How Apple's new payment fees portend more legal fights

Apple's long legal battle with Epic Games over app store checkout policies has entered a new phase after Apple said it would charge a commission of up to 27% for non-Apple payment providers, a move that immediately drew threats of fresh legal action.

Apple's new policy for developers using non-Apple payment processors for app store transactions follows an earlier policy that required developers to use Apple's payment system, with an interchange-style fee of up to 35%. Apple announced the new policy last week, around the same time that the U.S. Supreme Court declined Apple's appeal of lower-court rulings in the Apple/Epic case that required Apple to open App Store payments to outside processors. 

The legal fights are playing out while Apple faces pressure from regulators in Europe, the U.S. and elsewhere who claim the technology company has too much control over how people access and use Apple to shop and make payments via Apple's digital wallet. 

At stake is how much control Apple can exert over transactions, and how competitors and banks can expand their ability to offer rival services directly on Apple's devices. Apple would see a material income stream for them if it captures even a portion of the transactions triggered by activity on its platform, and it is another way to envelop its customers within the "Appleverse," according to Stewart Watterson, a strategic advisor for Datos Insights. 

"It can also be seen as Apple collecting a gate fee to their app developers who use other payment providers," Watterson said. "Some would see this as Apple fully leveraging the platform that they have built. Others would see this as an unfair monopoly worthy of an antitrust suit. Only time and the courts will tell."

Epic pushback

Epic Games immediately cried foul over the new double-digit fee, with Epic CEO Tim Sweeney issuing a series of social media posts contending that the 27% fee "kills price competition. Developers can't offer digital items more cheaply on the web after paying a third-party payment processor 3-6% and paying this new 27% Apple Tax." Sweeney said Epic will "contest Apple's bad-faith compliance plan in U.S. District Court."

Spotify also criticized the new fee, saying Apple has demonstrated "that they will stop at nothing to protect the profits they exact on the backs of developers and consumers under their app store monopoly." Apple did not provide comment for this article. In the past Apple has said that payment fees fund security and protection from other processing risks.

While Apple's battle with Epic has drawn lots of media attention over the past four years, Epic has been in court with Google over its app store payment policies. 

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The outcomes of the two cases thus far have been different. A U.S. court ruled Google was violating antitrust law by requiring developers to use its internal payment system, and was ordered to open its checkout to other payment providers. Apple was ordered to give access  to third-party payment systems, but was not found to be in violation of antitrust law. 

"Epic won a lot more of what it was demanding from Google, and that creates a disparity in treatment that Epic will want to resolve," said Aaron McPherson, a principal for AFM Consulting "The appeals process for Google is just beginning, and will probably end up again in the Supreme Court. It may be that the Supreme Court declined to hear the case because it knew about the Google case, and wanted to wait for it to make its way through the appeals courts."

More than games

Apple's battle with Epic is just one of many legal and regulatory battles that Apple faces globally over its payment policies. 

The U.S. Department of Justice is finishing an investigation examining Apple policies that give it control over how people use the tech giant's devices. This includes Apple's policies governing Apple Pay and how iPhones block outside parties such as banks from offering mobile payment apps for iPhones. 

In Europe, Apple late last week offered to provide external access to contactless payment technology, which would potentially enable third-party mobile wallets to offer payments directly on iPhones. The European Commission has said Apple's control over access to payment apps for iPhone users restricts competition. 

If Apple's ecosystem were to open to outside payment providers in the U.S. or elsewhere, it would create more competition, but analysts have said Apple would still maintain an advantage, since it would be easier for Apple to offer a superior user experience on its own devices. 

The fee battles are similar to the arguments around card interchange, but Apple is the only network provider, according to Aaron Press, research director of worldwide payment strategies for IDC. 

"Opening the system only to charge an equivalent fee seems to be analogous to an embedded payment system charging the full fee for accepting a cash transaction," Press said.