Software developers will be permitted to use their own payment systems in South Korea after its parliament passed a bill effectively blocking major app store operators such as Google and Apple from collecting app purchase commissions.

It is the first time a major economy has taken legal action to curtail Google and Apple’s app store payment dominance amid a wave of global criticism over the tech giants’ policies.

App developers are required to use Google and Apple’s proprietary payment systems. Directing consumers to an alternative payment method risks expulsion from the Google Play Store and Apple’s App Store.

Google and Apple charge commissions of up to 30% on transactions made within their respective app stores.

On Tuesday, South Korea’s parliamentary assembly voted 180 in favour out of 188 attending to pass the amendment – dubbed the “anti-Google law” – to the Telecommunications Business Act.

The amendment will become law with the signature of President Moon Jae-in.

It follows a preliminary vote by a South Korean parliamentary committee last week that paved the way for the final vote.

The passing of South Korea’s “anti-Google law” is expected to have a significant impact for Apple and Google’s app store business models. In South Korea, Google Play Store brought in nearly 6 trillion won ($5.29 billion) in 2019.

South Korea is a technologically advanced nation, with over 90% of its population having access to the internet. The country is home to Android smartphone maker and consumer tech hardware giant Samsung and its concrete action against two of the world’s largest technology companies may inspire similar regulations elsewhere.

The bill has also bolstered support for action in the US, where lawmakers have proposed similar legislation. Senator Marsha Blackburn is one of the politician behind the bill published in August.

“It’s time the US follow suit to reduce Big Tech’s app store influence. I urge Congress to swiftly pass my bill with Senators Blumenthal and Klobuchar that will help ensure fair competition for innovative startups,” she said in a statement to Reuters.

The South Korea bill has been welcomed by Match Group, owner of dating app Tinder, which called it a “monumental step in the fight for a fair app ecosystem”.

A Google spokesperson told Verdict: “Google Play provides far more than payment processing, and our service fee helps keep Android free, giving developers the tools and global platform to access billions of consumers around the world. It’s a model that keeps device costs low for consumers and enables both platforms and developers to succeed financially.

“And just as it costs developers money to build an app, it costs us money to build and maintain an operating system and app store. We’ll reflect on how to comply with this law while maintaining a model that supports a high-quality operating system and app store, and we will share more in the coming weeks.”

In a statement to Verdict, Apple said South Korea’s App Store decision would those who “purchase digital goods from other sources at risk of fraud, undermine their privacy protections, make it difficult to manage their purchases, and features like “Ask to Buy” and Parental Controls will become less effective”

The spokesperson added: “We believe user trust in App Store purchases will decrease as a result of this legislation — leading to fewer opportunities for the over 482,000 registered developers in Korea who have earned more than KRW8.55 trillion to date with Apple.”

Apple and Google have responded to previous criticism by lowering the commissions they charge to some developers.

In November 2020, Apple offered an olive branch to smaller software developers by halving the commission fees it charges for software developers with less than $1m in annual net sales.

Google made a similar move in March, dropping its commission from 30% to 15% on the first $1m a developer makes on Google Play.

Last week, Apple agreed to a settlement with small developers in the US that will allow them to share information on how to pay for purchases outside of the App Store and effectively avoid paying commission.

“While it’s good publicity for Apple, this is a small concession and it’s not going to pose any significant threat to Apple’s business model as it involves only small developers, thought to account for a tiny part of the App Store commissions,” Laura Petrone, principal thematic analyst at GlobalData, previously told Verdict. “Also, developers will still be banned from informing customers about alternative payment methods other than through emails.”

The trial between Epic and Apple, which is still awaiting its final ruling, is also about Cupertino’s App Store antics and its relationship with iOS developers.

The South Korea amendment comes amid a wider crackdown on app store rules that extend beyond payment methods.

In preliminary findings for its antitrust probe, the European Commission accused Apple of choking competition by making developers agree to what it called unfair rules.

The EU’s proposed Digital Markets Act also has Google and Apple’s app stores in its crosshairs.

In March, the UK’s Competition and Markets Authority launched an antitrust probe into Apple’s App Store terms to establish whether they break competition laws.