South Korea passes law to open up app store payments to competing payment services

National Assembly Building of the Republic of Korea - image by clumsyforeigner, CC BY-SA 4.0, via Wikimedia Commons
LAW MAKERS: The National Assembly Building of the Republic of Korea

The South Korean parliament has passed a bill that will require companies such as Apple and Google to allow the use of payment services other than their own proprietary systems for the purchase of digital goods within their app stores.

Amendments to the country’s Telecommunications Business Act will prevent app store operators restricting the choice of payment systems that developers can make available to their customers and will also prevent them from “unreasonably delaying” the approval of apps or removing them from the marketplace.

“The move comes amid growing global scrutiny against Google and Apple, who maintain a strong grip over mobile ecosystems, for requiring developers on their app stores to use their proprietary payment systems that charge fees of up to 30% when users purchase digital goods within apps,” South Korea’s Yonhap news agency reports.

“Developers around the world have questioned app market operators’ exclusive in-app payment systems, opposing their relatively high commissions and demanding that they should be able to freely use other systems.

“The latest legislation in South Korea is expected to give app developers the choice to use other payment systems, potentially signaling a major shift in how Google and Apple run their app markets.”

“The legislative movement in South Korea picked up after Google announced in September last year it would enforce its billing system on all developers on its Play store starting October this year,” Yonhap adds.

“Local tech groups vehemently opposed the move, calling it a monopolistic measure and saying it would likely lead to a price hike in the broader digital content industry.

“South Korea is home to a robust mobile app economy, with total sales from Google’s Play store at around 5 trillion won (US$4.2 billion) last year and that of Apple’s App Store at 1.6 trillion won, according to the Korea Mobile Internet Business Association.”

US settlement

The South Korean legislation comes as Apple reaches an out-of-court settlement with independent developers who launched a class-action lawsuit against the company in the US over app store payments.

The agreement clarifies that “developers can use communications, such as email, to share information about payment methods outside of their iOS app,” Apple says.

“As always, developers will not pay Apple a commission on any purchases taking place outside of their app or the App Store.

“Users must consent to the communication and have the right to opt out.”

The agreement also sees Apple continuing to reduce commission on app store purchases for businesses earning less than US$1m annually from 30% to 15% “for at least the next three years”, maintaining the option for developers to appeal the rejection of an app based on perceived unfair treatment”, creating “an annual transparency report […] which will share meaningful statistics about the app review process” and establishing “a fund to assist small US developers”.

Ongoing investigations

Regulators in Australia, the Netherlands and the European Union are among those currently investigating whether new measures are necessary to protect competition in the digital payments market.

To date, these investigations have mostly focused on the restrictions Apple places on direct access to the NFC chips in their mobile devices for third-party mobile payment apps.

However, the Australian Competition and Consumer Commission is also now considering whether new regulations are required to ensure companies like Apple and Google grant other payment systems access to their app stores.

A newly published report commissioned by the Australian government identifies potential changes to the country’s regulatory framework in response to the rapid growth of services including Apple Pay, Google Pay and WeChat Pay.

The report “recommended the government be given the power to designate tech companies as payment providers, clarifying the regulatory status of digital wallets,” Reuters says.

“It also recommended the government and industry together establish a strategic plan for the wider payments ecosystem and that a single, integrated licensing framework for payment systems be developed.”

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