Apple's attempts to ward off legal challenges to its App Store payment policies have been mostly successful, but a new court ruling provides some opportunity for other payment providers.
The
But the appeals court has also agreed with an earlier ruling that ordered Apple to change the App Store to enable developers to use links, messaging or other means to direct consumers to payment options that are outside of the App Store. This means consumers could use non-Apple payment methods for App Store purchases.
That's a victory for developers, who face payment fees of up to 30% on the App Store. But it won't be easy for them to take advantage due to Apple's entrenchment in its own ecosystem. That's where firms that act as payment facilitators can step in.
"The ruling does create an opening for Paze from Early Warning and other payment facilitators such as PayPal, Stripe, Adyen, and others that have streamlined checkout schemes," said Richard Crone, a payments consultant.
Whether rivals can take advantage will depend on their ability to provide a good user experience from outside the App Store. Apple's in-app checkout executes payments in less than ten seconds in most cases by relying on Apple's authentication and stored payment credentials for Apple Wallet, Apple Pay and other Apple products.
Developers are challenged to replicate this experience. While they can offer a payment alternative that keeps them in line with the court ruling, the developers would require users to reenter payment credentials via a checkout experience that's outside of the App Store, which would be noticeably longer than the process of simply using Apple's embedded payment method.
"A gamer is not going to do that," Crone said.
Payment facilitators could use stored payment credentials to streamline the checkout experience on behalf of the outside developers. The incentive for the payment facilitator would be a larger enrolled user base, creating a cross-selling advantage as the enrolling party. The developers get an option that competes with Apple and creates pressure on the company to lower payment fees.
"Paze could theoretically emulate the card-on-file scheme since all participating financial institutions continuously synchronize a shadow database of all their cardholder accounts at Early Warning," Crone said. This shadow database can reduce the cost for card-on-file credentials that synchronize with Early Warning as the payment system of record, he said.
"If you are not the system of record you are always struggling for relevance," Crone said.
Early Warning, which manages the Zelle peer-to-peer transfer app on behalf of a network of banks, plans to start testing the Paze bank wallet in June. Paze will appear as an option on participating merchant websites, using enrolled payment credentials to offer checkout without entering card numbers each time.
In an
In an email on Tuesday, Early Warnings's public relations office said Paze has the potential to be used for in-app purchases, adding that any merchant can use Paze with no transaction fees and design its own Paze experience via a software development kit.
"Given the highly competitive field that is merchant acquiring … it's 'game on' to grab share in migrating transactions out of app stores. Disruptors have already proven they can make developers' lives easy," said Alenka Grealish, a principal analyst for financial services at Celent.
A payment system that would provide a specific alternative to the App Store could not exist before this court ruling, according to Daniel Keyes, a senior analyst leading the merchant services practice at Javelin Strategy & Research.
"A rival would probably not be quite as good as Apple's user experience, but it could be almost as good — a quick routing to another site or a new window on the page," Keyes said, adding that the success of such a rival would depend on the pricing.
It should be easy to undercut Apple's 30% fee. "Apple is not charging 30% because it has to," Keyes said.
Apple's dispute with Epic involves Apple's anti-steering rules, which prevent developers from offering a payment processing option outside of Apple's "walled garden."
That was the crux of
The two companies have spent the following three years engaged in a legal battle over Apple's payment rules, a high-profile case that could affect the control that large technology companies have over how third-party developers can collect payments from consumers for products that the large technology companies host, either in app stores or other venues.
The issues in the case have led to legal, regulatory and legislative
While these bills remain stalled, South Korea passed a law with similar prohibitions. And Apple and Google have faced antitrust investigations in
Apple and Google have both traditionally charged up to 30% for in-app purchases, with some exceptions for smaller merchants and media companies. Both companies have made accommodations amid the pressure, such as fee reductions for certain developers. And Apple has said it's working on new payment technology that provides more flexibility.
Apple has long contended the fees enable it to provide security, and the 9th Circuit's ruling referenced that issue, saying that Apple makes clear that improving security is a "pro-competitive rationale." But the court also ruled Apple's policies could make it more difficult for developers to offer cheaper prices.
"I'm not surprised this is happening as we just saw the same thing happen with the Google Play store," said Ralph Dangelmaier, CEO of payments fintech BlueSnap, noting that
The 9th Circuit ruling may not be the end of the legal battle. Apple told
Apple and Epic did not return requests for comment by deadline. In a public statement, Apple said that for the second time in two years, a federal court has ruled Apple abides by antitrust laws. Epic CEO Tim Sweeney issued a series of
Sweeney also said the decision on anti-steering provisions "frees iOS developers to send consumers to the web to do business with them directly there. We're working on next steps."
