In the case of PayPal, which owns Venmo, the plaintiffs allege that the company locks merchants into provisions that prevent merchants from offering discounts to persuade customers into using payment options that are cheaper than PayPal and Venmo. The rules also block merchants from telling customers that other payment options might be cheaper, according to the lawsuit. As a result, the lawsuit charges, consumers pay higher prices.
“If consumers were allowed to see behind PayPal’s pricing veil, they would see a clear and distinct difference between using PayPal and Venmo to complete their transactions and using its competitors,” Steve Berman, managing partner and co-founder of Hagens Berman, the law firm representing the plaintiffs, said in a news release. “For a service named for its friendliness, PayPal is far from consumer friendly.”
PayPal said in a statement that it is reviewing the filing. “PayPal continues to put our customers first in everything that we do, and we take this responsibility seriously,” the company said.
As of February, the company hosted 400 million active user accounts and 35 million merchant accounts, according to its annual report. In 2022, the company generated $27.5 billion in revenue and stated in its annual report that it earns revenue primarily by charging transaction fees and offering other payment services. The lawsuit alleges that PayPal’s transaction fees are 3.5 percent higher per transaction than other platforms.
In 2010, the Justice Department sued Visa and Mastercard, alleging that the anti-steering agreements they had allegedly imposed on merchants were anticompetitive. The companies swiftly settled with the government, agreeing to allow merchants to offer discounts for other forms of payment.
Referring to the credit card case, Berman said “We see PayPal doing precisely the same thing.”
In 2018, however, the Supreme Court ruled in a 5-4 decision that American Express was allowed to use the anti-steering rules with retailers, arguing that the Justice Department and several states did not prove that the credit card companies harmed both merchants and consumers.
Berman told The Washington Post that the ruling will not affect his case against PayPal.
“If anything, the Amex litigation confirmed that these types of anti-steering rules are anticompetitive,” he said. “The plaintiffs there prevailed at trial, and the technical market definition issues the Supreme Court addressed on appeal are not an impediment in our case.”