While Apple Inc. has been at the leading edge of the app revolution, it is also out front in setting the guidelines for app purchases. According to the FTC last week, it crossed that line to the tune of $32.5M. That’s the amount that Apple agreed to refund to settle an FTC complaint that the company charged for children’s in-app purchases without parental consent. At issue was the practice by which Apple allowed iPhone users unlimited in-app purchases for 15 minutes after providing initial consent for a single purchase.
Apple Inc. has been instrumental in solidifying the ubiquity and prominence of applications or “apps” in everyday life. With the release of the groundbreaking iPhone in 2007 and its corresponding App Store in 2008, users became familiar with the idea of using and purchasing apps for specific uses. From news feeds and video players, to single and multi-player games, apps came to represent a download that, with the simple tap of the thumb, would add another tool, resource or game to a device.
Fast forward to 2014 and apps are more prevalent than ever. With over 1 million apps available for download, the App Store still dominates the market. Other players have set up shop and offer downloads tailored to competing devices, including Google’s Play Store, Microsoft’s Windows Store, and Amazon’s Appstore. Along with the increase in available apps, revenue streams across platforms have evolved, allowing for differing means of conducting financial transactions.
In-app purchases are increasingly popular in games, integrating emotional and psychological hooks to entice users to conduct micro-transactions. Regarding Apple, in-app purchases must adhere to the company’s guidelines. Games targeted at children, like Dragon Story by GameTeep, Tiny Zoo Friends by TinyCo, and Tap Pet Hotel by Pocket Gems allow for the purchase of in-game virtual items or currency that can be used to advance gameplay. These transactions may involve buying items for a virtual pet, or purchasing new and unique dragons to add to the user’s digital collection. Transactions like these, according to the FTC, were conducted by children without the consent of their parents, i.e. the account holders.
Based on over 37,000 complaints to Apple from irate customers, the common scenario involved a child using a parent’s device to play a game. After requesting that the parent enter a password to provide consent for a single in-app purchase, the child could conduct further transactions for up to 15 minutes without being prompted to provide a password. That might not seem like a wide window through which to make purchase, but consider this: How much could one child spend on in-app purchases in 15 minutes? With prices ranging from $0.99 to $99.99 per transaction, it can add up quickly. One consumer reported to the FTC that her daughter had racked up $2,600 playing the app “Tap Pet Hotel”.
The FTC settlement requires Apple to modify its billing practices by no later than March 31, to ensure that Apple obtains the account holder’s express, informed consent prior to billing them for in-app charges. Furthermore, users must be able to withdraw their consent at any time, although it is not clear from the settlement whether a parent’s withdrawal of consent would void a transaction made by his or her child prior to the consent withdrawal.
While the purpose of these changes is to prevent multiple, consecutive, unauthorized charges after an initial purchase has been made, it appears that at its core, the FTC is requiring that Apple protect unknowing parents from the actions of their tech-savvy children. It is unclear whether these new policies will serve as a barrier to in-app purchases, or whether consent will somehow be gained in a seamless manner that does not interrupt the flow of the game and facilitates the transactions.
The FTC ruling is expected to affect all major app providers. Google, in particular, will likely amend its policies to head off FTC intervention. According to a Consumer Reports investigation, Google currently allows 30 minutes of unauthorized spending after an initial purchase – twice the amount of unrestricted purchase time that resulted in Apple’s fine.
As policies and practices evolve over time, app providers and developers will need to thread the needle between maximizing in-app revenue streams and ensuring that transactions occur with informed account-holder consent and a full understanding of what is being agreed upon. “Threading the needle” may be an appropriate way to describe the challenge to allow for the growth of new models for financial transactions, while remaining within the bounds of what is legal.
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