Total Payment Volume (TPV)

PayPal TPV KPI Example

PayPal (PYPL) is an example of a top payments provider that reports the total payment volume (TPV) as a key performance indicator (KPI) in its financial reports, including investor relations presentations and related filings.

For instance, the management team of PayPal – while explaining the underlying components of its transaction revenue – states that, “Net revenues increased $2.1 billion, or 8%, in 2022 compared to 2021 driven primarily by growth in total payment volume (TPV)” in its latest 10-K filing.

The fact that PayPal’s management team deems TPV to be a core driver of historical (and future) transaction revenue performance illustrates a real-world example of the relationship between TPV and net revenue.

PayPal Transaction Revenue

“We earn transaction revenues primarily from fees paid by our customers to receive payments on our platform. These fees may have a fixed and variable component. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. We estimate the amount of fee refunds that will be processed each quarter and record a provision against our transaction revenues. The volume of activity processed on our payments platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”). We earn additional fees from merchants and consumers on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their bank account or debit card, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from sellers that violate our contractual terms (for example, through fraud or counterfeiting), and other miscellaneous fees. Our transaction revenues are also reduced by certain incentives provided to our customers.”

– PayPal Management (Source: PYPL 10-K)

^{PayPal TPV KPI in 2022 (Source: PYPL 10-K)}

How to Calculate TPV?

The total payment volume (TPV) metric is calculated by determining the sum of the monetary value of all transactions processed via a payment platform across a predefined period.

The step-by-step process to calculate the total payment volume (TPV) is as follows.

1. Identify Processed Transactions → Record the details of each transaction processed by the payment platform over a specified period, such as the customer, transaction ID number, etc.
2. Quantify Monetary Value of Each Transaction → Determine the total monetary value attributable to each processed transaction identified in the prior step.
3. Calculate Sum of Transaction Monetary Values → Calculate the sum of the monetary values of all the transactions processed over the given period, which results in the total payment volume (TPV).

TPV Formula

The formula to calculate the total payment volume (TPV) is relatively straightforward, as it is the sum of the monetary value of all transactions processed across a payment platform over a specified time frame.

Where:

• Σ → The summation notation symbol
• Ti → The monetary values of each transaction

TPV Calculator

We’ll now move to a modeling exercise, which you can access by filling out the form below.

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TPV Calculation Example

Suppose we’re tasked with analyzing the total payment volume (TPV) of PayPal (NASDAQ: PYPL) on a last twelve months (LTM) basis.

For historical comparison and to compute TPV on an LTM basis, we’ll reference the following figures reported on PayPal’s latest 10-K (FY-2022).

• TPV, FY-2020 = $936,062 million
• TPV, FY-2021 = $1,245,879 million (33.1% YoY Growth Rate)
• TPV, FY-2022 = $1,357,122 million (8.9% YoY Growth Rate)

From FY-2020 to FY-2021, we can calculate the year-over-year (YoY) growth rate as 33.1%, subsequently followed by a YoY growth rate of 8.9% from FY-2021 to FY-2022.

In the latest 10-Q filing (Q-1 2023), PayPal reported the following figures for its quarterly total payment volume (TPV).

• TPV, Q-1 2023 = $354,508 million
• TPV, Q-1 2022 = $322,981 million (9.8% YoY Growth Rate)

From Q1-2022 to Q1-2023, we can calculate the year-over-year (YoY) growth rate as 9.8%. Because of the seasonality that impacts the payments sector (and can skew transaction volume metrics), comparing quarterly performance on a YoY basis is a more informative indicator here.

The net revenues reported by PayPal in fiscal years 2020, 2021 and 2022 amounted to $21,454 million, $25,371 million, and $27,518 million, respectively.

• Net Revenue, FY-2020 = $21,454 million
• Net Revenue, FY-2021 = $25,371 million
• Net Revenue, FY-2022 = $27,518 million

The YoY growth rate from FY-2020 to FY-2021 was 18.3%, followed by 8.5% from FY-2021 to FY-2022.

Comparing the YoY growth rate in total payment volume (TPV) and net revenues depicts the relationship between TPV and net revenue, because the period in which TPV was higher coincides with greater net revenues.

By dividing the net revenue by the corresponding TPV in each period, the net revenue % of TPV is consistently around 2.0% for all three fiscal years and the quarterly periods.

• Net Revenue % TPV, FY-2020 = 2.3%
• Net Revenue % TPV, FY-2021 = 2.0%
• Net Revenue % TPV, FY-2022 = 2.0%
• Net Revenue % TPV, Q1-2022 = 2.0%
• Net Revenue % TPV, Q1-2023 = 2.0%

Note: Technically, a comparison between TPV and transaction revenue is a more accurate representation to grasp the role of TPV in the revenue performance of participants in the payments sector, however, the point remains under either method (i.e. transaction revenue vs. net revenue).  

In closing, the total payment volume (TPV) of PayPal adjusted on an LTM basis can be calculated by subtracting the Q1-2022 TPV from the FY-2022 TPV, and then adding the Q1-2023 TPV to arrive at the LTM TPV of $1,388,649 million.

• LTM TPV, Q1-2023 = TPV, FY-2022 – TPV, Q1-2022 + TPV, Q1-2023
• LTM TPV, Q1-2023 = $1,357,122 million – $322,981 million + $354,508 million = $1,388,649 million