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A new lawsuit filed Thursday against PayPal Holdings Inc. alleges the online powerhouse uses illegally anticompetitive policies that increase costs for consumers.
Filed by Hagens Berman, a law firm that specializes in class-action litigation, the suit contends that PayPal prohibits merchants that work with it to offer pricing discounts when consumers use non-PayPal payment methods. The suit was filed by the firm’s Seattle office in the U.S. District Court for the Northern District of California.
In this way, the suit alleges that PayPal is using anti-steering rules just as the card brands Mastercard Inc. and Visa Inc. once did. The two network giants have subsequently halted the practice in the face of litigation.
“While PayPal’s anti-steering rules have evaded antitrust scrutiny until now, their anticompetitive effects are not difficult to discern,” the suit alleges. “Without them, merchants could competitively price transactions by the cost of the selected payments platform, allowing consumers to secure discounts at checkout. These discounts are foreclosed by the anti-steering rules, which essentially fix a price floor for millions of products that e-commerce consumers can obtain with payment methods other than PayPal.”
In a statement to Digital Transactions News, PayPal reiterated its positon. “PayPal continues to put our customers first in everything that we do, and we take this responsibility seriously,” the statement from a PayPal spokesperson says. “We are reviewing the filing and have no further information to share at this time.”
The effect of PayPal’s policy is that consumers end up paying more, Hagens Berman alleges. The suit claims more than 400 million consumers have PayPal accounts and that nearly 1 million U.S. e-commerce sites accept the digital wallet. In its most recent quarterly earnings release, PayPal stated it has approximately 400 million consumer accounts and about 35 million “active” merchant accounts.
Hagens Berman claims that if merchants could alert consumers to the costs of accepting PayPal some might choose lower-price methods. “…Facing PayPal’s industry-high fees, a merchant could charge $5.83 for a box of Kleenex when PayPal is used as the payment method, and less than $5.83 when the consumer paid with credit card or other payment. Or, a merchant could maintain the same $5.83 sticker price but provide consumers with a discount when they paid with a method other than PayPal or Venmo, “it says in a statement.
“Either way, the price differential would result in consumers paying lower all-in prices,” the lawsuit says.
