UK CMA to redress Apple and Google mobile app duopoly

The UK Competition and Markets Authority (CMA) has proposed to designate both Apple and Google with strategic market status for mobile platforms, as part of its new digital markets competition regime. The regime allows the authority to take targeted and proportionate action to improve competition in critical digital markets. 

Writing in the CMA’s blog, executive director for digital markets Will Hayter said final decisions on the proposals will be made in October, with consultations on a first set of interventions expected from the autumn. Updated roadmaps are expected in the first half of next year, reflecting stakeholder views and relevant international developments.

Hayter said the CMA has taken this action because “currently, 90% to 100% of UK mobile devices run on Apple’s or Google’s mobile platform” and both companies also face limited competition on their browsers. “Apple’s Safari browser has an 80% to 90% share of Apple’s mobile ecosystem, while Google’s Chrome has a 70% to 80% share of Android users,” he added. 

Duopoly concerns

Because of the “duopoly” held by Apple and Google, the CMA has several “concerns” that reduce customer choice, favour both companies and have an impact on third-party players. They include: an “opaque, inconsistent and unpredictable app review process”; an “opaque” app store search ranking criteria; restrictions on developers’ ability to steer users outside of the app store; and choice architecture — such as default settings, pre-installation, prominence, prompts and friction — that “may favour the firms’ own services, limiting competition and genuine choice for users”.

Currently, developers hoping to create applications for Apple can’t offer their apps through other stores or via direct download (known as ‘sideloading’), or use their own payment systems. They must also base alternative browsers on Apple’s own browser engine software. 

These restrictions can affect a range of offerings such as digital wallets, AI services, smartwatches, gaming headsets or health-tech tools connected with iPhones and iPads. 

The CMA says it has heard that while Google allows sideloading, it is often discouraged in practice. “This could disadvantage UK app developers and mean UK users miss out on innovations, as well as facing fewer choices and higher costs,” added Hayter. 

Gatekeeping payments

According to Bitsul fintech consultant Jas Shah, Apple Pay and Google Pay dominate the payments space because they control the secure elements of their devices, such as the near field communication (NFC) chips, and are thus the gatekeepers for any other wallet experience.

If the CMA follows through with its proposals, UK fintech companies could have direct access to device-level functionality, said Shah — meaning companies such as Monzo or Revolut could offer a native wallet that “mimics” the Apple experience. 

While he doesn’t “personally” think the CMA will succeed in its actions related to both tech giants, “this could open the floodgates for innovation that’s been locked behind Apple’s and Google’s walled gardens”. 

The CMA says that to designate a firm with strategic market status, it must demonstrate it meets two legal tests: it has substantial and entrenched market power, and is in a position of strategic significance. It found both Apple and Google have met these tests “provisionally”.

Adhering to its published commitment to maintain pace, predictability, proportionality and process with its actions, the CMA has released a roadmap for action related to the two companies. The framework will focus on ensuring fair dealing for app developers in app distribution, including fair and transparent app review processes, app store rankings, and allowing the ability to steer users out of app stores.

“For both Apple and Google, we will focus on ensuring consumers have a genuine choice over the services they use on their devices and are not steered to Apple’s and Google’s own services,” said Hayter.

The CMA will also explore the factors involved in the development of artificial intelligence (AI) services, such as voice assistants on mobile devices, to ensure a level playing field in this rapidly advancing sector.

Regulatory guardrails

Shah doubts that the CMA can “force Apple and Google to give up all their toys”. However, he said, it could create regulatory guardrails that mandate fair access to NFC functionality for third-party apps; interoperability standards that reduce friction for wallet providers (so it is not just Apple’s secure enclave or nothing); and transparency in the fees and technical restrictions that currently give platform owners a competitive advantage.

He points to precedents such as Europe’s Digital Markets Act (DMA) or Australia’s open payments initiatives, which support device-level openness as well as security. 

“This would likely involve technical certification processes where fintechs can prove they can access device hardware securely, and API-level requirements that Apple and Google must expose to all developers, not just their own products. Most UK fintechs will be quietly cheering this on.”

Gareth Lodge, principal and global payments analyst at tech advisory Celent, agrees that UK fintech companies will welcome these actions, as they enable the development of apps on top of existing infrastructure, such as the Mastercard network. 

However, he added: “I’m not sure if anyone asked the fintechs what they thought or what they needed, so this may or may not be pivotal to their future plans. I’m also not sure what a fintech might build that is sufficiently different or better than Apple, famed for its focus on experience.”

The CMA action may be “too late” because both Apple and Google have “almost ubiquity”, he said.  

Payments are habit driven: consumers choose debit and credit cards for the rewards and perks they offer, he added. That means fintech companies are not just competing against Apple but are competing with the funding mechanisms, for example, American Express card benefits or a challenger bank customer experience. 

“The regulator needs to be quite clear that while it can make Apple and Google do the remedies, it can’t guarantee any actual beneficial changes — and potentially will have some negative ones,” he added. 

Mixed message?

According to the CMA, the UK’s app developer community represents Europe’s largest app economy by revenue and developer count, generating an estimated 1.5% of UK GDP and supporting around 400,000 jobs. Fintech, which represents over half of all UK unicorns (billion-dollar start-ups), has attracted more than £18 billion in inward investment over the past three years. 

While Lodge understands the CMA’s reasoning that choice drives competition, which drives innovation, “it does feel a mixed message”, given the vision and investment required to create these innovations, as if “we want you to successfully innovate — but not too successfully”.

Too much choice could result in an array of payment schemes, which makes interoperability and decision-making complex. Alternative actions — such as a national QR code or a requirement that all wallets work in a certain way in the back end — could have achieved the result the CMA wants, Lodge said. “As always though, the devil will be in the detail.” 

Shah agrees that too much choice — resulting in a fragmented user experience — could be an unintended consequence. Consumers may also be hesitant to leave the comfort (and perceived security) of Apple Pay or Google Pay for a fintech-branded wallet, even if it’s more feature-rich, he said.

He predicts Apple will heavily stress the security implications regarding opening up NFC functionality in response to the CMA proposals. Apple and Google could also retaliate by adjusting their developer fees, App Store rules, or default wallet settings to maintain an upper hand.

“The biggest challenge here with creating competition in the payments space is shifting consumer behaviour. For me the question will be, ‘will fintechs create a compelling enough reason for consumers to go through a slightly longer payments experience, and what can they offer to slowly change that behaviour?’,” he said, adding it’s “a billion-dollar question”.