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PayPal Tumbles As Amazon Muscles Into Digital Payments

Amazon is breaking out the classic Jeff Bezos playbook as it seeks to steal some more market share and claw business away from PayPal and credit-card issuing banks, while establishing itself as master of the “single button” digital-payment solution of the future.

Case in point: Bloomberg reports that the e-commerce giant is offering retailers who sell products on its platform a discount if they use Amazon’s newly revived Amazon Pay system for processing digital payments.

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Amazon’s ultimate goal: To capture a piece of the “swipe fee” market, which is a $90 billion-a-year business for banks like JPMorgan and Citigroup. Networks including Visa Inc. and Mastercard Inc., and payment processors like First Data Corp. and Stripe Inc., pocket a tiny fraction of every sale whenever investors swipe or click “buy now.”

Retailers like Wal-Mart and Amazon have typically been able to negotiate discounts from payment processors because of their market heft. Now, Amazon is offering to pass its discount along to retailers that agree to use its system. Typically, the financial industry’s fees amount to about 2% of credit-card transactions and 24 cents for debit.

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.

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.

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.

Amazon Pay has attracted more than 30 million users since the company revived it back in 2013. The service allows users to load in their Amazon Pay info on other sites, allowing Amazon to grab a piece of e-commerce sales on other websites.

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As Bloomberg explains, Amazon’s aggressive push into the space is part of a battle between tech and traditional financial firms to develop the dominant digital payments system, something similar to Alibaba’s Alipay or Tencent Holding’s WeChat Pay in China.

Last month, Visa and Mastercard announced a partnership to create their own online checkout button as Visa abandoned a separate venture called Visa Checkout and Mastercard abandoned its Masterpass initiative.

The news sent PayPal shares spiraling lower in late-day trade:

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Source: zerohedge.com

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