S.Korea closer to banning Google's in-app billing system

South Korea is a step closer to stopping app store operators like Google Inc. and Apple Inc. from requiring all digital content purchases from apps on their marketplaces to be paid through their independent billing systems.

On Tuesday, the country's parliamentary committee in charge of science, technology and communications policies passed a revised bill aimed at blocking mobile app stores and their operators from forcing certain payment systems.

The ruling Democratic Party, commanding 57% of the 300-seat parliament, is now presenting the bill to the Legislative and Judiciary Committee for further review, before heading to the plenary session of the National Assembly.

It plans to pass the bill, the world's first of its kind, within the month. The bill, if voted into law, will deprive Google of additional income of about 600 billion won ($520 million) per year from South Korea where it is estimated to have earned 1.5 trillion won in commissions from app store sales.

The legislative move comes about two weeks after US states governments sued Google in relation to Google Play Store, alleging that it abused its power over app developers. 

But the local bill failed to win support from the main opposition People Power Party which boycotted the committee session on Tuesday, saying that the amended bill was introduced in haste without assessing its adverse effects.

South Korean startups' lobby groups expect the legislative move to keep app store operators from wielding even greater influence over app developers.

Last year, the Democratic Party proposed the bill shortly after Google announced that it would require in-app payments for all digital content listed on the Google Play Store from the start of this year. The in-app billing system takes a 30% fee from payments, putting severe pressure on app developers.

However, strong resistance from content creators prompted Google to delay the full-scale adoption of the in-app payment system twice to eventually March of next year, as well as excluding small-sized app developers from the rules.

Additionally, Google lowered the in-app payment commission from 30% to 15% for digital content apps such as webtoon, music streaming and e-book apps from this month.

The announcement, however, drew strong resistance from South Korean game companies because Google only requires mobile games to use the in-app payment system and to pay a 30% commission on in-app purchases.

Last year, South Korean game companies combined paid around 765.5 billion won in commissions to Google, according to the Korea Mobile Internet Business Association. That represents more than one-third of the sum of over 2 trillion won paid by all domestic app developers to app store operators during the period.

This year,  Korean game developers are expected to pay a combined 952.9 billion won in commissions to the US tech giant, up 24.5% from the year-earlier period.

In 2020, Google Play Store generated 5 trillion won in sales in South Korea, which is estimated to have produced 1.5 trillion won in commissions.

Write to Joo-wan Kim at kjwan@hankyung.com
Yeonhee Kim edited this article.