South Korea Passes Bill to Restrict Compulsory In-app Payments
South Korea Passes Bill to Restrict Compulsory In-app Payments
  • Reporter Song Geun-seok
  • 승인 2021.10.12 05:09
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▲Compulsory in-app payment (IAP) restricted in South Korea / Yonhap
▲Compulsory in-app payment (IAP) restricted in South Korea / Yonhap

On Aug. 31, the National Assembly of South Korea passed a new bill, “In-app Payment Prevention Act (amendment to the Telecommunications Business Act),” which prevents app marketers from forcing their own payment methods in in-app transactions. As a result, South Korea has become the first country in the world to restrict compulsory in-app payment (IAP) regulations set by app market operators. The bill, which is also called the “Anti-Google Law”, is aimed to challenge Google and Apple’s duopoly in the app store market, which has been condemned for abusing their market power with unreasonable commission policies. The bill has been taken into effect since Sept. 14. 
The proposal of the bill was brought up when Google introduced a new commission policy last year in September. The original policy was compulsory in-app payments with a 30% commission that only applied to game apps, while other apps such as webtoons, videos, or music apps were allowed to adopt external in-app payment systems. However, Google decided to expand its policy to apply compulsory in-app purchases on all apps with the same commission rate of 30%. Similarly, Apple had a pre-existing policy that levied commissions of up to 30% made through its company’s compulsory in-app purchases.
These policies brought about a strong backlash from app developers who had little choice but to comply with these regulations because Google and Apple together account for more than 90% of the app store market in Korea. In addition, some experts expressed concern that these compulsory policies would potentially weaken the competition between apps with similar contents, transfer the fee burden to app market customers, and lead to unfair withdrawal of quality apps from app stores. On the contrary, Google and Apple replied that these fees are justified as they maintain security for consumers and developers while a variety of payment systems would put them at risk of fraud and privacy violations. As a mitigation measure, Google amended the policy to lower commission rates from 30% to 15% for the first annual $1 million revenue, and Apple decided to halve the commission rate for developers with less than $1 million revenue.
Despite these efforts by Google and Apple, the National Assembly moved on to pass the legislation. The key to the amended bill is the addition of three subparagraphs (9, 10, 11) in Article 50, Paragraph 1 of the Telecommunications Business Act. To summarize the amendments, the bill prohibits app market providers from coercing a certain payment method from app developers, unfairly delaying the examination of mobile content during registeration, and unfairly deleting mobile content from the app market. 
The new bill has been widely supported by app developers who had suffered from Google and Apple’s commissions. Also, major IT companies in South Korea such as Naver or Kakao advocated the new bill as their own in-app payment systems that had been hindered by Google and Apple can now be utilized effectively. According to the Korea Mobile Internet Business Association (MOIBA), Korean companies would have had to pay a total of 510 billion won every year if the 30% commissions policy by Google and Apple had persisted, and this burden had been expected to increase annually. The Korea Internet Corporations Association remarked that “The creation of a fair app ecosystem that guarantees the rights of creators and developers is looked forward to.”
However, some experts argue that the passage of the bill was a premature decision, arguing that the bill does not reflect some key characteristics of app markets. Yoo Hyo-sang, a professor at Soongsil University’s Graduate School of Small and Medium Business, said that “Only 0.03% of domestic companies will experience increased commission burden due to Google’s policy, while most small and medium-sized developers, who benefit from the app market, will experience uncertainty due to the changed measures.” Also, some question whether the bill will be practical since the penalty for violation is less than 300 million won and 3% of the total sale revenue collected, which large companies like Google may be willing to accept. 
The new bill is significant for being the first legislation in the world to put regulations on this matter. Currently, discussions about platform company regulations are accelerating. For example, in August, the U.S. proposed an “open app market bill” that limits Google and Apple’s control over the app store market, and 36 states have pressed charges against Google for violating antitrust laws. Similarly, the European Commission filed a lawsuit against Apple for obstructing app market competition.