Top Apple exec admits flaws in effort to boost iPhone app payment competition

Phil Schiller, a veteran Apple executive, has conceded that a court-ordered overhaul of the U.S. payment system in the iPhone app store has not significantly boosted competition. This could lead to a federal judge demanding further changes.

Schiller, who has overseen the iPhone app store since it launched in 2008, admitted during his testimony that the new payment options introduced in January have been adopted by only a small number of apps.

“We have worked hard to create this program, and I think we need to do a lot more to attract developers,” Schiller said. “There is work ahead of us to make that happen.”

Schiller’s testimony came during ongoing hearings in federal court in Oakland, California. These hearings aim to determine if Apple is complying with a court order from an antitrust case accusing the iPhone app store of becoming an illegal monopoly.

While U.S. District Judge Yvonne Gonzalez Rogers dismissed the monopoly claims made by Epic Games, she did order Apple to reduce the barriers around its exclusive in-app payment system and allow developers to include links to alternative payment options.

This order could potentially diminish Apple’s profitable in-house payment system, which earns billions annually through commissions ranging from 15% to 30% on digital transactions made within iPhone apps.

After over two years of attempting to overturn the requirement for alternative payment links, Apple complied with the order in January. Apple implemented an application process to approve these links and set fees between 12% and 27% for users who opted for alternative payment systems.

Epic Games, the maker of Fortnite, argued that Apple’s commission on external payment links, combined with other payment processing costs, effectively makes these alternatives more expensive than using Apple’s standard system.

Due to Epic’s objections, Gonzalez Rogers is considering whether to hold Apple in contempt of her order and implement more drastic measures to ensure consumers have more payment choices, fostering competition that could lower prices.

Throughout the five hearings so far, Gonzalez Rogers has expressed frustration with Apple executives, occasionally implying that Apple is more focused on maintaining its profit margins and keeping payments within its own system.

During Schiller’s testimony, the judge was relatively measured, but last week she was more direct with one of Schiller’s subordinates, Carson Oliver, questioning if he understood that the order aimed to increase competition. After Oliver confirmed, she remarked, “Doesn’t seem like it.”

Schiller defended Apple’s response to the order, insisting that their intention was to increase competition while ensuring user privacy and security. However, he struggled to explain the low number of applications for external payment links.

Evidence presented in the hearings showed that in the first four months, only 38 apps applied for approval to use external payment links, with just 17 currently conducting digital transactions. This is out of approximately 136,000 apps in the U.S. that perform digital transactions.

Schiller stated that the information revealed in the hearings has led him to create “an action item” to encourage more iPhone apps to use external payment options.

The hearings are set to continue on May 31, with Schiller returning to the witness stand to complete his testimony.