Germany Challenges PayPal Surcharge Ban as Anti-Competitive

Key Moments

Regulator Questions PayPal’s Surcharge Prohibition

Germany’s competition authority, the Bundeskartellamt, has delivered a preliminary assessment stating that PayPal’s restrictions on merchants charging extra fees for using its payment services may run afoul of competition rules.

The notification was addressed to PayPal Holdings, Inc., PayPal (Europe) S.à.r.l. et Cie. S.C.A., and PayPal Limited, and focuses on the company’s rules governing surcharges in online transactions.

Concerns Over Competition and Pricing Effects

According to the Bundeskartellamt, PayPal’s contractual terms prevent merchants that accept its payment option from passing on PayPal-specific transaction costs directly to customers who choose that method.

The authority stated that this prohibition could weaken competition between different payment services. It noted that:

• PayPal is described as a comparatively expensive payment option for merchants.
• Many online retailers find it difficult to remove PayPal from their checkout due to its importance for customers.

“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,” said Andreas Mundt, president of the Bundeskartellamt.

The authority stated that PayPal’s merchant fees are above the average level of charges for other payment methods. These fees differ by payment type and, for larger merchants, are subject to individual negotiations.

Impact on Merchants and Consumers

The Bundeskartellamt explained that the no-surcharge rule effectively compels merchants to recover PayPal’s processing costs through general product pricing. As a result, all customers – including those paying with alternative methods – bear part of the costs associated with PayPal transactions.

The regulator added that this structure may reduce price transparency for PayPal users, who do not see the specific cost of choosing that payment option and therefore have less incentive to switch to lower-cost alternatives.

According to the investigation, PayPal has applied this prohibition since 2018 and may end its business relationship with merchants that fail to comply.

Legal Framework and Competitive Implications

Under German law, merchants are allowed to impose fees on customers for using PayPal, as long as such surcharges do not exceed the actual costs incurred. By contrast, surcharges are legally banned for certain other types of payments, including consumer credit cards and SEPA transfers.

The Bundeskartellamt argued that PayPal’s contractual rules may be hindering less expensive payment providers from competing effectively. Because merchants are unable to pass on any cost advantage to customers, consumers have fewer monetary reasons to opt for cheaper payment methods.

Potential Legal Violations and Next Steps

The authority indicated that the prohibition could infringe both the ban on anti-competitive agreements and the ban on abusive practices under German and European competition law. It is also examining whether to demand disgorgement of any economic benefits that may have arisen from the suspected infringement.

PayPal now has the opportunity to respond to the authority’s preliminary findings. The Bundeskartellamt emphasized that its current assessment is not a final decision. The proceeding was originally opened on January 23, 2023.

Key Elements of the Bundeskartellamt’s Assessment