Explained: Google’s new pilot programme on third-party payment systems and its significance

Google has announced a pilot to explore alternate payment methods for in-app purchases as regulators across the world up the ante against major mobile app stores to allow third-party billing systems inside apps. The pilot will first roll out on Spotify’s app, a developer that has been particularly vocal against Google and Apple’s handling of payment methods on in-app purchases.

Why is this significant?

On Google’s Play Store, as well as on Apple’s App Store, developers have so far been allowed to introduce their own payment methods as the two companies have forced them to use their proprietary billing system for in-app purchases. That allows Google and Apple to keep a cut of the transactions as commission which in some cases, could go as high as 30 per cent, something that developers have openly criticised. However, it is worth noting that Google recently lowered its app store fees for all subscription-based services to 15 per cent from 30 per cent, effective January 1, 2022.

The penalty to violate this rule is typically suspension from both app stores, which Epic Games faced in 2020 after it introduced its own in-app payment method in its popular game Fortnite.

Google’s announcement comes on the heels of a recent legislation passed in South Korea which forces Google and Apple to open their app stores to alternative payment systems, among other things. While Google has complied with the South Korean law, this new pilot means that Google would test a similar system in global markets, including India.

The move is also expected to put increased pressure on Apple which has so far forced its own payment method on developers.

Are there any caveats?

Yes. While Google will allow Spotify to have its own billing system within the app, it will continue to keep a commission from transactions made using that method. At the moment it isn’t clear what Google’s share would be from such alternate payment methods. The company said it plans to share more details “in the coming months”.

For reference, even though Google has allowed developers to have a third-party payment system in South Korea, it still charges a commission of around 11 per cent on in-app purchases made through those alternate billing systems.

Google’s pilot will also involve “a small number” of app developers and the company did not reveal who these developers would be or on what basis they would be selected for the pilot.

Have Indian app developers raised concerns?

In 2020, Google had said it would enforce its in-app payment method in India by September 2021, which led to a significant backlash from the industry who said Google was abusing its dominance. Prominent Indian internet entrepreneurs including the likes of Paytm’s Vijay Shekhar Sharma and BharatMatrimony’s Murugavel Janakiraman raised concerns about this system with the IT Ministry about the issue and as a result of the pressure, Google said it would defer the enforcement of its rules in India until March 2022. The current deadline to comply with Google’s billing system in India is October 2022.

Commenting on the latest development, Sijo Kuruvilla George, Executive Director, Alliance of Digital India Foundation (ADIF) said: This is essentially “Google” choice billing and has nothing to do with “user” choice. The fact of the matter remains that this announcement does nothing to address the underlying issues and concerns: the anti-competitive nature of the policy or the impending March 30th deadline for enforcing this policy. Moreover, the announcement coming in exactly a week before this deadline, must be called out for what it is – an arrogant attempt at headline management and a blatant disregard for the concerns that are repeatedly being raised by companies and developers the world over.”

Due to pressure created by Indian developers, Apple and Google also said they would charge a lower 15 per cent commission from developers with less than $1 million in yearly revenue from app payments. However, developers, it is learnt, have since met with the IT Ministry to discuss the scope of a legislation similar to South Korea’s.

Earlier this year, the Competition Commission of India (CCI) also ordered a probe into Apple over allegations it was violating competition law by mandating the use of its own in-app purchase system for all payments on its App Store. CCI had also launched a similar probe into Google in 2020.

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Divyansh Singh

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