Japan’s Smartphone Game Industry Breaks Free: New Law Spurs Shift to External Payments and App Store Competition

Japanese Smartphone Games Lead the Charge Against App Store Payment Monopolies

In a sweeping transformation of Japan’s mobile gaming landscape, nearly 70 percent of popular Japanese smartphone games have adopted external payment systems, bypassing the traditional in-app payment methods controlled by U.S. tech giants Apple and Google. This industry-wide shift is not just a matter of cost savings—it marks a pivotal moment in the global debate over app store monopolies, developer rights, and consumer choice. The move comes as Japan prepares to enforce a landmark law designed to open up competition in the mobile software market, with profound implications for developers, consumers, and the future of digital commerce.

Why Are Japanese Game Developers Abandoning In-App Payments?

For years, Apple’s App Store and Google Play have been the primary gateways for smartphone users to download games and make in-game purchases. These platforms have required developers to use their proprietary payment systems, charging commissions of up to 30 percent on every transaction. While Apple and Google argue that these fees fund security, privacy, and platform maintenance, many developers see them as an onerous tax that eats into profits and limits their ability to offer discounts or innovate on pricing.

According to a 2024 Kyodo News survey, at least 11 of the 16 top-selling Japanese game titles from domestic companies now use external payment websites. These external systems, often facilitated by settlement service providers like Digital Garage and GMO Tech, typically charge commissions as low as 5 percent—a fraction of what Apple and Google collect. The result is a more favorable environment for game makers and, increasingly, for players, who may see more frequent discounts and better value for their money.

Mixi Inc., for example, introduced an external payment system for its blockbuster title Monster Strike in August 2023. The company reports that users can now purchase about 5 percent more in-game items compared to the old in-app payment model, highlighting the tangible benefits of this new approach.

Japan’s New Law: A Game Changer for App Store Competition

The mass migration to external payments is not happening in a vacuum. It is a direct response to Japan’s new Act on Promotion of Competition for Specified Smartphone Software, a law passed in June 2024 and set to take full effect by December 2025. The law, often referred to as the Mobile Software Competition Act (MSCA), is designed to break the stranglehold that Apple and Google have on app distribution and payments in Japan.

Under the MSCA, major platform operators will be prohibited from:

• Forcing developers to use their own in-app payment systems
• Blocking alternative app stores or browsers
• Engaging in anti-steering practices (preventing developers from directing users to external payment options)
• Using data collected through their platforms to unfairly advantage their own products

The law also requires designated providers to allow users to easily change default settings, bans unfair discrimination against app developers, and mandates annual compliance reporting. Penalties for violations are steep, including fines of up to 20 percent of relevant turnover (or 30 percent for repeat offenses) and even criminal sanctions for certain breaches.

Japan’s Fair Trade Commission (JFTC), the country’s antitrust watchdog, will oversee enforcement. The JFTC has already established a new division to investigate major IT companies and is ramping up its digital expertise to ensure effective oversight.

How Does Japan’s Law Compare to Global Trends?

Japan’s regulatory push mirrors similar efforts in the European Union, United Kingdom, and United States. The EU’s Digital Markets Act (DMA), for instance, has forced Apple to allow third-party app stores and alternative payment systems, though implementation has been contentious and slow. In the U.S., the high-profile legal battle between Epic Games and Apple resulted in a court ruling that Apple could not prevent developers from linking to external payment options, though Apple was not declared a monopoly.

Japan’s law is notable for its comprehensive scope and strong enforcement mechanisms. Unlike the EU’s DMA, which covers a broader range of digital services, Japan’s MSCA is narrowly focused on app stores, browsers, search engines, and operating systems. However, it is widely seen as a major milestone in the global movement to rein in Big Tech’s control over digital marketplaces.

What Are External Payment Systems and How Do They Work?

External payment systems allow users to purchase in-game items or services through websites or platforms outside of the app itself. Instead of paying through Apple’s or Google’s payment gateways, users are redirected to a third-party site—often operated by the game developer or a specialized payment provider—where they can complete their transaction. This approach not only reduces commission fees but also gives developers more flexibility in pricing and promotions.

In Japan, new services like AppPay, developed by Digital Garage Group, are emerging as key players in this ecosystem. AppPay enables users to buy in-game items from multiple companies outside of apps, with lower fees than traditional app stores. This innovation is expected to further erode the dominance of Apple and Google in the Japanese market.

Settlement service providers such as Digital Garage and GMO Tech play a crucial role by handling payment processing, ensuring security, and managing compliance with Japanese regulations. Their lower commission rates make them attractive partners for game developers seeking to maximize revenue and offer better deals to players.

Industry and Consumer Reactions: Opportunity and Caution

The response from Japanese game developers has been overwhelmingly positive. Of the 12 domestic game makers surveyed by Kyodo News, 11 have already adopted external settlements for their top titles. Industry associations and IT organizations have endorsed the new law, seeing it as a catalyst for innovation and fairer competition.

Consumers, too, stand to benefit. With lower transaction fees, developers can pass on savings in the form of discounts or bonus items, making games more affordable and engaging. Increased competition among payment providers may also lead to improved user experiences and greater choice.

However, some experts and industry observers urge caution. The Information Technology and Innovation Foundation (ITIF), a global think tank, has warned that overly broad regulations could impose heavy compliance burdens and potentially stifle innovation. They argue that while the law aims to prevent anti-competitive behavior, it must also allow for legitimate business practices and efficiency gains that benefit consumers.

ITIF commented in its feedback to the JFTC: “The guidelines should be more narrowly tailored to address specific, non-hypothetical harms, allow for broader company justifications (including IP compensation and efficiency), and include safe harbors or carve-outs to reduce compliance costs.”

Security and privacy concerns also remain. Apple and Google have long argued that their closed payment systems protect users from fraud and data breaches. As external payments become more common, regulators and developers will need to ensure that robust safeguards are in place to maintain consumer trust.

Broader Implications: Japan’s Law as a Global Precedent

Japan’s move to open up its mobile software market is being closely watched around the world. The country’s smartphone game market alone is estimated at over 1 trillion yen (about $6.8 billion), making it a significant test case for regulatory intervention in digital marketplaces. If successful, Japan’s approach could inspire similar reforms in other countries, accelerating the global trend toward greater competition and consumer choice in the app economy.

Internationally, the regulatory landscape is shifting rapidly. The EU’s DMA has already forced changes in Apple’s and Google’s business models, though not without resistance. In the U.S., legal battles continue to shape the rules of the road for app distribution and payments. Epic Games, for example, is set to relaunch Fortnite on the U.S. iOS App Store with alternative payment options, following a series of court victories against Apple’s anti-steering policies. Epic also plans to expand its Epic Games Store to Japan once the new law takes effect, signaling the potential for even greater disruption in the Japanese market.

Japan’s law is also part of a broader movement to ensure that digital platforms operate fairly and transparently. The JFTC’s expanded mandate and increased staffing reflect a commitment to proactive enforcement and ongoing dialogue with industry stakeholders. Public consultations and feedback mechanisms are being used to fine-tune the law’s implementation, balancing the need for competition with concerns about security, privacy, and innovation.

Challenges and Controversies: Navigating the New Payment Ecosystem

While the shift to external payments is widely seen as a win for developers and consumers, it is not without challenges. Some Japanese developers, particularly those in niche markets like adult games, have faced difficulties receiving payments from foreign platforms such as Steam due to banking policies and regulatory hurdles. These issues highlight the complexity of the global payment ecosystem and the need for coordinated solutions that address both competition and compliance.

There is also debate over the potential unintended consequences of regulatory intervention. Critics argue that heavy-handed rules could slow innovation, increase compliance costs, and even lead to higher prices for consumers if platform operators pass on the costs of regulation. Others worry that increased fragmentation of payment systems could create confusion or security risks for users.

As noted in a recent opinion piece in Japan Today: “The future of the internet is being shaped in courts and government agencies, which should be a concern for everyone… Platforms evolve best through market-driven trial and error, not regulatory mandates.”

Nevertheless, the prevailing sentiment in Japan’s gaming and IT sectors is one of cautious optimism. The new law is seen as a necessary corrective to years of unchecked platform dominance, with the potential to unlock new opportunities for innovation, competition, and consumer benefit.

What’s Next for Japan’s Mobile Game Market?

With the MSCA set to take full effect by December 2025, the coming months will be a period of adjustment and experimentation for developers, platform operators, and regulators alike. The JFTC will continue to refine its guidelines and enforcement strategies, drawing on feedback from industry stakeholders and international best practices. Developers will explore new business models and partnerships, leveraging external payment systems to enhance profitability and user engagement.

Consumers can expect to see more choices in how they pay for in-game items, potentially lower prices, and a wider variety of apps and services as barriers to entry are reduced. At the same time, vigilance will be needed to ensure that security and privacy standards are maintained, and that the benefits of increased competition are shared broadly across the ecosystem.

In Summary

• Nearly 70 percent of popular Japanese smartphone games now use external payment systems to avoid high commissions from Apple and Google.
• Japan’s new Mobile Software Competition Act, taking full effect by December 2025, will require major platforms to allow alternative payment systems and app stores.
• The law aims to boost competition, lower costs for developers, and increase consumer choice, with strong enforcement by the Japan Fair Trade Commission.
• External payment providers like Digital Garage and GMO Tech are enabling this shift, offering lower fees and new services such as AppPay.
• Industry and consumer reactions are largely positive, though experts warn of potential compliance burdens and the need for robust security measures.
• Japan’s approach is part of a global trend toward regulating Big Tech’s control over digital marketplaces, with similar laws in the EU and ongoing legal battles in the U.S.
• The coming years will test whether increased competition delivers on its promise of innovation, affordability, and better user experiences in Japan’s vibrant mobile game market.