Way back in 2023 PayPal got hit with an anti-steering lawsuit. In October 2023 @Kross_roads put up an awesome post explaining what this was:
🗯️ WHY ARE THEY BEING SUED?
This is an “anti-steering” lawsuit, attacking a behavior that is exceedingly common in the payments industry (and search engines, mortgages, etc). PayPal (like other payment providers) tells a vendor that if they want to use branded PayPal or Venmo, they can’t incentivize or “steer” a customer to a different payment but have to offer PayPal on an equal footing to other payment methods.
But the bottom line is that these practices (and lawsuits) are common and usually end up paying out far more to the lawyers than consumers.
👩🏽⚖️ WHAT IS ALLEGED?
- That PayPal and Venmo has higher margins than other payment options.
This is 100% correct for branded PayPal. It is laughably incorrect for Venmo, which has shockingly low margins.
- “Merchants do not pay the cost of PayPal’s Anti-Steering Rules—consumers do.”
This is factually incorrect, though (like corporate taxes), merchants do pass through the fees/costs of business to the consumer.
- That customers don’t have a free/informed choice.
Pretty sure the % take rate (which the merchants pay directly) isn’t the #1 concern of a customer when they select the payment method.
- These PayPal rules cause an “inhibited choice among market alternatives” for the consumer.
The last I checked, payment options are increasing dramatically at most vendors. That’s part of the bear case against PayPal: competition.
- “New entrants in the eCommerce market generally become co-conspirators, agreeing to PayPal’s Anti-Steering Rules.”
In essence, since merchants agree to the terms and other payment providers also have anti-steering clauses, they are all co-conspirators, but the lawsuit is going after PayPal because it is the leader in the industry.
💼 OTHER ANTI-STEERING CASES
Apple has been sued for this many times, with all but one dismissed. The case cites Master Card and Visa which were successfully sued for this in 2010 (settled), but underplays the 2018 American Express case which went to the SCOTUS and went in favor of AE as the plaintiff did not prove material harm to both the merchant and consumer.
Within the AE case ruling, a significant quote pertains to PayPal here:
“Evidence of a price increase on one side of a two-sided transaction platform cannot, by itself, demonstrate an anticompetitive exercise of market power.”
🤣 FUNNY QUOTES AND ARGUMENTS
“Merchants must present PayPal as an entirely neutral option when, in fact, the economic consequences of clicking PayPal at checkout are significant and adverse”
This completely overlooks the value that PayPal provides in trust and name recognition, even before we discuss fraud protection and other benefits.
“Without them, merchants could competitively price transactions by the cost of the selected payments platform, allowing consumers to secure discounts at checkout.”
We’re not talking about substantial discounts here. Furthermore, merchants are much more likely to pocket the small margin gain than pass that on to the consumer.
🔎 WHAT HAPPENS NEXT?
Class-action lawsuits take time to gather more plaintiffs. Following that is “certification” where a judge will rule on whether the case has potential merit or should be dismissed.
Should the case be seen as one that has merit, class action lawsuits usually are settled out of court. Either way, this will take years to play out.
🤔 FINAL THOUGHTS
This won’t impact $PYPL beyond today, at least not for years. The case could go either way, but I’m guessing the precedence of the Supreme Court AmEx decision weighs far more heavily than the plaintiffs would like.
The case could go either way, but has zero impact on $PYPL short-term outside of yesterday.
If the case goes against PayPal or they settle out of court, it will hit their revenue as a one-time event. As virtually every other payment provider has anti-steering clauses, however, this means nothing will materially change beyond this one time hit.
Today we now know that there will be ZERO impact to PayPal and the case has been dismissed. Beautiful! Even Visa and Mastercard haven’t been able to dodge similar lawsuits to this.
Source: Click here
