The proper deconstruction of 11.3 does not refer to a 'physical service'. Instead it is:
11.3 Apps using IAP to purchase (physical goods) or (goods and services used outside of the App) will be rejected
so it is refering to a service 'used outside of the app' and you can't use IAP to purchase such a service. In contrast,
11.2 Apps utilizing a system other than the In-App Purchase API (IAP) to purchase content, functionality, or services in an App will be rejected
a) refering to some service that is, itself, in the app (for example data storage used in an app)
b) referring to a purchase that is made in the app (for example embeding a credit card payment system in an app to purchase any service).
The service in those sections is the product. Payment systems are the billing means.
External service example: actual dog walking....puppy gets killed in a fight with a street car and loses. Apple can't be involved in a customer dispute they have no control over or responsibility for.
Inside the app example: virtual dog walking tracking app - if Apple approves a location aware app that lets the user see where their walker and pet are on a map, and those results are found to be less reliable than promised, Apple is involved, whether the puppy wins a round with the street car or not.
Billing outside the app example: Credit card
Billing inside the app: IAP
You can't bill outside for products consumed inside. You can't bill inside for products consumed outside.