How Serious is Amazon About Payments?

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The latest Amazon story making lots of headlines is the company banning customers who abuse its generous return policy. Although this story is getting a lot of attention, it’s actually something Amazon has done for a while now. More importantly, the tiny percentage of consumers getting hit with this ban does not mean Amazon is interested in moving away from retail. On the contrary, the company continues to be very aggressive in its pursuit of online (and potentially offline) retail dominance.

One of the latest moves that demonstrates Amazon’s long-term commitment to retail is its latest payments initiatives. Since these initiatives literally caused other payments stocks to drop just a few weeks ago, we want to dive into the details of what Bezos & Co. have in mind for the future of payments.

Going Straight to Retailers

The reason Amazon’s payments announcement directly hit other stock prices is because it involves other retailers. The cornerstone of this announcement is that Amazon is offering to pass along the discounts it gets on credit-card fees to other retailers if they use its online payments service.

While this news came in the form of a Bloomberg report instead of a formal announcement from Amazon, the sources interviewed were very credible. And given how many times Amazon has acted in line with their motto of “your margin is our opportunity,” it’s not surprising that they would trim their payment system profitability in order to get more people using it.

Swipe Fees and Amazon’s Strategy

If you’ve read many of our previous industry posts, you’re probably familiar with swipe fees. These fees, which account for a small fraction of transactions involving cards, add up to over $90 billion a year. While many large financial companies derive a significant amount of their revenue and profit from these fees, Amazon doesn’t have to play by the same rules. Instead, they can reduce their swipe fee take and use this differentiator as a major marketing opportunity to get merchants on their payments platform.

Given that tens of millions of people already use Amazon Pay but far less merchants are on the platform, it’s easy to see why the company is willing to be very aggressive in their recruiting. In terms of their overall strategy and long-term goal, a good company to look at for comparison is WeChat Pay in China. WeChat has become the dominant digital payments option across a wide range of platforms and use cases.

For Amazon, this dominance would take the form of a single checkout button across the Internet. As you may remember, that’s also something Visa and Mastercard are trying to create through their recently announced partnership.

Given how successful Amazon has been in so many different areas, it would be a mistake for any payments company to underestimate them. For merchants, the best way to benefit from this competition across the payment processing industry is to compare multiple processors and choose one with the right balance of competitive rates and features.

Posted on Friday, June 1st, 2018