Dan Warne12 June 2008, 5:01 PM
eBay faces prosecution under Australian competition law if it pushes ahead with plans to force users to use PayPal for online auction payments, the ACCC said today.
The competition regulator today notified eBay that it planned to reject eBay's application for immunity from competition law. eBay had applied for the exemption, arguing that by forcing users to use PayPal, it would be able to significantly cut fraud in online auctions.
However, the Australian community expressed outrage to the ACCC, with over 700 individuals lodging submissions arguing that eBay was simply trying to ramp up revenues by 'double-dipping' with both eBay auction fees and PayPal transaction fees.
Indeed, the ACCC noted a submission made by BPAY which showed eBay stood to raise its fees by 45.7% under the scheme:
"BPAY notes that the average eBay price for items in popular categories is $148.82. Using this figure as a representative sample, BPAY calculates that as a result of the notified conduct, costs for the average transaction on eBay will rise to $12.34 or 8.3% of the transaction value, as compared with a minimum of $8.47 or 5.69% of transaction value at present. This represents a 45.7% increase over current transaction costs where direct deposit is used to fund a purchase," the ACCC's report stated.
It also noted a submission from the Australian Payments Clearing Association which used eBay's own statistics to show that far from reducing fraud, PayPal is simply passing the cost of fraud on to sellers.
"APCA notes that eBay provides no evidence to suggest that the relative frequency of online fraud for PayPal online transactions is any less than found in general online transactions. According to 2007 APCA statistics, card fraud in Australia is 0.0167% of transactions. APCA contrasts this with a statement made by Daniel Feiler, media spokesperson for eBay, quoted in the on-line publication ‘The Sheet’ on 15 April 2008 saying that the incidence of fraud through PayPal now stands at 0.30% of all transactions. APCA also notes that PayPal’s buyer protection is not reducing fraud but instead is reallocating the cost of fraud from buyers to sellers."
eBay initially announced the plan on 10th April, giving users two months' notice that they would be forced to make and receive payments for eBay auctions through its subsidiary company PayPal.
In a public meeting the following month, eBay Vice President Simon Smith said users could not be trusted to select safe methods of payment for themselves. "We're not allowing people to offer unsafe choices, just like in this democracy you can't go out and buy heroin on the streets."
The ACCC addressed this point directly. "The ACCC is of the view that consumers are in the best position to determine whether, for their particular transaction, PayPal offers the best features in terms of security, fraud protection, dispute resolution and insurance, at the price offered."
The final conclusion: "The ACCC considers that the notified conduct has, or is likely to have, the effect of substantially lessening competition in the market in which PayPal operates. The ACCC also considers that the notified conduct is likely to result in reduced choice for consumers, higher transactions costs and reduced innovation in online payment systems. Therefore, the ACCC concludes that the substantial anti-competitive detriments outweigh any public benefits resulting from the notified conduct. Accordingly, the ACCC proposes to issue a notice to revoke notification N93365 lodged by eBay International A.G. on 11 April 2008."
Translation: assuming eBay doesn't produce any miraculous evidence exonerating itself before the final deadline of 26th June, it has no immunity to competition laws and if it pushes ahead with forcing its customers to use PayPal only by its announced June 17th deadline, it will most likely be prosecuted for anticompetitive conduct.
eBay's Australian spokesman could not be immediately reached for comment.