PayPal Under Pressure as German Watchdog Flags Competition Risks

Germany’s Federal Cartel Office said Wednesday that PayPal’s rules preventing online retailers from imposing additional charges on customers who choose its payment service could violate competition law, according to a Reuters report.

The preliminary findings represent a significant regulatory challenge for PayPal in Germany, where the company holds a substantial share of the online payments market.

At the center of the dispute is a contractual restriction that prevents merchants from passing PayPal-specific payment costs directly to customers. German regulators are concerned that the arrangement reduces the incentive for shoppers to select competing payment services, potentially allowing PayPal to maintain higher fees for retailers.

The regulator’s assessment follows an investigation launched in 2023 into PayPal’s business practices, Reuters reported.

According to the report, the Federal Cartel Office found that PayPal’s merchant fees are higher than those associated with alternative payment methods. Combined with the company’s strong market position, the pricing restrictions could weaken competitive pressure from other payment providers.

Related: PayPal, Revolut Weigh In as UK Targets Apple’s Tap-to-Pay Rules

The regulator’s concerns highlight the relationship between consumer pricing and competition in digital payments. When merchants cannot charge customers differently depending on their chosen payment method, shoppers may have little financial motivation to use less expensive alternatives.

That dynamic could make it more difficult for competing payment providers to attract customers based on lower transaction costs, while limiting merchants’ ability to influence how purchases are paid for.

PayPal disputed the regulator’s preliminary assessment but indicated that it intends to cooperate with the authorities.

The company said it disagreed with the Federal Cartel Office’s findings and would continue participating constructively in the proceedings, according to Reuters.

The investigation could also carry financial consequences.

German competition officials are examining whether PayPal should be required to surrender profits potentially obtained through the disputed practices, Reuters reported. Such a measure would extend the case beyond possible changes to the company’s commercial arrangements.