Has PayPal imposed unnecessary costs on customers?

The global finance player PayPal is suspected of distorting competition. The Federal Cartel Office has already initiated proceedings against the payment service provider. Two specific clauses in the terms of use for retailers are checked.

Does PayPal restrict competition and, as a global player, violate the prohibition on abuse? Last Monday, January 23, 2023, the Bonn-based Federal Cartel Office initiated proceedings against PayPal to answer these questions. As early as January 2022, the company was the focus of a class action lawsuit for theft.

PayPal: suspected distortion of competition in detail

The proceedings are against PayPal (Europe) S.à rl et Cie, SCA. It is now being examined whether PayPal hinders competitors and restricts price competition. The Cartel Office announced this in an official statement Press release on the case against the company.

Specifically, there are two clauses that are laid down in PayPal’s merchant-related terms of use for Germany. The rules on surcharges and the presentation of PayPal are under the magnifying glass of the cartel office.

“These clauses could restrict competition and constitute a violation of the prohibition on abuse,” says the President of the Federal Cartel Office, Andreas Mundt.

That is what the critical clauses say

Are the suspicious clauses in the PayPal Terms of Service an anti-competitive issue?

• Clause 1: Merchants’ goods and services must not be cheaper if customers pay for them using a cheaper method than PayPal.
• Clause 2: The communication of preferred payment methods other than PayPal is prohibited for merchants, as is offering a more convenient use of other payment methods.

“We will now examine what market power PayPal has and to what extent online retailers are dependent on offering PayPal as a payment method,” says Mundt.

Is PayPal exploiting its market position?

At a Survey on the most popular payment methods in Germany for online orders from 2021, PayPal came out on top.

The top position is also reflected worldwide, because the active PayPal accounts have increased steadily since 2010: by the third quarter of 2022 to a total of 432 million, which means an increase of around four percent compared to the same quarter of the previous year.

As part of PayPal’s alleged distortion of competition, the Bundeskartellamt is now investigating the provider’s market power, because “if retailers are prevented from taking into account the different costs of the various payment methods by means of corresponding surcharges or discounts, other and new payment methods can compete in price and quality perform worse or not even come onto the market.”

On the other hand, “market-dominant payment services” would expand the scope for their pricing. Consumers in particular could suffer from this, “who ultimately pay these higher costs indirectly through the product prices.” Because retailers usually pass on the fees for using payment services to their own prices.

PayPal requires 2.49 to 2.99 percent of the payment amount and charges an additional 34 to 39 cents per payment. The company is already one of the most expensive providers of payments on the Internet.

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