Germany’s Federal Cartel Office (Bundeskartellamt) has issued a preliminary assessment that PayPal’s ban on merchant surcharges could limit competition between online payment providers and potentially breach competition law.
The investigation examined PayPal’s terms and conditions for online retail payments.
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Since 2018, PayPal has barred online merchants from adding extra fees when customers choose PayPal at checkout. According to the regulator, PayPal enforces these rules and reserves the right to end business relationships with merchants that violate them.
Bundeskartellamt president Andreas Mundt said: “For many people, PayPal is a natural way to pay for their online purchases. Many online merchants therefore find it difficult to refrain from offering PayPal as a payment method.
“At the same time, PayPal is a comparatively expensive payment service for merchants. Competition between payment services could be affected if merchants cannot take the costs of the various payment methods into consideration for pricing.
“Other, cheaper providers would find it more difficult to gain an edge over PayPal. Ultimately, this could also lead to higher prices for consumers.”
According to a Reuters report, PayPal did not agree with the authority’s preliminary finding. The company said it would “continue to engage constructively in the proceedings”, the news agency added.
PayPal is one of the most widely used online payment methods in Germany. Customers can use a PayPal account linked to a bank account, credit card, or another funding source.
Merchants pay PayPal a fee to process transactions, with the amount varying according to the payment method and the terms agreed with the provider.
The Federal Cartel Office said PayPal’s fees are above average compared with other payment methods.
German law generally allows merchants to charge customers for using PayPal, provided the surcharge does not exceed the actual cost incurred by the merchant. However, separate legal restrictions apply to certain payment methods, including some consumer credit card payments, SEPA transfers, and direct debits.
The Bundeskartellamt added that PayPal’s ban prevents merchants from making differences in payment costs visible to consumers. This means consumers have less incentive to select lower-cost alternatives.
The regulator said this could make it harder for rival and new payment providers to compete with PayPal, including where they offer lower merchant fees.
Mundt added: “Our aim is to achieve effective competition between the various providers of payment services. Cheaper providers attracting merchants with lower charges should be able to reap the benefits of these cost advantages when competing for customers.”
In its preliminary findings, the regulator indicated that the surcharge prohibition could violate rules against anti-competitive agreements under Section 1 of the German Competition Act (GWB) and Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).
The practice may also constitute an abuse of market power under Sections 19 and 20 of the GWB and Article 102 of the TFEU.
The Bundeskartellamt is also evaluating whether to pursue a disgorgement of economic benefits gained from the alleged infringement.
The proceedings began on 23 January 2023. The current notice is not a final ruling, and PayPal can respond to the regulator’s findings.
