Concerns that PayPal’s merchant conditions restrict competition and lead to increased prices for consumers have prompted Germany’s antitrust regulator the Federal Cartel Office (FCO) to announce an investigation into the payment service.

The regulator is to look in to PayPal’s rules on surcharging and presentation, as set out in its user agreement that is applicable in Germany. In a press statement, the FCO says its concerns are that: “Under these terms and conditions merchants are not allowed to offer their goods and services at lower prices if customers choose to use a payment method that is cheaper than PayPal. In addition, sellers are not allowed to express a preference for payment methods other than PayPal or, for example, make their use more convenient for customers.”

Market studies cited by the regulator say PayPal is the leading online payment scheme in Germany, and also one of the most expensive. Its standard rate in Germany is 2.49%-2.99% of the payment amount plus 34-39 cents per payment.

Antitrust

Any antitrust proceedings based on preventing the abuse of a dominant market position would be made under Article 102 of the Treaty on the Functioning of the European Union (TFEU), and Section 19 of the German Competition Act (GWB). Prevention of abuse of a position of relative or superior market power would come under Section 20 of the GWB.

There is also the possibility PayPal is violating anti-competitive agreements in Article 101 of the TFEU and Section 1 of the GWB.

FCO President Andreas Mundt said: “If merchants are prevented from taking into account the differences in costs of various payment methods by imposing surcharges or granting discounts, it is more difficult for other and new payment schemes to compete successfully in terms of price and quality or to enter the market in the first place.

“Powerful payment schemes could thus obtain additional pricing leeway. Consumers in particular would also suffer since in the end they are the ones indirectly paying for these higher costs via the products’ prices.”

Market power

Germany updated its competition rules in 2021, giving the FCO more power to address the market power exerted by digital giants such as PayPal. The FCO says that in this particular case, though, it is looking to apply ‘classic’ competition rules. So it will have to establish whether PayPal does in fact have a dominant position before it can take a decision on whether any rule has been breached. All of which could take some time.

For context, Dutch regulators last year forced Apple to allow dating apps to use non-Apple-based payment technology to process in-app sales, and the EU has also taken action over restrictions Apple applies around the use of Apple Pay. In March this year, the Digital Markets act comes into force, seeking to make the digital economy fairer and more contestable.