PayPal hit with a class-action lawsuit over anti-competitive pricing

PayPal was recently hit with a class-action lawsuit that accused the payments giant of anti-competitive and anti-steering rules, which have led consumers to pay higher fees.

The lawsuit was filed by consumers represented by a law firm called Hagens Berman. The company filed a lawsuit on behalf of its clients in California, and in the lawsuit, it claims that PayPal’s anti-steering policy stifles competition against many other payment platforms, such as Shopify and Stripe, which offer significantly lower payment fees.

The issue comes from the fact that PayPal’s rules are a part of the company’s user agreement with all merchants who have to sign it in order to integrate PayPal and Venmo payments and give their customers the preferred payment methods. The rules also say that retailers must agree to not offer discounts or inducements that would make the customers want to use other payment methods that offer lower fees.

Apart from that, merchants are also not allowed to tell their customers that other payment options come with lower fees or even that the merchants themselves prefer them. In other words, PayPal is charging more, and merchants are not allowed to say anything about it, or influence customers toward competing payment providers.

PayPal is charging more, and merchants are not allowed to tell that to customers

Hagens Berman’s attorneys noted that merchants could charge $5.83 for a product such as a box of Kleenex if customers choose to pay via PayPal while choosing a different payment method would result in a lower price. Alternatively, merchants could keep the same sticker price of $5.83 but offer a discount to customers when they pay with a method other than Venmo or PayPal. However, PayPal doesn’t allow this option, as it would clearly influence consumers’ decisions when selecting a payment method.

The lawsuit argues that there are ways for PayPal to continue charging its higher fees while consumers would still get to pay lower all-in prices, but the company’s payment rules prevent this, and if merchants were to try any bypass the rules, PayPal would no longer provide payment services for them.

This is also not an ideal solution, as merchants who don’t offer PayPal payments would likely see a drop in visitors to their stores, even though the available options would result in lower fees. PayPal’s brand is a powerful one, and in the eyes of consumers, it can even make an online store see greater traffic simply because it offers PayPal as a payment method. Unfortunately, users are left to figure out on their own that using PayPal actually means paying more than if they were to choose a different payment method.