Germany’s competition authority challenges PayPal surcharge ban

Germany’s Federal Cartel Office said on 11 November that PayPal’s ban on online merchants charging customers extra to use its payment service may hinder competition and violate the law. The finding is preliminary.

The authority announced the opening of the proceeding on 23 January 2023 against PayPal (Europe) S.à.r.l. et Cie, S.C.A., the service’s European subsidiary. It examined clauses in the user agreement that applies in Germany.

The 2023 account said the proceeding was based on prohibitions of abuse of dominance under Article 102 of the Treaty on the Functioning of the EU and Section 19 of Germany’s Competition Act, and abuse of relative or superior market power under Section 20. It reported that the office also considered PayPal’s conduct a possible breach of the prohibitions on anticompetitive agreements under EU Article 101 and German Section 1.

Why the authority objects

The agreement bars merchants from offering lower prices when customers choose a cheaper payment method. It also prevents sellers from expressing a preference for other methods or making them more convenient to use.

The office said PayPal has a very high share of the German market and charges merchants above-average fees compared with other payment methods. If customers cannot be charged extra for PayPal, they have less incentive to choose another service, reducing competitive pressure on PayPal’s merchant fees, the office said.

When the investigation opened, office president Andreas Mundt said restrictions on reflecting payment costs through surcharges or discounts could make it harder for other services to compete or enter the market. He said consumers could ultimately pay higher costs indirectly through product prices.

PayPal’s response and next step

PayPal said it disagreed with the preliminary assessment but would continue to engage constructively in the proceedings, CNA reported.

The office is also considering whether PayPal should surrender profits gained through the practice. PayPal has an opportunity to comment on the preliminary findings.