DEFINITION of 'In-App Purchasing'

The purchase of goods and services from an application on a mobile device, such as a smartphone or tablet. In-app purchases allow developers to provide their application for free, while providing anyone who downloads the free version the opportunity to upgrade. Because the developer can always add new features and content to the application after it is downloaded, application users won’t have to download a different application later.

BREAKING DOWN 'In-App Purchasing'

In-app purchasing allows application owners the ability to upsell application users from within the application itself, rather than through other marketing channels. For example, a game application may offer the user the ability to skip a particularly difficult level for a fee. The owner may provide consumers with the ability to view premium content that is behind a pay-wall. Consumers making purchases through an application do not have to visit a separate website to conduct the transaction.

Some application stores, such as Google Play or iTunes, allow users to download applications that allow in-app purchasing, but typically let the user know that an application has this feature. Some have policies allowing refunds if they are requested soon after a purchase is made. Application stores often take a percentage of the in-app sale.

Because in-app purchases are conducted through a mobile device, unauthorized purchases can result in security issues. This is especially the case if the username and password used in the application are not strong, and if credit card information is stored in the app in an insecure manner. Many applications will email a receipt after a purchase is made, which can allow a fraudulent purchase to be stopped.

Regulators have taken a keen interest in in-app purchasing. One of the primary reasons for this is because many children have access to smartphones, and children may make in-app purchases that their parents do not want.

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