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What will third-party payments mean for Apple’s share price?

Smartphone users in South Korea have been waiting for Apple [APPL] to bring Apple Pay to the country and they should soon get their wish. However, regulatory changes benefitting small developers can be replicated in other geographies and weigh on the company’s share price.

The launch of the platform has been delayed largely because the country’s government regulators are scrutinising the billing systems of tech giants such as Apple and Google [GOOGL]. At the end of August, a bill was passed that will prevent the tech giants from forcing developers to use the platform’s billing systems that deduct commissions when selling apps through their app stores or offering customers in-app purchases.

Apple’s share price was choppy through the month and hit a low of $145.60 on 10 August. However, unlike Google, Apple had resisted implementing the change so far.

Known as the ‘anti-Google law’, the regulation seeks to create a fairer market for smaller app developers. However, the curbs on service fees may impact Apple’s profits and, in turn, share price — particularly if other parts of the world were to introduce similar rules. 

Apple’s standard commission on an app purchase or transaction is 30%, according to the company’s website. Small business developers that exceed $1m in sales can qualify for a 15% rate.

Earlier in January, Apple announced it had submitted plans to the Korea Communications Commission to allow third-party payment systems on its app store. No details were given as to when any changes will come into effect. Apple’s share price has been falling since the start of 2022 along with other major technology stocks.

Apple stocks performed well in 2021, up 19% year-over-year to close at $162.41 on 21 January.

EpicGames CEO calls for similar regulations in the US

Apple’s announcement has drawn ire from Tim Sweeney, CEO of Epic Games, who infamously took legal action against the Cupertino company over its 30% commission structure. The court in California ruled that Apple must allow third-party payments, though in December Apple won an appeal for a stay, which means it doesn’t have to comply with the ruling just yet.

Last November, Sweeney praised South Korea’s new law at the Global Conference on Mobile App Ecosystem Fairness held in Seoul, saying “Apple must be stopped.”

Following Apple’s announcement that it had submitted plans to the KCC, Sweeney tweeted: “Payment processors charge fees for payments they process. It’s outrageous for a platform monopoly to charge fees for transactions they have nothing to do with.”

“Payment processors charge fees for payments they process. It’s outrageous for a platform monopoly to charge fees for transactions they have nothing to do with” - Epic Games CEO Tim Sweeney

 

Will the regulations impact Apple’s share price?

According to Dongwoo Kim, writing for the Korea Economic Institute of America: “At one level, the new law could be interpreted as Seoul’s attempt to curb the influence of foreign tech companies in South Korea.”

In another possible blow to Apple and Google, the South Korean government has recently requested the companies block ‘pay-to-earn’ games from their app stores.

As for the Epic Games vs Apple ruling, Morgan Stanley analyst Katy Huberty argued back in September that the worst-case scenario is it will have a 2% impact on US revenue.

In a note to clients, Huberty wrote that the estimate is based on developers not being able to add their own payment methods within the app store itself and instead having to redirect users to payment systems on their own websites, reported AppleInsider.

This scenario would create more friction for users than the current app store payment system, the report said. Still Huberty increased the firm’s Apple share price target from $164 to $200 in December, MarketBeat data shows the stock 31 ratings in total: two strong buy, 23 buy, five hold and one sell.

However, the future lies in buying of digital content and this is a potential future cash cow that Apple may need to give up, said other analysts.

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