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January 23, 2023

PayPal probed by German competition watchdog over ‘unfair business practices’

Antitrust regulators will look at whether the payment platform's behaviour is anti-competitive.

By Ryan Morrison

PayPal is being investigated by Germany’s competition regulator, the Federal Cartel Office, over alleged unfair business practices. including additional charges and a requirement that merchants don’t offer goods or services at a lower price to customers opting for a cheaper payment processing company.

PayPal is facing scrutiny over restrictions placed on merchants by its terms of service (Photo: alexdov/Shutterstock)
PayPal is facing scrutiny over restrictions placed on merchants by its terms of service. (Photo by alexdov/Shutterstock)

The watchdog says the action is in response to concerns raised over the strict terms and conditions placed on merchants wishing to use PayPal as a payment processor. It alleges that the company may have obstructed competition by restricting merchant choices.

Head of the Cartel Office, Andreas Mundt, said in a statement that it will investigate “what extent online retailers are dependent on offering PayPal as a payment method“. This will allow it to determine how big of an issue the requirement to sell at the same price actually presents in terms of competition regulation.

“If businesses are prevented from taking into account the costs of payment methods, new payment methods can fair worse in price and quality competition or not even get into the market,” said Mundt.

In addition to concerns over PayPal limiting choice when it comes to price related to payment processing, the regulator is also investigating other aspects of PayPal’s terms and conditions. This includes a rule that businesses are not allowed to make alternative payment methods more convenient than PayPal, which Mundt says “could restrict competition and constitute a violation of the prohibition of abuse”.

PayPal is the most popular method of making payments online in Germany, favoured by 57% of those who answered an online payments survey carried out by the Institute for Banking Innovation at the University of Regensburg in 2020.

PayPal and the Digital Markets Act

PayPal hasn’t commented on the investigation which comes after the Cartel Office was given more power by the 2021 German antitrust law. It allows it to identify and prohibit any anti-competitive activities if the company involved has a dominant market position. It already has action pending against Amazon, Apple, Facebook and Google, and plans to further extend its probes into Amazon in relation to third-party sellers.

Big Tech companies dominant in their space could face further investigations later this year after the new EU Digital Markets Act comes into force in May as it allows regulators to impose stricter anti-monopolistic rules on dominant companies.

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The Act is expected to force tech giants including Google, Meta, Apple and Amazon to change how they integrate their digital services and handle customer data.

“Large gatekeeper platforms have prevented businesses and consumers from the benefits of competitive digital markets,” said competition commissioner Margrethe Vestager. “The gatekeepers will now have to comply with a well-defined set of obligations and prohibitions. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”

The UK government is also working on giving its own Digital Markets Unit more power in the future, allowing it to tackle the dominance of Big Tech companies in a similar way to the Digital Markets Act in Europe.

Read more: What will Rishi Sunak do for the UK’s tech sector?

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