Google Play Proposes Third-Party Payments in the UK – But is it a Good Deal for Developers?
Google has proposed opening up the Google Play store to third-party payment systems in the UK in a move that would see it take a reduced revenue share. But all is not as it seems.
The proposal, if enacted, would enable developers who provide options for both Google Pay and alternative billing to have Google’s revenue cut reduced by 4% to a 26% share (or 11% on their first $1 million)—if users pay through a different payment service provider (PSP). However, if developers do not offer Google Pay as an option, they will be penalised and the standard platform fee would only be cut by 3% to 27% (or 12% on their first $1 million).
Should users choose to pay with Google Pay, the revenue share will remain at a 70/30 split.
The changes would be rolled out for non-gaming apps first, before eventually allowing games developers to be eligible for the new billing rates and options “no later than October 2023”.
Google claims this would help ensure a “smooth transition for developers and to allow for the necessary changes to be made to our systems”. For context: In Q1 2023, data.ai estimates a large majority of worldwide consumer spending on Google Play came from the games category. It’s effectively a cash cow that is often treated differently by mobile platform holders than other categories.
The proposed changes would only impact in-app purchases in the UK, though similar actions have been taken in other countries.
Why Proposes Third-Party Payments Now?
Google’s announcement comes in response to an investigation by the UK’s Competition and Markets Authority (CMA), which began in June 2022, to look into “suspected anti-competitive conduct” by the tech giant. A particular focus of the ongoing investigation concerns Google Play’s rules which “oblige app developers offering digital content to use Google Play’s own billing system for in-app purchases”.
In response, on April 19, 2023, Google outlined the above changes to its rules and the CMA has now opened a call for feedback on the proposals. Public consultation on the new commitments will run until May 19, 2023. Following the end of the investigation and feedback from the public, the CMA will decide whether to accept or reject the changes.
At present, the CMA’s position is that it believes the new commitments from Google are “sufficient to address the competition concerns”. While no final decision has been made, pending consultation, the CMA has proposed to accept the changes.
What Do the Changes Really Mean?
Any climbdown from the standard 30% revenue share should be considered significant, as Apple and Google fight tooth and nail to retain the status quo. This latest proposal is another example of platform holders making as small a concession as possible to retain their lucrative cash cows.
But while it may seem like a concession, for developers, the reality is that it will not make a notable difference to their businesses on the current terms. A reduction of 3% to 4% will not cover the costs of using an alternative billing system, where the revenue share is often 5% or more (AppCharge takes a 5% cut per transaction).
PSPs charge such fees to cover the costs of billing, invoicing, fraud, chargeback cover, etc. Such a small reduction in Google’s share means that, should customers use another payment system, it would actually cost developers a greater share of their revenue, not reduce it.
Google has claimed that such a reduction is enough to cover developers’ “average payment processing costs” while also leaving a margin for customer support and other payment processing services.
These terms mean that Google Pay keeps its position as the preferential payment method, while creating a challenging environment for alternative options. And of course, in any event, Google will continue to maintain its standard 30% share on all Google Pay transactions, thus effectively retaining the status quo. Of course, if you’d like to discuss potential alternative PSPs for an both in-app and out-of-app solution, you can speak to the AppCharge team.
Rick VanMeter, executive director of advocacy group The Coalition for App Fairness, which champions app store reform, told TechCrunch he believes the proposals would enable Google to “continue taking a massive cut on services they do not even provide”. He added: “This solution will not create meaningful competition and is a bad deal for developers and consumers.”
It remains to be seen whether the CMA will ultimately accept or reject Google’s proposals, and what the future of third-party payments will look like on the marketplace in the UK.
Apple and Google have both come under increasing pressure around the world over concerns about anti-competitive practices, namely over the exclusive use of their own payment systems in their app stores.
Google was hit with a $162 million fine by the Competition Commission of India over anti-competitive practices in October 2022. Following this, as part of efforts to appease the regulator, Google announced in February 2023 that it would support third-party billing systems on Google Play in the country, reducing its fee by 4% for transactions made through alternative payment services.
It had previously introduced a similar measure in South Korea, following strong regulatory pressure and criticism. A smaller reduction of 3% in its fees for purchases made through other PSPs has also been enacted in the European Economic Area (EEA).
The UK proposal is now following suit with its previous successful negotiations with regulators.
While it’s a positive step for Google to introduce alternative billing systems on its UK Play store, the current proposals aren’t a particularly attractive proposition. For developers really looking to take advantage of the $30 billion opportunity in the mobile games market – which is the amount of revenue the App Store and Google Play took last year from in-app purchases – the best solution still remains in utilising web stores.
By bringing your community of players to a web store, developers can offer better deals to players, all while retaining a higher share of revenue. Regulators continue to chip away at the app store monopolies, but the industry is a long way off from a fairer deal for all.