Triumph in adversity: Apple’s payment system opportunity

Will Apple be forced to turn App Store payments into its own third-party service?

Apple, developers, iOS, epic, App Store

Every business owner accepts that sometimes they must swallow disappointment and prepare for unavoidable change, which seems to be what Apple is preparing for in terms of App Store payments. And it may unleash a new opportunity as it does.

Opening up App Store payments

Apple is under so much pressure around App Store payments. It has made numerous arguments to justify why its own payment systems should be mandatory on App Store sales, but courts in South Korea and the US do not agree. The company continues to face regulatory investigations in multiple nations.

To keep developers happy, Apple continues to tweak the way its systems work, including reducing commissions from 30% to 15% for most developers and promising to let developers offer other ways to pay. But the demand to support external payment systems remains.

Principally, competitors, developers, and critics want the company to permit customers to purchase digital product using payment systems other than its own.

Test case: South Korea

In South Korea, a law now requires all App Store platforms to support multiple payment systems. In a recent statement, Apple said it would comply with the law, issuing a statement in which it said:

“Apple has a great deal of respect for Korea's laws and a strong history of collaboration with the country's talented app developers. We look forward to working with the KCC and our developer community on a solution that benefits our Korean users.

“Our work will always be guided by keeping the App Store a safe and trusted place for our users to download the apps they love.”

Apple hasn’t explained how or when it will support alternative payment systems, but has apparently filed a plan with South Korean regulators.

Online reports suggest that under these proposals the company will still charge commission on such sales. That commission is justified by the incontrovertible fact that if Apple didn’t build and develop its platforms there would be no business opportunity available in the first place.

Even shopping malls charge brands for shelf space based on the same logic. The only big question remains as it always has been: what level of fee is acceptable. The next matter will be to ensure that the same fee is levied across every platform.

What will Apple do next to protect the App Store business?

Apple will want to ensure that given a choice, consumers will still prefer its own payment systems to the alternatives. In this context, the most obvious strategy is to provide a payment system that’s simply better than any alternatives.

The secondary challenge is that in doing so, the company cannot be seen to exploit its control of the software and platform in such a way as to give its payment system a substantial advantage, as that would be anti-competitive.

However, competition law cuts both ways, which also means third-party systems must work hard to become just as seamless as whatever Apple does provide.

After all, simply offering a better service based on the same available opportunity is precisely the advantage of free markets competitors say they want. Apple’s payment system simply pivots to becoming Apple’s payment product.

Would Epic be able to justify refusing to permit Apple Payments as an option on its own stores? It's such an obvious potential consequence it makes sense thinking that Apple management has considered it more than that they have not.

The long game? It’s all about money

Apple yesterday reported that its developers have taken $260 billion from App Store sales since the store  launched in 2008. That big number followed a very big year in App Store sales — this time last year, Apple claimed developers had made $200 billion, so that number is up $60 billion in the last 12 months.

(That’s even factoring in the developer commission changes Apple introduced across that time.)

So, right now developers are making roughly $5 billion a month, which surely suggests they will have little interest in changes that might damage that profitable environment.

While there is a certain irony in Apple becoming forced to compete with others on its very own platform, that irony cuts twice if it then chooses to compete elsewhere. After all, given some payment systems are seen as less secure than others, Apple could turn the emancipation of App Store payment systems into a big opportunity to tap an even larger market by taking its own payment systems to competing platforms.

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