Payments industry should be worried by Fortnite suing Google — not Apple

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Epic, the maker of Fortnite, is suing Apple and Google for forcing app makers to hand over a 30% cut of their revenue to the tech giants. The grievance against Apple is pretty clear-cut; the attack on Google is more nuanced, and could have major consequences for the payments industry.

While both tech giants enforce similar policies over how companies handle payments for in-app purchases, only Apple requires companies to use its App Store to distribute their products on iOS. There is no alternative; you either play by Apple's rules or you stay outside its walled garden.

Google is not so unforgiving. Companies can offer their apps as individual .apk files to sideload onto Android devices (and Epic did this originally when it brought Fortnite to Android devices), or they can offer their own app stores and forgo Google Play — Amazon's Kindle Fire tablet is a popular example of that.

The situation has strong parallels to the criticisms of card and digital payments. And the outcome of the Google lawsuit could give merchants fresh incentive to push back on interchange and mobile wallet fees.

Just as the card networks and mobile wallet providers can point to options such as checks or cash to show that merchants and consumers can still make payments if they don't like their credit cards' fee structures, Google can point to the alternative app stores to argue that it does not hold a monopoly on Android payments. But if Epic can show that these alternatives don't sufficiently loosen Google's grip, merchants can use it as an example to make the same argument against interchange fees and other policies.

In its lawsuit, Epic states: "Google has not been satisfied with its control of the Android OS. Notwithstanding its promises to make Android devices open to competition, Google has erected contractual and technological barriers that foreclose competing ways of distributing apps to Android users, ensuring that the Google Play Store accounts for nearly all the downloads of apps from app stores on Android devices."

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The card networks may not have pushed out cash in the same way that Epic alleges Google has, but the coronavirus pandemic did. People have been using less cash as they fear contamination, and the U.S. Mint has been operating in reduced capacity to slow the spread of coronavirus among its employees, resulting in a nationwide coin shortage. Checks have long been on the decline, and other alternatives such as decoupled debit cards aren't ubiquitous enough to substitute for open-loop payment cards. Indeed, closed-loop payment systems like New York's Metropolitan Transportation Authority were already shifting away from closed-loop fare cards to open-loop payment cards before the pandemic began.

These trends narrow most U.S. banked consumers' payment options to cards and mobile wallets. And despite early attempts by retailers to create a low-cost mobile wallet in CurrentC, the most prevalent mobile wallets in the U.S. are those operated by Apple and Google. Apple Pay in particular has been criticized since its launch for fee structure; at least one banker described it as "the most one-sided agreement I have ever seen." In Australia, banks aggressively pushed back against Apple Pay's dominance on its App Store, but they lost that fight.

Why now?

The criticisms of Apple Pay and Apple's App Store policies — and, by extension, Google's policies — are nothing new. But something has shifted: The rise of cloud-based gaming.

Microsoft and Google have both developed cloud-based gaming apps that allow users to play demanding games on remote servers accessed through their phones. Google's Stadia is widely available on Android, PCs, Chromebooks and its own Chromecast devices; Microsoft's xCloud is set to launch in September on Android. Neither operates on Apple's iOS due to a policy that prohibits cloud-based gaming platforms, presumably because Apple sees them as competition for its own App Store.

In the past week, this conflict has spilled into the public view. It's not the same battle as Epic is waging against Apple and Google, but it adds context to support the game publisher's claims that Apple and/or Google are being anticompetitive.

In theory, Google and Epic should be on the same side, given how Apple's policies have presumably hampered Google's cloud gaming platform as much as Epic claims they have harmed its ability to monetize Fortnite. And if Apple was the only target here, the implications for the payments industry wouldn't be as strong.

But by making Google a target of its lawsuit rather than an ally, Epic has opened the scope of its attack to a wider range of payment policies that affect far more than a single game.