The ways we use smartphones in our daily lives have become incredibly diverse. For example, while commuting by train or bus, or while waiting to meet someone, apps allow us to make effective use of spare moments by watching videos, listening to music, or playing games.

However, when you watch digital content or purchase items in app-based games, if the payment is processed within the app, an app fee will be charged. This is a fee that companies doing business through an app must pay to the platform that hosts the app, and it is always incurred for in-app payments (in-app billing). Therefore, each business operator must consider the app fees they must bear and manage their operations in a way that minimizes the negative impact on profits.

This article provides an explanation of exactly what app fees are, the out-of-app billing that can bypass app fees, as well as the New Smartphone Law currently in effect in Japan.

What’s in this article?

• What are app fees?
  
• Fees incurred with in-app billing
  
• Out-of-app billing through external websites
  
• What business owners can do to provide a comfortable payment environment
  
• What Stripe Checkout can do
  

What are app fees?

When using an app on a mobile device such as a smartphone, paying for services or products is called app billing. There are two types of app billing: in-app billing and out-of-app billing. However, app fees are incurred only for in-app billing.

The reason such fees are incurred for in-app billing is that payments are processed through the payment system of the platform hosting the app (such as the Apple App Store or Google Play Store) when goods or services are purchased. Because the app platform provides the payment method and also handles the payment processing, it charges the business a fee for these services.

Fees incurred with in-app billing

App fees are typically 15%–30% of the sales amount. Let’s take a closer look at how the iOS App Store and the Android Google Play store each handle these fees.

App Store app fees

For small businesses

In November 2020, Apple announced a new program called the App Store Small Business Program. With the launch of this program, starting in January 2021, the App Store commission rate was reduced to 15% for small businesses with an annual revenue of up to $1 million USD (the standard App Store fee of 30% normally applies).

For apps with autorenewing subscriptions

The App Store implements the following measures for apps with automatically renewing subscriptions (simply called subscriptions below).

• Subscriber’s first year of use: App developers receive 70% of the subscription price minus applicable taxes for each billing cycle.

• Once a subscriber has accumulated one year's worth of paid service usage days: The net revenue share received by developers will increase to 85% of the subscription price, minus applicable taxes.

• For small businesses: Regardless of whether the number of days of paid service usage accumulates to one year, you will receive 85% of the subscription price (minus applicable taxes) for each billing cycle.

Google Play app fees

On Google Play, the fee charged for in-app billing is typically set to 30% of the price of the app or item. Google has also implemented the following measures, which are similar to Apple's.

• For developers with annual revenue up to $1 million USD: 15%
  
• For developers with annual revenue over $1 million USD: 30%
  
• For autorenewing subscriptions: 15%
  
• For digital goods and services such as digital content: Until annual revenue reaches $1 million USD, 15% fee rate is maintained
  

Out-of-app billing through external websites

In contrast to the in-app billing model, out-of-app billing, where users are redirected to a payment page on an external website, has recently been gaining attention. With out-of-app billing, the user's payment is not processed within the app, so no fees are charged.

As explained above, fees charged for in-app billing can reach up to 30%. If businesses have to bear these high fees for each transaction, it can put a strain on revenue and potentially lead to cash flow problems. In contrast, out-of-app billing, which avoids these fees, offers businesses the potential for increased revenue.

From this perspective, the number of businesses offering out-of-app billing will likely increase in the future. There’s a movement to encourage adoption of out-of-app billing not only overseas, but also in Japan, thanks to Japan’s “New Smartphone Law.”

The New Smartphone Law

With smartphones becoming an indispensable part of our lives, Japan passed the Smartphone Software Competition Promotion Act (simply called the New Smartphone Law below) in June 2024. This has had the effect of steadily advancing efforts to improve the environment surrounding the app industry.

The New Smartphone Law includes measures to promote competition in the smartphone sector and prevent market monopolization by specific companies.

Focusing specifically on app fees, this act makes payments outside of apps (out-of-app billing) possible, and prohibits app platforms from forcing businesses to use in-app billing. As a result, many businesses in Japan, such as game developers, have begun introducing out-of-app billing. These companies expect revenue growth that could not be achieved with the traditional in-app billing model.

The main regulatory provisions of the New Smartphone Law are the following two points. Based on these principles, the law aims to stimulate innovation by diverse entities.

• Prohibition of forced (mandatory) in-app billing
  
• Prohibition of restrictions on placing external payment links within apps
  

Payment for physical goods or services provided externally

If you’re selling physical products (tangible goods) or services provided externally and unrelated to the app, you can use payment systems provided outside the app, such as a credit card payment system on an external website, rather than in-app billing. Amazon is a common example of this. The products sold on the Amazon app are consumed and used outside the app. As a result, when app users purchase these items, credit card payments made outside the app are permitted.

What business owners can do to provide a comfortable payment environment

For businesses that develop and operate their own apps, in-app fees can create a bottleneck that risks squeezing profits—something most businesses would want to avoid. Out-of-app billing could be the solution for businesses struggling with this issue.

When introducing out-of-app billing, you have the option of either building your own payment environment on an external site that’s linked to the app, or you can use a payment processing company. If your business wants to use multiple payment methods, a payment processing company is worth considering. Payment processing companies not only handle contract management on your behalf, but, depending on the service package, they also provide robust support systems. These systems can include purchase trend analysis, sales management tools, and even the know-how necessary for service operation. This comprehensive support can make them a valuable partner.

What Stripe Checkout can do

Stripe Checkout is a fully customizable prebuilt payment form that makes it easy for you to accept payments on your website or application.

Checkout can help you:

• Increase conversion: Checkout’s mobile-optimized design and one-click checkout flow make it simple for customers to input and reuse their payment information.

• Reduce development time: Embed Checkout directly into your site, or direct customers to a Stripe-hosted page, with just a few lines of code.

• Improve security: Checkout handles sensitive card data, simplifying PCI compliance.

• Expand globally: Localize pricing in 100+ currencies with Adaptive Pricing, which supports 30+ languages and dynamically displays the payment methods most likely to improve conversion.

• Use advanced features: Integrate Checkout with other Stripe products, such as Billing for subscriptions, Radar for fraud prevention, and more.

• Maintain control: Fully customize the checkout experience, including saving payment methods and setting up post-purchase actions.

Learn more about how Checkout can optimize your payment flow, or get started today.