Apple Inc. allowed external payment service providers to enter the App Store for the first time last weekend. While this change may seem trivial, it is far-reaching and will provide many companies with lucrative business opportunities.
Apple on Saturday complied with a request from the Dutch government to open up third-party payments to dating apps. “We’re introducing two new options exclusively for dating apps in the Netherlands, offering users additional payment processing options,” the company said in a statement on the developer’s website.
Although this is only a change for one type of app in one country, opening up App Store payment channels to third-party apps is a major step forward for Apple. The company has previously rejected this model, but the trend is likely to spread to other countries.
The Korea Communications Commission (KCC) in December ordered Apple and Google to open up third-party payments to all apps, and this month Apple reportedly revealed new rules that allow developers to offer third-party in-app payment options in the App Store following the new South Korean rules plan.
In a proposal submitted to the KCC, Apple offered an alternative payment system with fees lower than the standard 30 percent, but did not say when the move would take effect, The Korea Herald reported. Apple and Google said they would still charge for in-app transactions processed by other payment services. But developers, payment companies and industry analysts are still adjusting their forecasts and planning for this latest change.
Big developers could save millions
Match Group, one of the world’s largest dating apps, praised the Netherlands’ decision and thanked the country’s regulators for their “bold move” to create a fairer ecosystem, but their colleagues called on other regulators to implement similar measures. While Apple faces scrutiny around the world, they continue to abuse their dominant position to harm app developers, entrepreneurs, and most importantly consumers, through unfair policies, Match said in a statement.
Market research firm SensorTower estimates that consumers spent more than $133 billion on in-app purchases last year. If developers have the freedom to choose third-party payment methods outside of the official channels of Apple and Google, they can save millions of dollars, which can improve profit margins or reduce costs for consumers, or both.
RBC Capital Markets estimated last September that Match Group could save up to $215 million a year if the Apple App Store rolls out the change globally in 2022. Another dating app developer, Bumble, is saving up to $55 million a year. Evercore ISI analyst Shweta Khajuria said dating apps like Bumble and Tinder could incentivize consumers to use third-party payment options by lowering app subscription fees.
The bigger impact is that as more countries allow other payment methods, it puts pressure on Apple and Google to open up this channel globally,” Khajuria said.
Stripe, PayPal and Paddle may benefit
Ronak Doshi, a partner at market research firm Everest Group, said large payments companies such as Stripe, PayPal and the company’s Braintree would benefit. He also specifically mentioned Paddle, the startup that released an in-app purchase system in last year’s Epic Games v. Apple case. The judge in the case ruled that Apple must allow app developers to direct users to other payment methods. But Apple appealed.
The paddle is designing products specifically for Apple’s iOS mobile operating system and is positioning itself as a direct competitor to Apple’s payments system. The startup plans to charge a 10 percent commission on transactions under $10 and a 5 percent commission plus 50 cents on transactions over $10. By comparison, Apple charges between 30% and 15% in commissions.
“Because Apple postponed the adjustment of in-app purchases in the App Store on December 8, we also delayed the product release plan.” Paddle said on the official website, “Once Apple clarifies which functions of third-party in-app purchase payment will be used Allow (or not) and we’ll update the situation.”
Apple and Google may keep data by cutting prices
Apple and Google could cut fees in their respective app stores due to threats from new payment rivals, Dosh said. Data on consumers’ buying habits are also valuable, and these companies are likely to keep this information flow (and give up a percentage of fees) without ceding such a relationship to other companies. The App Store is following the evolutionary path of the financial industry more than a decade ago, opening up payment systems beyond banks.
“They’re improving competition in the marketplace, allowing consumers more choice, rather than continuing to enforce monopolies on critical services,” Dosh said.
The secret to success in new markets
Dosh says the secret to success in this emerging market is easy integration, a robust filing system, good user support, and low and transparent fees. Barak Orbach, a law professor at Arizona State University who specializes in the digital economy, believes switching payment methods will not be easy because it will require convincing consumers that new payment services are safe.
He pointed out that consumers are biased, although not necessarily rational when choosing payment providers. He also said he wasn’t too happy with Google’s payment system, preferring to use Shopify, Amazon and Apple.
Liesel Sharabi, director of Arizona State University’s Relations and Technology Lab, believes that changes to the App Store’s payment system will spur greater innovation in the dating app industry. She also mentioned Tinder’s possible use of “app coins” as a possible payment model.