App sale

Apple opens third-party app payments in Korea, will take 26% off

Tim Cook at the Apple launch event, March 8, 2022

Apple

Apple said Thursday that developers of iPhone apps distributed exclusively in the South Korean App Store can apply to use third-party payment systems instead of Apple’s in-app offering.

But it will have a cost. Apple will require apps that take advantage of the new policy to report all sales to Apple each month and pay a 26% commission on those sales, according to company documentation.

Apple currently collects between 15% and 30% of app sales and in-app purchases, depending on whether the sale is a subscription or if it falls into a low commission app category.

The new policy follows a South Korean law passed last year and only affects the Korean App Store. But it could indicate how Apple plans to handle third-party billing if regulators or courts in other countries require it.

Apple said apps using alternative payment options will display a pop-up saying, “This app does not support the App Store’s private and secure payment system.”

He also warned developers that taking advantage of the new policy would mean they would have to handle refunds, purchase history, subscription management and other issues themselves, rather than relying on Apple.

The company said it has the right to audit developer sales records as part of its terms and conditions.

“This will allow Apple to verify the accuracy of a developer’s digital transaction record as a result of the entitlement, ensuring that the appropriate commission has been paid to Apple,” according to Apple’s documentation.

Third-party billing was one of the main points of contention in Apple’s lawsuit against Epic Games, which is currently under appeal. Epic wanted the ability to direct users playing Fortnite on iPhone to the Epic website to purchase in-game currency inside the app. This violated Apple’s rules and circumvented Apple’s commission.

During the trial, Apple said the App Store’s payment system provides security and that Apple’s fee includes developer tools, distribution, and marketing in addition to payment processing, and that it would be a substantial effort to build an alternative system to collect its commission from developers.

“We’ll have to find another way to collect our commission,” Apple CEO Tim Cook said during his trial testimony. “Then we’ll have to figure out a way to track what’s going on and charge for it and then kick the developers out. It seems like a process that doesn’t need to exist.”

Now it looks like Apple built its alternative system in response to Korean regulators.

Epic has supported the Korean law, and its CEO Tim Sweeney appeared at a conference in Korea last year to praise it. Apple and Google, which operates the other major mobile app store, objected. Google is too earn a commission of up to 26% on apps that use their own payments in Korea.

Apple faces additional regulatory challenges that could force it to take similar action in other markets.

The European Union is currently discussing the Digital Markets Act, which would not only force Apple to allow third-party payment providers on the App Store, but could also open the door to third-party app stores on the iPhone. Apple is facing a similar situation in the Netherlands, brought about by the Dutch competition regulator, specifically related to dating apps.

US lawmakers are discussing proposed antitrust laws that would ban companies like Apple from giving preferential treatment to their own services, which could force Apple to open up the iPhone to third-party app stores. Several states have also considered bills that would challenge Apple’s App Store billing exclusivity.

App Store and in-app purchase fees are a major source of profit for Apple and come with higher margins than hardware sales. Apple combines App Store revenue with other services, including service subscriptions and warranties. In total, these areas provided $69 billion in sales in 2021.

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