Amazon Offers Retailers Discounts to Adopt Payment System

Amazon
Amazon

SEATTLE – Amazon is offering to pass along the discounts it gets on credit-card fees to other retailers if they use its online payments service, Bloomberg reports, citing people with knowledge of the matter. 

An Amazon spokeswoman declined to comment. It couldn’t be determined how many retailers have received Amazon’s offer for discounts. The company typically tests such initiatives before rolling them out broadly, Bloomberg reports.

Previously, online merchants using Amazon’s service have paid about 2.9 percent of each credit-card transaction plus 30 cents, which is divvied up among Amazon, card issuers, and payment networks. As part of its experiment, Amazon is offering to negotiate lower fees with merchants making long-term commitments to use the service, according to one person familiar with the matter.

Analysts say the news is a blow to PayPal Holdings Inc. and card-issuing banks – and that it shows Amazon is willing to sacrifice the profitability of its payments system to spread its use. 

Shares of PayPal dropped 4.1 percent after the news broke last week. Mobile payments company Square Inc. saw its shares dip nearly 3.7 percent. Visa fell 0.9 percent.

Steven Anderson, a writer with Paymentweek.com, writes that if Amazon can get more users behind Amazon Pay, it’s “definitely going to be a bit of a sock” to PayPal and credit and debit card issuers. 

“That’s the case no matter what, even though PayPal isn’t really an option on Amazon directly,” Anderson says. “However, Amazon Pay might have a tough time getting anywhere with the end user; sure, it will be useful to have another option, but Amazon Pay is mainly an outbound payment system. PayPal, by comparison, works both ways, allowing users to not only pay but get paid through it. 

Anderson says Amazon Pay has its work cut out for it, “trying to breach a hole in a saturated payment market. Its plan to serve as a loss leader, however, may get some interest behind it, enough to make it a viable alternative.”

Insiders say Amazon is able to export the rates it has negotiated with banks and payment networks because, like PayPal, it’s acting as a so-called payments facilitator. That means it aggregates smaller merchants to help them reduce the cost of accepting electronic payments.

Bloomberg reports that Amazon Pay, which has attracted more than 30 million users since the company revived it in 2013, lets online shoppers log into their Amazon accounts from other websites, letting them complete the transaction using credit cards and delivery addresses already stored rather than having to enter them again. For Amazon, that means drawing additional revenue from e-commerce sales on other sites.

Analysts say the service mostly appeals to smaller merchants who benefit from the trust shoppers place in Amazon, as well as minimizing the data entry required to complete a mobile transaction. Customers include Gogo Inc., which provides in-flight internet access.