Amazon Getting Pieces in Place for Next-gen Payment System?

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amazonreader-inline1 2Amazon Fire. Amazon Wallet. And now: an Amazon Card Reader.

At first glance, many are seeing Amazon’s new card reader as a competitive move against the likes of Square and PayPal. But this is actually a tiny start to a bigger vision.

Amazon’s vast reach can make its card reader matter in a variety of interesting ways. It starts with the company’s distribution network, its pre-existing payments platform, and its customer (credit card) base. Next, it’s been not-so-secretly building tech in the payments arena for quite a while now — Amazon has had a PayPal-esque Amazon Payments API and button since 2007. The company’s hosted ecommerce platform, Amazon Webstore, has been in market since 2010. And last year, it acquired some POS/wallet tech from GoPago, on top of having wallet javascript APIs.

Combine all of this with the fact that it has over 200 million cards on file and you quickly realize it’s a no-brainer for the company to extend more into payments with the card reader’s swipe technology.

Amazon already supports some of the largest startups in the ecommerce and payments space. Its current payment APIs and the fact that its AWS platform is API-driven already is a good thing. That means Amazon thinks in APIs — it’s the company’s normal operating mode. So, what does it mean if Amazon opens up the swiper and future technology to developers? Of course, there are many precedents remaining for this to happen what with their current payments and AWS platform, but I think their mode of operating will continue on with the introduction of its card reader.

Compared to Amazon, very few companies can compete at scale and have a developer-focused strategy in place. Because of this, the real competitor Amazon is hedging against is Apple, which has been making strides to enter the physical payments world. Existing Apple technologies like Passbook, iBeacon, and TouchID could be key centerpieces for a stellar payment system. And the company already has the love and support of developers around the world, who are building some of the best merchant-facing apps available. And Apple also has four times as many credit cards that Amazon has on file — a mind-boggling 800 million!

I see a future where mainly Apple and Amazon are what developers are building off of, with PayPal close behind, then Square. All of these companies will continue to create ecosystems around their payment plus commerce APIs. And the traditional payment processors will either acquire and staff up tech units to innovate and integrate — as Square is now doing with their acquisition of BookFresh (now the recently released “Square Appointments”) — or slowly fall off the map. Larger, old school payment companies, traditional ISOs, meanwhile, are being forced to get defensive, as they don’t have technical expertise in-house. You either have that in your DNA or you buy it.

What about Google,? It can be a player if it gets its payments act together. Google has shown a lot of interest in payments, but it doesn’t have a great track record. While it has a full Wallet API, it also cancelled its Checkout product and passed it over to Braintree, now owned by PayPal.

Google does have massive reach with Android, and if enough retail locations picked up Google’s Wallet product as the preferred method of payment, it could get interesting. But up to this point, Google hasn’t had great success, likely because its offerings aren’t any more effective than pulling out your credit card and swiping. Nowadays a payment alternative needs to be either seamless or have immediate benefits for the customer.

What could put a wrench in Amazon’s plans however is that current merchant perception of the company is not great. “They’ll use our data to sell to our customers on” is a frequently voiced concern. If that were to swell up as a collective voice, it’d be hard to overcome. At that point you’d still see smaller merchants taking the bait but not the larger merchants.

Obviously the other players in the space, especially PayPal and Apple, will be hyper-aggressive in their efforts to prevent Amazon from securing market share in their arena. Apple and PayPal can use their existing distribution channels and large amounts of capital to prevent Amazon’s entry from getting off further off the ground. PayPal has gone to free processing before as a competitive tactic, and I can see it happening here.

If Amazon doesn’t allow for integrations into third-party tools, that could make adoption difficult as well. Without the ability to integrate into other services there would be no chance for Amazon to tie into the Point of Sale solutions in market collectively serving millions of larger merchants. That would mean missing out on about 48% of credit card transactions in the U.S. and instead focusing on the 25 million micro-merchants that make up 2%. I think Amazon’s ambitions are larger than that. Given their track record, I think most would agree.

Nate StewartNate Stewart is the founder and CEO of Zing. He has a long history of helping SMBs grow from humble beginnings to multi-million dollar successes and has a soft spot for ecommerce. Send any questions his way at: [email protected]