German cartel office says PayPal's fee ban may restrict competition

What the authority found

The Bundeskartellamt, the Federal Cartel Office in Bonn, has sent PayPal a preliminary legal assessment saying its contract terms may restrict competition between payment providers. PayPal bars merchants that offer its payment method in their online shops from charging customers a separate fee for paying with it. These clauses have applied since 2018, and the authority opened its proceeding in January 2023. Most reports date the announcement to Wednesday, 11 November, while Berliner Zeitung gives Tuesday. The authority stresses that its view is provisional and that no final decision has been taken.

Costs land on every shopper

Merchants pay PayPal a fee for each transaction, and the authority says PayPal charges above-average fees compared with other payment methods. Because the contract rules out a surcharge, shops cannot reflect that gap in their prices, so they spread the cost across all customers, including those who pay by card or through other services. Customers who never use PayPal therefore end up paying part of its fees. PayPal users also lack cost transparency, which leaves them little reason to switch to a cheaper alternative. Under German law, merchants are generally allowed to charge a fee for a payment method as long as it does not exceed their actual costs. Mundt said the practice could ultimately mean higher prices for consumers.

Cheaper rivals and PayPal's market position

Mundt said the ban could weaken competition between payment services and make it harder for rivals to win business.

“Other, cheaper providers would then find it harder to assert themselves against PayPal.”

The authority describes PayPal as one of the most important payment services in online trade in Germany and says its market share in online payment methods is very high. Other options in the competitive field include Mastercard and Visa cards usable online, the service Klarna, and Wero, a payment service backed by banks. Mundt added that many merchants find it difficult to do without PayPal, since it has become a matter of course for many people shopping online.

PayPal's response and next steps

PayPal rejects the authority's view, and its spokesperson made the company's position clear.

“PayPal does not share the preliminary assessment of the Bundeskartellamt.”

The spokesperson also said PayPal would accompany the proceeding constructively. PayPal now has the opportunity to comment on the preliminary assessment before any decision is taken. If the concerns hold up, the authority could press PayPal to end the practice. It could also seek to claim any economic advantage that PayPal obtained through a possible breach of competition law.