A proposed class-action lawsuit filed on Thursday accuses PayPal and Venmo of imposing rules on merchants that result in higher prices for consumers. The lawsuit, filed in the U.S. District Court for the Northern District of California, alleges that PayPal uses “anti-steering” provisions to discourage competition from lower-cost platforms. These provisions prevent merchants from guiding customers to payment options with lower fees and from offering discounts to persuade customers to use cheaper alternatives to PayPal and Venmo. The lawsuit argues that these rules lead to higher prices for consumers.
The plaintiffs’ law firm, Hagens Berman, claims that consumers would see a clear difference between using PayPal and Venmo and using their competitors if they were allowed to see behind PayPal’s pricing veil. The firm describes PayPal as “far from consumer-friendly.” In response to the lawsuit, PayPal stated that it is currently reviewing the filing and emphasizes its commitment to putting customers first.
According to PayPal’s annual report, the company had 400 million active user accounts and 35 million merchant accounts as of February this year. In 2022, the company generated $27.5 billion in revenue primarily through transaction fees and other payment services. The lawsuit alleges that PayPal’s transaction fees are 3.5 percent higher per transaction compared to other platforms.
The issue of anti-steering provisions has been raised in the past, with credit card companies facing similar scrutiny. In 2010, the Justice Department sued Visa and Mastercard, alleging anticompetitive practices related to anti-steering agreements imposed on merchants. The companies settled with the government, allowing merchants to offer discounts for other payment methods. Steve Berman, managing partner and co-founder of Hagens Berman, points out the similarities between the credit card case and the current lawsuit against PayPal.
While it is true that the Supreme Court ruled in 2018 that American Express could continue using anti-steering rules, Berman believes that this ruling will not affect his case against PayPal. He argues that the Amex litigation confirmed the anticompetitive nature of these types of rules, and the technical market definition issues addressed by the Supreme Court are not a hindrance in this case.
The outcome of this proposed class-action lawsuit could have implications for the payment industry. If the court rules in favor of the plaintiffs, it may prompt a reevaluation of the rules imposed by payment platforms like PayPal and Venmo. This could result in greater transparency and competition within the industry, ultimately benefiting consumers. However, it remains to be seen how the court will interpret and decide on this matter. In the meantime, both merchants and consumers will be watching this case closely.