Posted January 26, 2024

This content first appeared in the January 2024 Fintech newsletter. If you’d like more commentary and analysis about news and trends from the a16z Fintech team, you can subscribe here.

Apple’s Payments Pressure

Seema Amble

As Apple continues to leverage its strength in owning distribution and act as a payments gatekeeper — iPhone, Apple Wallet, the App Store — it naturally faces regulatory tension around its position within the tech ecosystem. A few big pieces of news from this month show that while the pressure is up, Apple isn’t eager to loosen its influence on the payments landscape.

Earlier this month, the U.S. Supreme Court declined to hear the appeal from the Apple vs. Epic decision. The decision at the time, which we’ve discussed, was largely in favor of Apple, but did uphold that Apple had to allow app developers to “steer” their customers outside the App Store towards alternative payment options to pay for in-app purchases (e.g., pay on a website instead of in the App Store). Such payment methods could be cheaper and potentially avoid Apple’s 30% in-app toll charged to all developers.

After this Supreme Court announcement, which allows for in-app steering, Apple revised its U.S. App Store policy, stating that apps would still have to pay 27% to Apple, even if users paid outside the platform. Apple has similarly responded with such fees in other countries like the Netherlands and South Korea. From Apple’s perspective, it should be compensated for providing distribution via the App Store, and its policies protect consumers from unknown payment methods. For developers, however, this hefty “Apple Tax” can feel crushing to their own economics.

Epic, Spotify, and other app developers clearly voiced their objections, calling the move “outrageous.” Epic CEO Tim Sweeney pointed to this 27% fee, but also Apple’s actions to discourage third-party payments. For example, to offer an alternative payment option on their websites, developers must apply for permission from Apple and also offer in-app purchases through Apple’s billing system. Developers then need to certify to Apple that they have processes for handling billing complaints and that their payment options meet Apple’s standards. Apple has to also approve the wording to link out of the App Store, and users are faced with a full-screen warning that Apple’s protections don’t apply.

Also this month, Apple offered to open Apple Pay to third-party mobile wallet and payment services in Europe, in the face of EU antitrust pressure and the EU’s Digital Markets Act, a new law requiring online gatekeepers to open their systems to more competition. Third parties (e.g., banks, payments companies) can access the NFC functionality in an Apple phone to make contactless payments, and use Apple’s operating systems freely without necessarily routing the purchaser to Apple’s Wallet or Apple Pay.

What does all this mean for startups? The cat-and-mouse game will continue. The big platforms get regulatory and industry pressure to open up their platforms, and not to make it cost prohibitive for developers to distribute via them, but change will be slow to come. While the intent is to make it easier for developers to thrive, even if the platforms open themselves up and allow third-party payments development (e.g., tap to pay, mobile POS), it likely won’t come without more subtle restrictions, as Apple is doing now. And after all, Apple has consumer trust, which is difficult to break.

Seema Amble is a partner at Andreessen Horowitz, where she focuses on SaaS and fintech investments in B2B fintech, payments, CFO tools, and vertical software.

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