PayPal turns to AI to boost branded checkout

• Key insight: PayPal has partnered with Microsoft to boost agentic commerce.
• What's at stake: The payment company hopes AI can help improve its branded checkout performance. Payment companies are embracing agentic AI, creating a potential market for payment companies.
• Forward look: Analysts said PayPal's next earnings call will reflect the company's response to pressure on branded checkout. 

PayPal is expanding its use of agentic AI to improve its performance as a payment option in an attempt to refuel its flagging branded-checkout business.
The payment fintech last week launched a partnership with Microsoft to support the technology giant's Copilot Checkout, which allows shoppers to shop, choose products and make payments within Microsoft's Copilot app. PayPal did not comment on the partnership's revenue details, and Microsoft did not provide comment by deadline. 

PayPal hopes the partnership will improve its branded checkout and experiences, which total about 29% of PayPal's overall payment volume. 

"This is entirely part of our branded-checkout strategy," Mike Edmonds, vice president of agentic commerce for PayPal, told American Banker. "The best possible experience is to meet people where they are."

PayPal needs deals like this both to boost its own growth and stave off competitors. The company's stock is down about 40% over the past 12 months and it next reports earnings Feb. 3. In a research note, analysts at Jefferies said growth in branded total payment volume at PayPal could slow by "at least a couple of points" in the last quarter of 2025. "[This] will make it impossible to dispel the idea that competitive pressure is intensifying," Jeffries said.

The next phase

Agentic commerce refers to a form of AI that relies on little or no human interaction to complete tasks, such as shopping, store discovery, scheduling appointments, and even executing payments.

PayPal is betting on agentic AI to support in-store shopping and payments in addition to its traditional e-commerce focus. That strategy includes Agentic Commerce Services, which includes payment support, order management and connections between merchants and product data, fulfillment and AI-powered checkout.

The idea of the Microsoft partnership is to form a seamless user experience. A shopper would go to a merchant through Copilot, use the AI tools to find what they want, and then pay for it all with PayPal.

"We can enable PayPal's digital wallet directly in agentic commerce," Edmonds said. 

"Consumers can have access to all funding methods, their wallet, Venmo, banks, BNPL and crypto through agentic AI." 

Increasing branded checkout is a key part of PayPal's growth strategy, which dates to Alex Chriss' appointment as CEO in 2023. PayPal in late October reported quarterly branded payment volume growth slowed from 6% to 5%. And while some of that slowdown was due to President Trump's tariffs, Citi analysts said, it also showed that  meaningful growth in branded checkout has "failed to materialize."

PayPal said it's responding to the challenge by doubling down on AI-powered shopping and payments. "Agentic commerce is the next phase," Chriss told American Banker in a December interview. "We're making sure an [AI] agent can make payments, figure out where they are and find out what store is down the street that has what they want. Then make their purchases."

PayPal has used partnerships to expand its international payments business, introducing an initiative called PayPal World, which connects PayPal to international payment systems. PayPal World's early partners include India's national UPI payment network, TenPay Global and Mercado Pago, a Latin American digital wallet. PayPal's branded checkout strategy also includes expanding its reach among banks. In another recent move, PayPal expanded an existing partnership with Deutsche Bank. The German bank will add merchants that support PayPal for settlement and will add withdrawal and collection through PayPal in the U.S. 

A crowded market

PayPal's competitors are also pursuing agentic AI. Visa and Mastercard in recent months have introduced technology to enable issuers and merchants to adopt agentic commerce. Payment fitness such as Stripe are also embracing agentic commerce. And large technology companies including Google have developed protocols to make it easier for agentic AI programs to communicate.

AI agents are expected to generate $261 billion in U.S. online shopping, according to Worldpay's agentic AI research, which surveyed 8,000 consumers across the U.S., U.K., France, Brazil, China, Singapore and Australia in August and September 2025. 

The U.S. market is among the most receptive globally to use AI as a shopping companion, with 44% of American shoppers overall saying they would let an AI assistant browse for them, and 59% of consumers aged 18-34, according to Worldpay. 

Consumers are using agentic AI mostly for discovery or shopping, with payments more of a future use, according to Cindy Turner, chief product officer at Worldpay.

"It's stuff like 'I'm shopping for a new washer and dryer' or 'I'm planning to travel to xyz. Should I rent a car or take a train?'" Turner told American Banker. "Things are evolving but in the scaling phase. It's based on the consumer's comfort with the technology."