% year over year during the same period, below consensus, while total payment volume growth also slowed from 10% in the second quarter to 6%.
Cost controls supported earnings: non-transaction-related operating expenses rose only 1% year over year, compared with 9% in the second quarter. The company raised its year-end 2026 annualized cost savings target from approximately 400 million dollars to more than 700 million dollars, but cautioned investors against directly extrapolating third-quarter expense performance to the full year.
Operations remain under pressure: third-quarter adjusted free cash flow was 2 billion dollars, down 10% year over year; transaction revenue as a proportion of payment volume fell 6 basis points year over year, partly because of changes in product mix and greater investment in branded checkout and buy now, pay later.

Management expects financial services to contribute more than 20% of transaction profit in 2026 and to maintain double-digit growth. Bernstein believes the company is broadening its sources of profit and that financial services, Venmo and payment services will account for a greater share in the future.
Third-quarter monthly active buy now, pay later accounts grew 23% year over year and payment volume grew 25%; monthly active US debit card accounts grew 44% and payment volume rose more than 60%. These products give PayPal additional use cases and revenue beyond checkout.
Monthly active Venmo debit card accounts reached 6.7 million, up more than 55% year over year; yet only 23% of Venmo customers have used any financial service to date. Management said it would expand these products cautiously, taking both risk and the balance sheet into account.

Bernstein believes that if consumers delegate payments to AI agents, the convenience of traditional guest checkout may become less important and payment services may become further commoditized.
On the other hand, PayPal’s wallet, which connects merchants and consumers, has an opportunity to provide trust safeguards, fraud and dispute handling, and help agents dynamically find offers, rewards and more suitable payment methods. Bernstein is watching its partnerships with companies including Meta and Google.

The company expects non-GAAP earnings per share growth in 2027 to be similar to that in 2026, with detailed guidance to be announced in February 2027; transaction profit is expected to maintain mid-single-digit growth over the medium term.
Bernstein maintains its Market-Perform rating and 55-dollar price target. The target is probability-weighted: a 50% probability of no deal, a 25% probability of a deal at 60.50 dollars per share, and another 25% probability of a deal at a higher offer of more than 70 dollars per share.