New App Store payment policies could help developers scale faster

September 16, 2021

Smiling Asian Muslim women in hijab text messaging on smart phone near window
Jonathan Bennett, Chief Commercial Officer

Jonathan Bennett

Chief Commercial Officer

Forthcoming changes in Apple’s policy allowing app developers to inform users of alternative payment options outside its App Store should help to expand the mobile payments market.

In the culmination of its long-running legal dispute with Epic Games (Fortnite), a US judge ruled that Apple should allow games developers to direct customers away from the App Store to pay for goods and services using alternative payment mechanisms other than Apple’s own in-app payment (IAP) system.

The conclusion followed an earlier Apple decision that will permit some developers to send emails to users downloading their apps via the App Store directly to inform them about other payment possibilities, using contact information obtained from within their apps. Apple also said it would allow a specific type of “reader app” – which provide content for digital media like books, newspapers, music and video – to direct customers to their own websites to purchase subscriptions, an update issued in response to an investigation by the Japan Fair Trade Commission.

The upshot of all these changes is that consumers can choose to pay for their iOS apps and in-app content using third-party debit/credit cards, electronic wallets (eWallets), or direct carrier billing. That would depend on whether any of these payment methods can match up to the seamless experience of the payment within Apple. That may or may not result in some app developers paying less commission to Apple though (currently 15-30% of any sale depending on whether the developer makes more or less than US$1m a year in revenue), previously compulsory fees which many argue have impeded with the growth of their business.

Apple’s press release confirms that it will not demand any commission on purchases taking place outside of a non-reader app or the App Store (though its fees still apply to in-app purchases), and users must consent to be contacted and retain the right to opt-out.

Apple also pledged to expand the number of price points for subscriptions, in-app purchases and paid apps from fewer than 100 to over 500 by the end of 2022. The aim is to help app developers attract more customers by removing restrictions which means they could only choose payments rounded up to the nearest dollar in the US (US$0.99, for example) and offers the flexibility to price apps and in-app purchases at different levels, such as US$1.49. The company said the updates would help Apple’s efforts to evolve the App Store into an “even better” marketplace for users and developers alike.

More clarity on gaming apps expected

The legal dispute between Epic Games and Apple began when the games company tweaked the iOS version of Fortnite to enable players to buy in-game V-Bucks via either the Apple App Store or an “Epic direct payment” at a 20 percent discount. That directly contradicted Apple’s App Store policies. It promptly removed Fortnite from its content library (read DOCOMO Digital VP of Partnerships Greg Sigel’s blog Fortnite App Store Row May Ignite Game Developer Rethink here).

Mobile games are essential to Apple in terms of the revenue they generate for its App Store. Reports suggest that in 2016, 81% of Apple’s App Store revenue came from games, compared to just 3% for music and 4% for other forms of entertainment[i].

Switch to 2020, and statistics from app data analytics specialist BusinessofApps appears to show that the App Store accounted for 65% (US$72.3bn) of total app revenue, of which US$47.6bn (66%) still came from games.[ii] The same number for 2016 also puts the share of App Store gaming revenue at 82% of the total, indicating that other iOS apps have become increasingly better at monetising their content over the last five years.

“Off app marketplace acquisition” via owned web channels has been a long-debated point of contention in the app economy, and this move may just portend similar steps from other leading app stores potentially opening-up the space for payment methods such as direct carrier billing.

South Korea pushes for in-app payment options

Some of Apple’s App Store policy changes were aligned to the outcome of a class action US lawsuit brought by a group of smaller app developers. But they also come after an earlier decision by South Korea’s parliament which proposes all app store owners should go one step further to help developers grow their business and app revenue.

A bill approved by South Korea’s National Assembly in August[iii] aims to ban all app stores – including Google and Apple – from forcing developers to use only their proprietary payment systems, arguing that alternative payment systems should be available from inside the app itself. Similar measures are also being discussed in Europe and India.

South Korea is one of the world’s better-developed fintech markets. Its citizens have widely embraced different forms of mobile payments, ranging from eWallets to QR codes and direct carrier billing. The total value of transactions conducted via mobile wallets such as Kakao Pay, Samsung Pay, Toss, Naver Pay, and LG Pay is estimated to have grown 46% year on year from US$143bn in 2019 to US$182bn in 2020, according to statistics compiled by GlobalData and are forecast to exceed US$500bn by 2024.

Omdia’s Global Carrier Billing Forecast 2020-2025 report records South Korea as the world’s third-largest carrier billing market behind China and Japan, which together account for nearly 60% of the world’s total. It is also the country with the second-highest level of consumers choosing carrier billing as their primary or secondary payment method for digital purchases behind Indonesia.

It remains to be seen exactly what impact the current and future changes to Apple’s App Store policies will have on the mobile payments market (and the company may still launch an appeal against the federal judge’s ruling in the Fortnite case). Whatever happens, global and regional developers must be ready to offer their customers flexible choices on how they fund purchases to expand their businesses in parallel.

[i] Apple gives ground in strategic retreat from strict App Store rules, New York Times, 2nd September 2021

[ii] App Revenue Data (2021), BusinessofApps, 4th August 2021

[iii] South Korea passes bill limiting Apple and Google control over app store payments, CNBC, 1st September 2021

Related Posts