Amazon Payments

Today Amazon announced a card reader that competes with the likes of Square, compatible with both Android and iOS devices.  This new foray fits the "fast follower" pattern we've seen with Amazon for tablets, streaming content, set-top boxes, etc.  When they see a need that's not being filled, or in this case can be filled better, they dive in.  Where Square charges 2.75% and PayPal charges 2.70%, Amazon will initially charge 1.75% then eventually 2.50%.  This will put added pressure on Square, which is already struggling.  Amazon picks a business then drives down prices, which customers love and competitors hate.

But all these payment companies are giving away most of their revenue to the likes of Visa, MasterCard, and Amex.  In fact, most of emerging payment technologies are still backed by credit cards, so the processors can't be avoided.  A few, like PayPal, have tried to rely on ACH, which a cheaper way to process payments.

One of my favorites in this area is Dwolla, a payment processor I first wrote about in 2011.  They charge a flat $.25 for transactions over $10 and payments under $10 are free.  Today, CEO Ben Mine was on Fox Business Closing Bell to say he didn't mind the competition from Amazon.

Just as eBay acquired PayPal, Amazon should buy Dwolla or a similar payment network.  It certainly would help keep costs down if Amazon could cut credit card companies out, something all retailers want.  By that same token, perhaps MCX might consider a similar move.  Retailers are desperate for a secure, convenient way to take payments without high fees.


Hi David,

Great article. Two points

1/ As ever, EMV Chip&PIN (pretty much a requirement for in-store use in countries which have moved to Chip & PIM) isn't available right away for Amazon Payments (nor most new payment processors). Not surprising, there is hardware/software certification process and if the tablet/phone drives too much of the processing then you pretty much have to prevent any additional apps from being installed and copy with IOS/Android updates to maintain certification, or make add-on card hardware fairly autonomous and include a keypad.

In the UK banks typically will rent you a complete PCI DSS compliant EMV setup if you are a small/medium shop trader so why bother with anyone else, except for your website?

2/ In the UK at least, PayPal has been pushing the local equivalent of ACH ("Instant direct debit" by VOCA/BACS, linked to "Faster Payments" work I think).

The signup process is complex (and therefore unlikely to be popular): to authenticate you own the account, PayPal "loans" you £1 in two unequal transactions to your bank account to create an auth code and you have to type in the two transaction amounts once you have your bank statement. Access to the bank statement proves you own the account, although it is open to some social engineering if you have telephone banking or your bank statement is stolen.

Setting this up does make moving money to/from the bank easy, although PayPal will always default instant direct debit for all future transactions, which is annoying if you want to put all your transactions onto credit card with a loyalty feature or cashback based on spend.

PayPal does not offer me many benefits to prefer to use Instant Direct Debit, otherwise I would use it.

Posted by Miles Thomas on August 18, 2014 at 07:18 AM CDT #

Good info, Miles. I have also read that some think Amazon's payment processing is not meant to make any money; rather, it was built to snoop on transactions so Amazon can see what's selling well. That seems a bit too devious to me.

Posted by David on August 18, 2014 at 08:16 AM CDT #

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David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.

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