As e-commerce continues to expand, online merchants are seeking payment solutions that reduce checkout friction while keeping transaction costs under control. Digital wallets and one-click payment experiences have become essential tools for improving conversion rates and customer satisfaction. Amazon Pay is positioning itself as a competitive alternative by combining a familiar checkout experience with incentives designed to lower payment acceptance costs for merchants.
Amazon is said to be giving merchants a break on payment card fees if they use Amazon Pay for online transactions. The following Bloomberg story reports that Amazon is looking at this merchant incentive as a way to boost online market share.
Amazon.com Inc. is offering to pass along the discounts it gets on credit-card fees to other retailers if they use its online payments service, according to people with knowledge of the matter, in a new threat to PayPal Holdings Inc. and card-issuing banks.
The move shows Amazon is willing to sacrifice the profitability of its payments system to spread its use. Swipe fees are a $90 billion-a-year business for lenders such as JPMorgan Chase & Co. and Citigroup Inc., networks including Visa Inc. and Mastercard Inc., and payment processors like First Data Corp. and Stripe Inc., which pocket a fraction of every sale when shoppers swipe cards or click “buy now.”
The financial industry’s fees amount to about 2 percent of a typical credit-card transaction, or 24 cents for debit. But big stores such as Amazon and Walmart Inc. have long been able to negotiate lower rates for themselves based on their massive sales volume. Now, Amazon is offering to pass its discount along to at least some smaller merchants if they agree to embrace its Amazon Pay service, said the people, who asked not to be identified because they aren’t authorized to discuss the plan publicly.
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, enabling them to 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.
So the battle continues among payment providers for the Holy Grail of online shopping—the friction-free, one step payment button. Recently, Visa and Mastercard announced their plans to establish an unbranded payment button that online shoppers could use upon checkout. PayPal is the leader in streamlined online payment methods and attracting a lot of competitors. Now Amazon Pay wants to increase their volume, perhaps by using merchant fee incentives as a way to achieve it. All this jockeying shows how card networks, issuers, and other payment providers want an even bigger piece of a growing pie.
Competition among digital payment providers continues to intensify as merchants look for solutions that balance convenience, security, and affordability. By leveraging its large customer base and offering payment processing incentives, Amazon Pay aims to strengthen its position in online commerce while giving merchants another option to simplify checkout and potentially reduce payment costs.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
