Thanks, Dan. I want to start by thanking the entire PayPal team for how they've responded to these unprecedented events. Their tireless efforts to go above and beyond in order to help our customers and help each other have been amazing. COVID-19 has certainly taken a path that has left a tremendous amount of personal and economic destruction in its wake. It's moved from something that we hear about on the nightly news to something that is more personal, having a tangible effect on our lives.
Our thoughts are with those of you who have been most impacted.
For all of the very real concern on a personal level as well as the economic damage from appropriate measures to combat the virus, our business is strong, resilient and performing very well.
We have a very strong balance sheet, durable streams of earnings and cash flow and we're levered to parts of the economy that are benefiting from social distancing and shelter-in-place, namely e-commerce. We entered this environment from a position of strength coming off very strong results in 2019.
We are successfully navigating this crisis and have confidence that we will emerge from this period even more strongly positioned.
Dan spent time discussing our volume trends and earnings results in the quarter. I would like to provide additional details on our revenue and expense performance as well as how our results compared to our expectations going into the first quarter.
Our Q1 revenue guidance provided in January called for 17% to 18% growth on a currency neutral basis, and our Q1 non-GAAP earnings guidance was for $0.76 to $0.78 per share.
As Dan noted, the first quarter was a study in contrast between March and the first two months of the quarter. Consistent with our expectations, we saw very strong volume trends in both January and February, with volumes growing 26% on a combined basis.
In March, we faced headwinds as the environment rapidly shifted and volumes grew 7%, which resulted in 19% TPV growth overall for the quarter. In Q1, on a foreign currency-neutral basis, total revenue grew 13.5%, transaction revenue grew 15%, and other value-added services revenue grew 2%. Transaction revenue growth was primarily affected by weakness in the travel and events vertical and slower Asian cross border e-commerce.
Growth in other value-added services revenue was much lower relative to our mid-teens growth expectations. We earned less credit income as a result of the proactive measures we took to help our customers, including relief from interest and late fee payments. To a lesser extent, this revenue was also affected by lower interest rates on customer balances. On a combined basis, these COVID related impacts resulted in approximately 5 points of pressure to revenue growth in the quarter.
On the expense side, we had another quarter of strong transaction expense and transaction loss performance. Transaction expense was 91 basis points as a rate of TPV, a decline of 5 basis points both sequentially and year-over-year and large part due to a shift in our volume mix related to COVID. Transaction loss was 13 basis points, an improvement of 5 basis points year-over-year and the fourth consecutive quarter in which we performed in this range. On an absolute basis, transaction loss dollars declined 14%. This is some of the best performance we've seen in our history for both of these expense line items, and together they provided nearly 150 basis points of leverage.
At the same time, given the unprecedented pace and scale of the decline in the broader economy and the macro related adjustments that the new CECL accounting standard mandates, we increased our reserves for expected credit losses. This flows directly to credit loss expense and resulted in a $227 million macro related charge in the quarter, which after taxes equates to a $0.17 per share impact to earnings.
At the beginning of the quarter, our reserve coverage covered 11% of our outstanding loan and interest receivables balance. In response to changed macroeconomic forecast, our reserve coverage increased 54%, and now covers 17% of our portfolio.
Non-volume related expenses increased by 6%, entirely related to our recent acquisitions as compared to a year ago. On an organic basis, these expenses were flat.
As we demonstrated consistently for several years now, we remain disciplined in our expense management. Much of our expense base is volume related and serves as a natural hedge as volumes come down. Further, we have many levers on the non-volume expenses to sustain our track record of strong earnings growth.
I want to emphasize, however, that we are focused on building a great company for the long term, and will continue to aggressively pursue growth opportunities, while acting prudently from an expense standpoint. We'll remain agile and responsive to how the economic environment is playing out and we'll continue to appropriately invest in our business in a manner that we believe maximizes shareholder value.
Operating margin for the quarter was 19.7%. Adjusting for increased macro related reserves, our operating margin would have been 24.7%, improving more than 200 basis points year-over-year and more than 100 basis points sequentially. Overall, we're pleased with the durability of our earnings stream and believe that we are well positioned to continue delivering strong results even in the face of this exogenous shock. We grew revenue 13.5% on volume growth of 19%, while generating a 20% operating margin in the quarter and $1.3 billion of free cash flow.
In addition, excluding the $0.17 earnings impact from the macro related charge to our credit business, we would have outperformed our expectations and delivered $0.83 in EPS for Q1, which demonstrates the underlying strength of our business. This strength allows us to take actions that will have a short-term financial impact, but are absolutely the right thing for our customers, for our long-term competitive positioning and for the economy overall. And in fact, we believe these actions will make us even stronger going forward.
We're in a very strong position from a balance sheet and liquidity perspective. We ended the quarter with more than $10 billion of cash, cash equivalents and short-term investments. In March, we elected to draw down $3 billion on our credit facility or 50% of our available capacity to maximize our flexibility.
In addition, in the first quarter, our free cash flow grew 60% year-over-year, and for the full year, we continue to expect to generate approximately $0.20 of free cash flow for every dollar of revenue.
Our financial position will allow us to be opportunistic and successfully navigate this period as we assess ways that we might be able to capitalize on current market conditions.
During the quarter, we also repurchased $800 million of stock through a previously implemented 10b5-1 program. Overall, from a capital allocation standpoint, there is no change to our previously discussed strategy. We'll continue to prioritize organic investing to achieve our growth objectives and have rapidly shifted some of our efforts in response to this new operating environment, and the increased demand for our products and services. After investing organically, we will balance share buyback with acquisitions and investments.
I now want to shift to how we're thinking about things going forward. There are obviously many variables that are outside of our control that will impact our results for the rest of the year. Most notably the path of the virus, the duration of the measures put in place to combat it, and the health of the global economy.
Our business is strong and we expect to continue to show earnings strength and durability.
At the same time, given the lack of visibility into the near-term economic effects of COVID-19 and the wider range of potential outcomes, we believe it is prudent to pull our previous guidance for the full year. To be very clear, there is a difference between our ability to accurately predict the impact of COVID-19 on our business in the back half of the year and our overall confidence in our business.
We will continue to update you on our business trends as we move through the remainder of the year.
For the second quarter, we are guiding revenue growth of approximately 15% on a currency neutral basis, and non-GAAP EPS growth of 15% to 20%. I want to provide some context for this guidance.
Our revenue and earnings guidance for Q2 is our best estimate at this time and incorporates our April results and the potentially wider range of outcomes that we may experience in May and June. Perhaps the biggest factor impacting our revenue performance for the second quarter is the extent to which behavioral changes associated with social distancing measures continue at the same pace.
Our branded payments experiences are clearly benefiting from the increase in e-commerce spend as a result of these measures.
We are assuming that these measures are slowly relaxed over the next two months, but expect that we will exit the quarter at a more elevated level of e-commerce spend than what we were experiencing going into the crisis. We don't know the extent to which people will fully revert to previous behaviors, but we believe that this is not just about government mandates, it's about public health and taking reasonable precautions in adopting habits that reduce risk that on a relative basis involve minimal sacrifices.
In addition, we expect that there will be a slower recovery in verticals with longer lead-time purchases like travel and events, and don't expect any material improvement in the second quarter from the depressed levels that we're seeing now.
We will continue to electively help our customers by waiving certain fees, extending credit and offering additional forms of relief. These actions will have an impact on our earnings in the second quarter and are contemplated in the guidance we are providing.
Our guidance also assumes no incremental macro adjustment to our reserves for credit losses beyond the increase in Q1. This is dependent upon several macroeconomic factors, which we will continue to monitor and we'll just have to see how this plays out in the quarter.
Given the impact to many businesses in the dramatic surge in unemployment, we do not expect that there will be a return to pre-crisis levels of economic growth anytime soon.
Overall, we expect underlying non-GAAP earnings growth to be a few points higher than revenue growth, given the dynamics that we're seeing in our business. The flow through on our current mix of volume and the trends in our non-transaction related expenses. At the same time, we're focused on investing in products and services to capitalize on the behavioral shifts we're seeing toward higher e-commerce penetration, the avoidance of cash and a greater desire for contactless payment experiences. The level and extent to which we accelerate investment in these areas will also impact earnings in the quarter.
I want to emphasize that trying to forecast at this time, when information and trends are changing rapidly, is exceedingly difficult and we're attempting to balance transparency with reliability.
We have a very strong and durable business model, one that stands to benefit from some of the secular trends that may emerge from this crisis. I also want to acknowledge, however, that people are not going to live like this indefinitely; people don't want to live like this indefinitely. Shared experiences are critical to a healthy functioning society and people want to have dinner with friends, travel with family and attend concerts and sporting events.
Our April trends demonstrate how we're benefiting from acceleration in e-commerce that has been brought on by much of the world being subject to shelter-in-place.
As the world begins to normalize, the behavioral changes that we're seeing may also recede a bit, which will slow our growth in some areas. At the same time, other areas of our business would strengthen as we benefit from having a diversified portfolio of products and services. To be very clear though, we all look forward to moving beyond this moment and taking everything that we have learned to better serve our customers.
In closing, in the face of one of the most significant financial shocks that we've seen in our lifetime, our business is more relevant than ever before. If this situation continues for some time, then we're positioned very well. If, however, we can return to normalcy albeit with some notable changes in consumer behavior, then we're also positioned very well.
We will continue to take a long-term view in managing our business and we will take actions that we believe will further increase shareholder value and allow us to emerge from this as an even better company with better growth opportunities and more durable earnings.
I'll now turn it over to the operator for questions. Thank you.