DE Cartel Office Investigates PayPal

Published on 21 Jan 2023

DE, Cartel, Office, Investigates, PayPal

The German Federal Cartel Office (FCO) has declared that it would conduct an antitrust probe against PayPal's surcharge policies.

The authority worries that PayPal's merchant limits might hurt rivals and drive up customer prices.

The Foreign and Commonwealth Office (FCO) has stated that it is reviewing certain provisions of PayPal's terms, including those that prohibit merchants from offering discounts on their goods and services if customers opt to use a payment method that is less expensive than PayPal, as well as those that prohibit merchants from showing a preference for a particular payment method or facilitating the use of different payment technology.

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The FCO’s Statement

The rates merchants must pay to process payments vary greatly across different options. "Apart from shipping costs, for instance, the expenses of payment systems are typically not reported separately to customers," the FCO clarified in a press statement because retailers typically pass these service charges onto their product prices, and consumers eventually bear them.

Market research indicates that PayPal is not only the most popular but also one of the most costly online payment providers in Germany. Payment processing fees in Germany are between 2.49 per cent and 2.99 per cent of the payment amount, plus 34 to 39 cents for each, as stated in PayPal's price list.

FCO president Andreas Mundt said, "These terms potentially limit competition and represent a breach of the ban on misuse." The following sections will discuss the importance of PayPal as a payment option for online businesses and the degree to which they rely on it. Suppose businesses aren't allowed to factor in the variable costs of accepting alternative payment methods, including any surcharges or reductions that may apply. In that case, new payment methods may need help to compete or never enter the market. If this happens, dominant payment providers may have more price flexibility. Consumers would be hit the hardest since they would be the ones to foot the bill for these increased expenses by paying higher product prices.

Even if the FCO has been given more authority to proactively handle the market strength of digital giants as a result of changes made to German antitrust law at the beginning of 2021, the action against PayPal is not one of those exceptional abuse control instances.

How does FCO Determine If There Is A Violation?

To decide if there has been a violation, the FCO must first evaluate whether it has a dominating position for payments, as confirmed by an FCO representative, who said that the agency is adopting "traditional" competition laws in this instance. As a result, the duration of the procedure might be extended.

In a second antitrust lawsuit in Europe last year, also involving digital payments, the Dutch Authority for Consumers and Markets ordered Apple to enable dating apps in the market to use payment technologies other than Apple's own for processing in-app transactions. After Apple paid a series of fines and engaged in months of back-and-forth with the watchdog, the latter finally accepted Apple's proposal last summer, ending the company's appeal to the decision.

Recently, the European Union has shown interest in online payment systems, and it took action in 2016 in response to Apple's limits on Apple Pay.

The Digital Markets Act is a significant competition reform that will be implemented this year throughout the European Union, and these actions foreshadow far larger and perhaps more consequential changes for tech companies in the EU. This "ex-ante" regime would invert the conventional antitrust procedure, whereby market power must be evaluated, and inquiry precedes remedy, by implementing, upfront, a set of established regulations on platforms identified as competitively significant "gatekeepers." Large firms may better serve their smaller rivals, who depend on them for customer access, and vice versa by being more adaptable and proactive.


Featured image: (BKartA)


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