PayPal bets on AI transformation to unlock $1.5 billion in savings as it cuts 20% of workforce

PayPal says it's 'becoming a technology company again.' That means AI. | TechCrunch

PayPal is looking towards the future, despite its falling stock and looming layoffs. In its first-quarter earnings call, CEO Enrique Lores told investors that PayPal needs to "recommit to the fundamentals," which included "becoming a technology company again." There was no need to read between the lines -- PayPal was pitching an AI-powered turnaround. Lores explicitly said so, telling analysts on this week's call that leading companies find ways to differentiate themselves by innovating, and that now is the time for PayPal to take action. This includes modernizing its tech platform, moving faster to become "cloud-native," and "aggressively adopting AI in our development processes," Lores said. The latter would increase developer productivity and shorten time to market, he added. It's a startling admission from PayPal that it has yet to fully embrace AI in-house, when AI-assisted coding is one of the breakout areas where the technology has truly excelled. Other consumer tech companies have rapidly adopted AI in recent months to assist with coding, with Spotify even declaring in February that its top developers haven't written a line of code since December. Meanwhile, top dev teams are trying to outcompete one another by tokenmaxxing -- a proxy for understanding who at the company is experimenting with AI more often, based on the number of AI tokens they use. PayPal is only now catching up, it seems. Lores said the company has formed a new "AI transformation and simplification" team to help with its enterprise AI agenda. Combined with the planned layoffs, which Lores characterized as PayPal removing layers from its organizational structure, the addition of AI-enabled processes is expected to bring the company at least $1.5 billion in cost savings over the next two to three years, he said. The company announced last week it was reorganizing its business, which streamlines the operation into three segments: checkout solutions and PayPal, consumer financial services (and Venmo) as well as payment services and crypto. In addition, Bloomberg reported on Tuesday that PayPal plans to cut around 20% of its workforce over the next two to three years as part of its cost-savings plan, equating to north of 4,500 jobs. More cost savings will come from PayPal's plans for AI adoption, company execs said on the call. That includes bringing AI into areas beyond coding, like customer service, support operations, and risk management, to name a few. "I think the changes that AI will enable us to do are going to drive -- are going to be very significant," said Lores. "This is why we created a group last week, reporting to me, that is going to be in charge of driving -- function by function, process by process -- this AI transformation. And this is not about adopting AI as a technology, where we have done many pilots in the company, and we have seen what is possible. It's really about understanding how can we redesign the key processes ... this is what we have seen that really will drive significant savings." Announcing an AI-driven push to cut costs while eliminating thousands of jobs underscores a core criticism of the technology -- it comes with a human cost It's worth noting that, in this case, PayPal was already in need of restructuring. The company may have beat on its first-quarter earnings with revenue of $8.4 billion, up 7% year-over-year, but it forecast weak guidance for the second quarter, sending the stock tumbling after earnings. That follows a long post-pandemic decline that has sent the stock down over 80% from its 2021 high and has stunted PayPal's growth. Asked if separating Venmo into its own business meant the company would be open to selling it, Lores said that, for now, this is what made the most sense in terms of the turnaround plan. Still, he signaled openness to future deals by saying "my number one priority is to maximize shareholder value," in answer to an analyst's question about a sale.

Modernizing the tech stack is a critical priority for PayPal, but CEO Enrique Lores has more to do to deliver success in an agentic AI era

PayPal's made no secret of its re-invention ambitions to thrive in the age of AI, where no retailer's public pronouncements are complete without announcing their very own 'exclusive' agentic commerce deal with OpenAI or Google. Part of the reason that the firm brought in CEO Enrique Lores from HP was to build up its tech credentials for this transformative period and the first fruit of what he has in mind have started to manifest. Start with the bad news - around a fifth of PayPal staff look set to be on the job seeking trail over the next two to three years. According to scuttlebutt, around 4,760 of the firm's 23,800 staffers will have to go, partly to meet Lore's goal of making gross savings of $1.5 billion in operating costs, and partly to make room for AI tech taking over their roles. On a less downbeat note, Lore's other big move to date has been a decision announced last week to re-organize the operational structure into three business units - Checkout Solutions & PayPal; Consumer Financial Services & Venmo; and Payment Services & Crypto. So what's Lore's game plan. He makes no secret of the fact that he believes that the changes AI will wrought on companies like Paypal will be "very significant". To that end, he's taking action internally at PayPal to make sure he stays on top of the disruption that is going to ensue: This is why we created a group last week reporting to me that is going to be in charge of driving function by function, process by process, this AI transformation. This is not about adopting AI as a technology, where we have done many pilots in the company and we have seen what is possible. It's really about understanding how can we re-design the key processes and, once the re-design is done, adopt AI. This is what we have seen that really will drive significant savings. But not only savings, it will help us to move faster, and it will help us to bring and to deliver a better customer experience. He sees two key areas with the biggest opportunity for AI in the short term, the first of which is, inevitably, technology development: This is going to really help us to accelerate some of the improvements and modernization we need to do in our platform. The second is customer support: This is a large cost for us today. And with AI, we believe we can both reduce cost, but also improve the experience that we will provide to customers. The fact that we need to support multiple languages, multiple businesses, just highlights the opportunity of really reducing the cost by automating and driving it and doing it in an even better way for our customers. Not that everything hinges now on cost reduction; investment is still a priority, particularly around bringing PayPal's tech stack up-to-date. Lore says: At this point, I believe that the best approach is to invest in our three core businesses, PayPal, Venmo and Braintree, to drive profitable growth, because in each of them, we see the opportunity of making it happen. To do that, we are going to be simplifying the priorities for each of them, identifying what are the core areas where we need to invest. At the same time, we need to modernize the technology platform that will be helping the three of them, and we need to simplify how we work and drive cost reductions to drive these investments. This process has begun, he confirms: We have started to go through and modernize the tech platform, module-by-module, and as we do that, drive integration or complete integration in some cases, across the three businesses. There is "some risk" involved here, he concedes, but he leans on the fact that PayPal has what he calls "a very competent team". This is a process that has already started. I think one of the key differences will be that we are going to be investing in making that happen. This is why the cost structural savings that we have announced today are going to be so critical. They will be helping us to make these investments possible, because we think it's critical for us to do that, for the company to continue to succeed and for the company to continue to grow. This tech modernization is something that merchants need to see happening, he suggests: For the last two months I have had many, many conversations with merchants. One of the key things I have learned is, with all of them, we have opportunities to improve our solution and to complete our solution addressing specific needs. Whether this is a merchant in the travel space that needs help in cross-border selling and cross-border activities, or a merchant in the retail side that needs help with customers that buy and return, and that we can help to reduce the returns because of the data that we have, we have a lot of opportunities to improve the value of our products and do it in a way that we can replicate it across multiple merchants. So the opportunity is clearly there. And again, in every conversation, I have seen it. But completing the modernization of the PayPal technology platform isn't the end of the story by any means, he admits: Merchants will have to move to the new platforms, and we will do that in a way that we minimize the work and the effort that it will take from them whenever it will be possible. But to continue to improve the solution, we will have to drive and move to the new platforms. But I think the key message is really the opportunity that we see, the opportunity that merchants are telling us we have, and the fact that by doing that, we will have an opportunity to also offering additional services that will help us from a margin perspective and to compensate potential price pressure that we will have in the more commoditized business. The answer is about adding the incremental value-added services, which is what we are going to be doing. In a world of LLMs and agentic commerce, as buyers, will we all still turn to PayPal as a trusted, safe pair of hands? And for merchants, is the promised 'brave new world' of Sam Altman and Co going to take precedence over betting your business on tech that you've known for years and grown to rely on. We live in interesting times.