Visitors look at Apple Inc. iPhones and iPads on display in the SK Telecom Co.T Factory flagship store in Seoul, South Korea on June 11, 2021.

SeongJoon Cho | Bloomberg | Getty Images

The South Korean parliament has passed a bill making it the first country to impose restrictions on Google and Apple’s payment policies, forcing developers to use only the tech giants’ proprietary billing systems.

The law will come into effect after the signing of President Moon Jae-in, whose party has loudly spoken out in favor of the bill.

Apple and Google guidelines typically require developers to pay tech giants a commission of up to 30% on every transaction.

The bill passed on Tuesday means developers can avoid paying commissions to large app store operators – like Google and Apple – by instructing users to pay through alternative platforms.

What Apple and Google are saying

An Apple spokesman said the bill would “expose users who purchase digital goods from other sources to fraud, undermine their privacy, make it harder to manage their purchases, and make features like” ask to buy “and parental controls less effective.”

They added that user confidence in App Store purchases is likely to decline due to the legislation.

A Google spokesman said its service fee “helps keep Android free and gives developers the tools and global platform to access billions of consumers around the world”.

“We’re going to think about how we can comply with this law while maintaining a model that supports a high-quality operating system and app store, and we’ll share more about it in the coming weeks,” added the Google spokesman.

The bill, sometimes referred to as the anti-Google bill, was brought to parliament last August, according to Yonhap News.

What the law does

It is intended to prevent app store operators with a dominant position from forcing payment systems on app developers and “inappropriately” delaying app reviews or blocking, according to Reuters.

The law also reportedly gives the South Korean government the power to arbitrate disputes over payments, cancellations and refunds in the app market.

Around 180 of the attending legislators voted in favor of the amendment to the Telecommunications Industry Act, reported Reuters.

According to media reports last week, the National Assembly’s Legislative and Judiciary Committee approved revisions to a bill aimed at preventing app store operators from forcing developers to use certain payment systems.

Epic Games, the company behind the popular Fortnite game, developed its own in-game payment system last year to circumvent current Apple and Google guidelines. Several other companies, including Spotify and Tinder owner Match, have said in the past few years that the tech giants should allow them to use their own payment systems.

“Today’s historic action and the courageous leadership of the South Korean legislature mark a monumental step in the fight for a fair app ecosystem,” a Match spokesman said in a statement on Tuesday.

“We look forward to the swift signing of the bill, and we urge lawmakers around the world to take similar measures to protect their citizens and businesses from monopoly gatekeepers restricting the Internet,” they added.

Regulatory review

Regulators around the world are focusing more on the app stores and fees that Google and Apple are charging developers – and the ruling in South Korea will likely be the first step in more scrutiny, according to Daniel Ives, managing director of equity research at Wedbush Securities.

“It’s a potential turning point,” Ives said Monday ahead of the Seoul decision in CNBC’s Street Signs Asia. “Not necessarily for what that actually means, but for the ripple effect that shows that it’s not just about words, but about actions.”

Ives added that while there might be opportunities for others, such as telecommunications service providers, to monetize, it ultimately depends on how consumers would react.

“The question is, what will consumers ultimately do? Because the path of least resistance is to go through Apple and Google – and that’s what consumers are used to, ”he said.

What happened?

Last year, Google announced that it would enforce a policy requiring developers who sell software on the Google Play Store – a digital app download service – to use its proprietary in-app payment system. This means that other payment alternatives are not allowed.

Google’s billing system takes a 30% cut on most in-app purchases, similar to what Apple does in the App Store.

The move has been criticized by developers and regulators who are scrutinizing the impact of Google and Apple on smartphone operating systems and the price they are charging programmers who develop apps for those platforms. Most smartphones around the world run either on Google’s Android operating system or on Apple’s iOS platform.