Apple and Google must allow developers to use other payment systems, new Korean law declares

According to The Wall Street Journal, South Korea passed a bill to stop major platform owners such as Google and Apple from limiting app developers' access to built-in payments systems. President Moon Jae In, who championed this legislation, is expected to sign the bill into law.
This law is a setback for Apple and Google, who require that in-app purchases flow through their systems. They do not allow outside payment processors. The tech giants can collect a 30% cut. Tech companies could be fined up to 3 percent of their South Korean revenue if they fail to follow the new law.

This law amends South Korea's Telecommunications Business Act and could have a significant impact on the global business of Google Play Store and Apple App Store. The bill was approved by the South Korean National Assembly on Tuesday.

It is not a happy moment for either company.

It is not something that both companies are happy about. Google released a statement defending its service fees. It claims that they help keep Android free and give developers access to billions of users around the globe.

A spokesperson for Google said that just as developers spend money building apps, so does it cost us to maintain and build an operating system and an app store. We will be sharing more information in the coming weeks as we reflect on how to comply and maintain a model that supports an operating system and app shop of high quality.

The Verge reached out to Apple representatives but they did not respond immediately. The company did however send the following statement before the law was passed.

Users who buy digital goods from other sources will be at risk of fraud. It will also make it more difficult for them to manage their purchases. Features like Ask to Buy or Parental Controls may become less effective. This proposal will reduce trust among App Store buyers, which we believe will lead to less opportunities for over 482,000 Korean developers who have earned more KRW8.55 trillion with Apple.

According to reports, lobbyists representing the two companies have made arguments to American officials about whether the Korean legislation is a violation of a trade agreement. This is because it seeks to regulate the actions of US-based businesses.

South Korea is not the only country trying to subvert American tech giants. Russia demands that all gadgets include apps developed by Russian developers. Australia is also looking at regulating services such as Apple Pay and Google Pay. Some US officials have proposed legislation that is similar to the one passed in South Korea. The Wall Street Journal reports that regulators in other countries could refer to South Korea's new legislation.

Apple and Google both tried to prevent such actions by changing their store policies. Apple launched its App Store Small Business program, which reduced Apple's cut for developers making less than one million dollars per year. Apple also offered to allow developers to inform users about other payment options, via the email addresses they received. Google stated that it would take only 15% of the first million dollars of developers instead of 30%.

Despite the changes, both Apple and Google have been subject to legal challenges. Epic Games is the most prominent example. Epic claimed that Apple and Google used their dominance to control what could be done with their phones. Although Epics arguments are different, the core complaint is the dominance of Apple and Google over app stores. Both cases remain pending.

Updated August 31, 2007, 7:21 AM ET: Google has added a new statement.