Payments giant PayPal is facing an antitrust lawsuit filed by consumers in federal court in San Jose, California. The lawsuit, filed by two consumers from California and Georgia, alleges that PayPal has forged agreements with e-commerce merchants that maintain artificially high transaction fees.
The crux of the lawsuit revolves around the claim that PayPal, which owns Venmo, imposes the highest transaction fees among payment processors. This raises questions about whether PayPal is using its market position to hinder competition and maintain high fees.
Accusation of "anti-steering" rules
This lawsuit marks a milestone in accusing PayPal of violating U.S. competition law through its "anti-steering" rules. According to Steve Berman, one of the plaintiffs' attorneys, if consumers could see beyond PayPal's pricing veil, they would notice a distinct difference between using PayPal and Venmo to complete their transactions and using their competitors.
The lawsuit seeks unspecified monetary damages and an injunction against PayPal's alleged anticompetitive practices. With more than 430 million active accounts and 41 million daily transactions, PayPal is a major player in the world of online payments.
Consumer lawyers argue that PayPal's "anti-steering" rules serve no plausible pro-competitive purpose. Removing PayPal's merchant restrictions would allow merchants to price competitively and consumers to get discounts at checkout.
Comparison with Visa and MasterCard
The lawsuit also points to a precedent with Visa and MasterCard, who agreed to eliminate rules restricting price competition in 2010 in a settlement with the U.S. Department of Justice. According to the lawsuit, PayPal appears to have followed a similar path by adopting rules limiting price competition.
As the case moves forward, it will be interesting to see how PayPal responds and whether it will implement changes to its policies in response to this antitrust lawsuit