Summary

• Europe's Digital Markets Act forces app stores to allow alternative payments, disrupting the 30% commission model.
• Payment processors are positioned to capture billions in new in-app transaction volume.
• App developers may significantly boost profit margins by avoiding high platform commission fees.
• The regulatory shift may expand globally, creating a worldwide investment opportunity in digital payments.

The EU Just Smashed Big Tech's Favourite Piggy Bank

For the longest time, I’ve thought of the app store as a rather exclusive private club. To get in, you don’t pay at the door. Instead, the club owner simply takes a cool 30 percent of every single drink you buy at the bar, all night long. It’s a fantastically profitable model if you own the club, but less so for everyone else. Well, the European Union has just played the role of the unamused regulator, kicking the doors open and telling the owners that their customers are now free to buy their drinks from the corner shop if they fancy.

This, in essence, is what the Digital Markets Act has done to Google’s Play Store. It’s a regulatory uppercut that could change the flow of billions in the digital economy.

The End of the Digital Tollbooth?

Let’s be clear, this isn’t just some bureaucratic tinkering. For more than a decade, Apple and Google have operated their app stores as impenetrable fortresses. Every subscription, every game upgrade, every digital bauble had to pass through their payment gates, and for that privilege, they skimmed a significant chunk off the top. It was a licence to print money.

Now, Google has been forced to allow alternative payment systems within its European app ecosystem. This is more than just a crack in the wall, it’s the beginning of a siege. When a developer can sidestep the official payment system, they keep more of their hard-earned cash. It’s simple maths. And when established payment processors can finally compete for that business, it sparks innovation and drives down costs. The potential prize is enormous. We’re talking about a global mobile app market worth over $170 billion, with the platform owners pocketing a huge slice of that pie.

Picking the Winners from the Rubble

So, who stands to gain from this disruption? To me, the list is quite straightforward. First up are the payment processors themselves. Companies like PayPal and Mastercard have the global infrastructure and developer relationships ready to go. They’ve been waiting patiently outside the fortress walls for years, and now the gate is finally ajar. They could be poised to capture a flood of transactions that were previously off-limits.

Next, of course, are the app developers. From gaming giants to streaming services, any company that has been grumbling about the 30 percent ‘tech tax’ could see a direct and immediate improvement to its profit margins. This is especially true for subscription models, where those fees really start to add up over the lifetime of a customer.

And here’s a thought, perhaps even Google itself doesn’t lose out entirely in the long run. Yes, it might lose some commission revenue, but it could also face less regulatory heat and be forced to actually compete on service, not just on control.

A Very European Problem, or a Global Contagion?

It’s tempting to dismiss this as a purely European affair, but that would be a mistake. When it comes to tech regulation, Brussels often writes the first draft for the rest of the world. We saw it with GDPR privacy rules, and we’re seeing it again here. Lawmakers in Asia and North America are watching closely, and similar legislation could well follow.

This creates a powerful multiplier effect. An opportunity that starts in Europe could quickly become a global shift towards more open digital markets. To me, this regulatory domino effect is the central idea behind the Beyond The App Store: Europe's New Rules investment theme. The companies that adapt quickest to this new reality could secure a significant first-mover advantage. Of course, all investments carry risk, and this transition won't happen overnight. The road ahead will be bumpy, and success will depend entirely on sharp execution.

Deep Dive

Market & Opportunity

• The European Union's Digital Markets Act now requires Google to permit alternative payment systems in its Play Store.
• Mobile app spending reached over $170 billion globally in 2023, with platform owners collecting approximately $50 billion in commission fees.
• The regulatory change could redirect billions in revenue from platform owners to app developers and payment processors.
• This regulatory trend may spread globally, with similar legislation being discussed in Asia and North America.

Key Companies

• Alphabet Inc. (GOOGL): While potentially losing some commission revenue from its Play Store, the company may benefit from reduced regulatory pressure and an opportunity for its payments division to become more competitive.
• PayPal Holdings, Inc. (PYPL): Positioned to capture new transaction volume from in-app purchases as it possesses the necessary infrastructure, compliance frameworks, and existing developer relationships.
• MasterCard Inc. (MA): Positioned alongside other payment processors to handle app-based payments at scale, capturing transaction volume that was previously inaccessible.

Primary Risk Factors

• Companies with business models reliant on closed ecosystems may face pressure on their profit margins.
• The transition to new payment systems will take time as developers need to integrate them and consumers must adapt to new checkout processes.
• Adoption of alternative payment systems may be slow if they offer a poor user experience compared to existing options.
• The regulatory landscape is still evolving, creating uncertainty.
• All investments carry risk and you may lose money.

Growth Catalysts

• App developers, especially in gaming and streaming, could see significantly improved margins by avoiding the standard 30% commission fee.
• Payment processors with international reach are well-positioned to capitalise on the trend if it expands beyond Europe.
• Companies that establish themselves early in this new open market could gain a significant first-mover advantage.