Germany’s competition authority is scrutinizing PayPal’s fee rules. The Federal Cartel Office, or Bundeskartellamt, has issued a preliminary assessment stating that PayPal’s ban on merchants adding surcharges for its payment option may restrict competition.
The authority also says the practice could breach German and EU competition law. It is considering whether PayPal may be required to surrender profits earned through the rule, potentially raising the stakes beyond a change to its contractual terms.
What the watchdog is objecting to
The arrangement is straightforward: merchants that accept PayPal agree to terms barring them from charging customers extra for selecting PayPal at checkout.
According to the research findings, the clauses have been in place since 2018. The Bundeskartellamt began proceedings on January 23, 2023, making this a long-running matter rather than a surprise raid.
The authority’s concern is how the costs are distributed. PayPal charges merchants a standard fee of 2.49% to 2.99% per transaction, plus a fixed fee of 34 to 39 cents per payment. The watchdog says these fees are above average.
Since merchants cannot charge PayPal users specifically for that cost, they spread it across all customers. As a result, a shopper using a cheaper payment method may end up covering part of the cost for someone who chose PayPal.
The Bundeskartellamt argues that this arrangement reduces consumers’ and merchants’ incentive to seek less expensive options.
Mundt’s case and PayPal’s pushback
Bundeskartellamt President Andreas Mundt cast the issue as one of price competition. He said bans on surcharges may stifle competition, particularly by restricting the ability of new or cheaper payment services to gain ground.
PayPal’s market position is relevant to that argument. The watchdog says the company has a high market share in German payment services, turning a contractual term into a competition issue.
PayPal disputes the authority’s position. The company said it does not agree with the Bundeskartellamt’s view, but is prepared to engage constructively with the authority.
PayPal now has an opportunity to submit a formal response to the preliminary findings before the office makes a final decision.
The remedies on the table
Two possible outcomes are in focus. One is an order for PayPal to end its surcharge ban, allowing merchants to charge extra when customers choose the service.
The other is profit disgorgement. The office said it is considering whether PayPal may be required to surrender profits made through the disputed practice.
Neither measure has been finalized. The assessment is preliminary, not a ruling, and the investigation is continuing.
A broader regulatory pattern
The case is part of a broader Bundeskartellamt effort to scrutinize the rules set by digital platforms. The authority has increasingly focused on platform policies, with the stated goal of protecting fair competition and consumer choice.
The EU law aspect is also significant. If the authority finds that the rules violate European competition law as well as German law, its reasoning could influence discussions beyond Germany.
Implications for merchants, competitors and PayPal
For merchants, the most immediate issue is having a choice. If the surcharge ban is lifted, online sellers in Germany could set different prices for different payment methods, encouraging customers to choose options that cost the sellers less to process.
That would mark a significant change. With fees of 2.49% to 2.99% plus a fixed charge per transaction, merchants with thin margins have a clear reason to steer customers toward other options, if permitted.
For competing payment providers, the potential benefit is greater visibility. Mundt’s argument is essentially that newer or cheaper services cannot compete on price if shoppers cannot see the price difference.
PayPal faces two kinds of risk. An enforced end to the ban could put pressure on its pricing in Germany if surcharges drive customers away; an order to surrender profits would also impose a direct financial cost.
Source: cryptobriefing.com. Adapted by NBTC.
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