Open App Regulations Could Endanger Those It Seeks to Protect

As lawmakers in Washington D.C. move the Open App Market Act through both the Senate and House of Representatives, lawmakers in the states are watching closely and considering their own measures that would force damaging changes on how application stores operate. But bad news travels fast. One harmful bill, for example, the Freedom to Subscribe Directly Act, is currently being considered by the Illinois General Assembly.

While cracking down on how application stores operate follows a broader trend of attacking big tech, passing the Freedom to Subscribe Directly Act could expose consumers’ sensitive financial information to cybercriminals and deny app developers access to millions of customers.

The Illinois General Assembly must reject the Freedom to Subscribe Directly Act. Failing to do so will only imperil consumer data and make it harder for small businesses and developers to succeed in the highly competitive digital application market.

If passed, the Freedom to Subscribe Directly Act would prohibit application stores with more than 1 million users in Illinois from mandating the use of “a particular in-application payment system as the exclusive mode of accepting payments.” The bill would also provide a private right of action, allowing individuals to sue violators in court.

Commissions charged by Apple and Google on sales that use their in-app payment system has driven much of the public and political backlash. Until recently, both stores charged a 30% commission; however, Apple and Google both agreed to reduce the commission they charged to app developers. In November 2020, Apple announced that small businesses that earn less than $1 million per year would only be charged a 15% commission. Businesses that earn more than $1 million would continue to pay a 30% commission. Google announced it would implement the same policy in March 2021.

While small businesses and app developers may object to commissions on sales, these fees enable both Apple and Google to develop sophisticated payment systems that secure sensitive financial information and ensure it remains out of the hands of cybercriminals.

Apple, for example, has developed one of the most sophisticated payment processing systems on earth. Not only are transactions on Apple pay encrypted, but it is also then re-encrypted with a “developer-specific key before the transaction information is sent to the developer or payment processor.” This system means that vendors do not have access to financial information, and Apple does not retain any information. Finally, consumers must also authenticate every transaction. Google Play also offers similar protections and requires a password to authenticate each transaction.

These advanced features cannot likely be offered by other payment processing systems, where sensitive financial information is at risk of falling into the hands of cybercriminals.

Imposing onerous regulations on how application stores operate also risks removing small businesses from the platform to avoid compliance. If this were to happen, consumers would not only lose access to the millions of applications that exist in each store, but it would also deny developers access to millions of consumers across the country. For example, it has been estimated that 118 million Americans will have an Apple device this year, while 133 million Americans are expected to use an Android device.

Losing access to such a substantial customer base would be catastrophic for app developers who can expect to earn $40,000 each year from sales on application stores. Denying small businesses the opportunity to make these critical revenues would only make it harder for them to succeed in a highly competitive marketplace.

At a time when lawmakers seem intent on attacking big tech, reforming how online application stores operate is undoubtedly an attractive proposal, especially when it is done under the guise of protecting small businesses and developers. What advocates of the Freedom to Subscribe Directly Act ignore, however, is the reality that the bill will imperil consumer data and make it harder for app developers and small businesses to operate in a highly competitive marketplace. States should be cautious and not follow this dangerous path.

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