Game developers are long aware and accustomed to the Apple cut on the payments made in the mobile app. But to the other companies it comes as an unfair surprise that Apple takes 30% commission on the in-app purchases.
In this post we will discuss the Apple policy on the in-app purchases. For the sake of clarity, Google applies similar policy and rates, but here we will focus on Apple as it seems to dictate the rules that others follow.
AppStore Review Guidelines (Guidelines) – is the main document to align with, when submitting your app for review to be able to later place it on the AppStore.
In fact, you should study the Guidelines yet before the development phase in order to understand what Apple allows, and having that in mind structure your digital solution and monetization model.
The Guidelines determine two available options for the payment processing in the mobile app:
- In-app purchases (IAP)
- Purchase methods other than IAP (non-IAP)
IAP – is a payment solution developed and maintained by Apple. The mobile app requiring IAP according to Guidelines must have IAP StoreKit configured to process payments. Any revenue collected via IAP will be subject to Apple’s commission of 30%, which is regulated in the item 3.4 of the Paid Applications Agreement. The commission decreases to 15% only for the auto-renewing subscription purchases for the users who have paid the subscription for 1 year.
Purchase methods other than IAP are any third-party payment solutions, such as Stripe, Braintree, Apple Pay, etc. For example, Stripe and Braintree charge 2.9% +$0.30 per transaction.
Obviously, app providers would all like to use third-party payment gateways.
How to choose between IAP and 3rd party payment method?
We need to understand when IAP are required, and when other payment methods can be used.
The answer is in the items 3.1.1 and 3.1.5(a) of the Guidelines:
3.1.1 In-App Purchase:
If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase. Apps may not use their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, etc. Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.
3.1.5(a) Goods and Services Outside of the App:
If your app enables people to purchase goods or services that will be consumed outside of the app, you must use purchase methods other than in-app purchase to collect those payments, such as Apple Pay or traditional credit card entry.
Based on the general understanding of these provisions, IAP are used to sell digital content, while other payment methods – to sell physical goods and services consumed outside of the app.
These are the main distinctive features, when you need to choose the payment method:
- Digital or physical,
- Consumed inside or outside of the app.
Apple determines 4 product types as digital and requiring IAP in their IAP Documentation:
Consumables are a type that are depleted after one use. Customers can purchase them multiple times. Non-consumables are a type that customers purchase once. They don't expire. Auto-renewable subscriptions to services or content are a type that customers purchase once and that renew automatically on a recurring basis until customers decide to cancel. Non-renewing subscriptions to services or content provide access over a limited duration and don't renew automatically. Customers can purchase them again.
Apple also gives examples for each product type falling under IAP scope:
Consumables: Fish food in a fishing app. Non-consumables: Race track for a game app. Auto-renewable subscriptions: Monthly subscriptions for an app offering streaming services. Non-renewing subscriptions: One year subscription to a catalog of archived articles.
Examples of physical goods requiring third-party payment solutions, in our understanding, include marketplaces, selling any physical goods, like clothing, food, appliances etc. Services consumed outside of the app, and requiring non-IAP, are such as babysitting, repairment, transportation services, etc. It is pretty straightforward that services like fixing a bike are consumed outside of the app, as the actual service involves a physical bike, some equipment, professional skills, and physical labor.
The distinction between digital and physical, consumed inside or outside of the app seems easy at first glance, but in reality, many questions and doubts arise.
For example, educational services also involve professional skills and human involvement, but in the majority of cases they are in the scope of IAP. Apps like Udemy and Coursera use IAP to sell their courses. The App Review Team usually explains the necessity of applying IAP in educational apps, as the service is non-real time, rendered and consumed in the app.
Apple strictly reviews the apps, and if it reveals that IAP are not integrated, when they need to, it will reject or ban the app from the AppStore.
We met cases that Apple banned without the right to restore a mobile app (offering games for kids), after it found out that the app integrated other than IAP payment methods. The consequences of course were serious as the app lost all of its users at one moment.
What makes things even more complicated is that there’s no pre-review of the app by Apple. You only get to know Apple’s opinion whether IAP are required after you submit your app for review.
How does my service qualify?
When thinking about your own service, and how the App Review might qualify it, we find it useful to check Principles and Practices, where Apple categorizes apps and determines when IAP applies.
Based on the categories provided by Apple, we can see 3 types of apps:
- Requiring IAP,
- Requiring non-IAP,
- Allowing for IAP alongside other payment methods.
Apps, where IAP is a must:
- Free apps selling digital features and content in the app, such as lives, gems in games, photo filters, chat. Examples: Candy Crush Saga, Clash of Clans, Skype, TikTok.
- Any paid apps – apps that customers pay upfront to download from the AppStore. Examples: Dark Sky Weather, Facetune, Heads Up!, Monument Valley 2.
- Apps with any types of auto-renewing subscription. Examples: Bumble, Calm, Hulu, Pandora.
Apps, where you have to use non-IAP:
- Free apps selling physical goods and services, like purchasing clothing, food delivery, ordering taxi rides. Examples: Airbnb, Amazon, Lyft, Target.
- Reader apps – apps where users exclusively purchase or subscribe to content outside of the app, but enjoy access to that content inside the app on the Apple devices, such as books, music, video apps. Examples: Amazon Kindle, Audible, Netflix, Spotify.
- Apps providing features, which are dependent on syncing with specific hardware: an astronomy app providing features after syncing with a telescope. As Apple mentions, such apps are rare (see Guidelines 3.1.4).
It might seem that the Reader app is a perfect solution to bypass the so-called Apple tax. But the truth is that the Reader app cannot contain any links to your other products, which deprives you from marketing opportunities to showcase your other services/products (see Guidelines 3.1.3 (a)). Having to pay for a subscription on the website is also against the user engagement rules, as you force your users to leave the app, and they might never return.
The Reader app is the battlefield, where Netflix and Spotify are trapped by Apple. Netflix and Spotify would obviously wish to sell their products and services in-app, but the Apple cut on sales is enormous in their opinion.
Apps, where IAP can be used along with other payment methods:
- Cross platform apps selling digital goods and services via iOS app, and also on other platforms – Android, web. Examples: Dropbox, Hulu, Microsoft Word, Minecraft. In this case a user can purchase digital content on your website, and have it accessible in the app. However, IAP must also be available in the app for the user to be able to buy the same/similar content.
- Apps providing features in combination with an approved physical product (eg. a toy) – may unlock some functionality without using IAP. Although IAP must be available as well (see Guidelines 3.1.4).
Summing up, we have collected features, which can help categorize your app, and understand if IAP or non-IAP apply.
IAP apply, when your app has any of the features like:
- Auto-renewing subscription
- Digital nature of the product/service
- Consumed inside the app
- Content delivered inside the app (recorded videos, written comments, messages etc.)
- Service is non-real time
- Service is rendered in the app
- Unlocking any extra features, premium content, full version upon purchase
Non-IAP apply, when your app has features like:
- Live content (video calls, webinars)
- Selling physical goods
- Providing services rendered and consumed outside of the app
- Reader app
There can also be cases that one app can contain two types of services - one subject to IAP, and another – subject to non-IAP. For example, if you have an app with features like a) chat, and b) performing physical actions on behalf of the user (for example, sending some printed documents to the authorities), and you want to charge for both a and b, you will need to apply IAP for a and non-IAP for b.
We hope that our findings will help you make correct decisions in designing your app, and avoid unnecessary costs, when possible.
Be informed, release your apps and stay happy!