The Amazon Effect On … Payments

We spend a lot of time talking about the impact of the “Amazon Effect” on traditional retail’s current misfortunes. But there’s another “Amazon Effect” which goes largely ignored, and which could be even more disruptive. As we heard Amazon’s VP of Payments, Patrick Gauthier, tell me last week at The Innovation Project, Amazon is thinking well beyond the “buy button” to a new commerce interface that has the potential to put the company in the middle of commerce every place a consumer wants to buy, using the most natural buying interface there is — the voice.

Just not paying for those purchases using the digital payments methods you’re all hawking right now.

The other “Amazon Effect?” — the Amazon Effect on Payments.

Happy Monday.

First, a little context.

The Amazon Effect on Retail

You know the typical tale of woe told by many of retail’s walking dead all too well by now. But let me add my two cents.

It’s a story that portrays Amazon as a powerful online force. But it’s a narrative that its storytellers still say offers hope from the Census Data — which, at last count, reported that about 92 percent of retail sales still happen in physical stores. This story is told despite reports of massive store closings in the face of falling foot traffic — down 50 percent since 2010, by some estimates — and the sea of red ink that has come to define traditional retail’s bottom lines.

As readers know, the Census Data on retail sales underestimates online sales. And for some categories, the in-store/digital split is jaw-dropping. Books, office supplies, apparel and sporting goods show online sales that approach 30, 40 and even 60 percent for those same categories in retail sales. Even grocery sales are starting to shift online — admittedly a very tiny increase at about one percent in 2016 — but which are projected to grow by double digits as it becomes more convenient for consumers to trade buying bulky commodities like paper towels and laundry detergent in a store for a more convenient online experience that ships those items to them instead.

Some of that shift is truly the Amazon Effect on retail. Since every story needs a protagonist, it’s easy to cast Amazon in that role. But the subplot to this story is that many retailers aren’t really giving people a reason to go to their stores anymore. The stores that used to be showrooms for the latest and greatest merchandise have become graveyards for stuff that hasn’t sold (aka stuff consumers don’t want until it is marked down to next-to-nothing prices). Consumers have lost their incentive to make the trip to the store since there’s nothing new to see and, therefore, nothing new to buy — so why bother?

Quite naturally, the good brands say “Why bother?” too and shift their focus to the places that consumers now go to shop.

In some cases, that’s their own branded physical stores or websites, where they can control the experience and the merchandising. The rise of the direct-to-consumer retail model is exploding, with 40 percent of all manufacturers now using this model to reach consumers.

It also occurs via the many new digital marketplaces that have become the modern shopper’s department stores: sites like Net-A-Porter, FarFetch or Moda Operandi that aggregate brands and curate outfits in a virtual storefront where merchandise is refreshed daily.

And Amazon.

Those still living under the delusion that designers would rather cut off their limbs than sell on Amazon might want to take a quick spin over to Amazon Fashion. There, you’ll find contemporary designer brands like Michael Kors, Stuart Weitzman, Ray Ban, Vince, Theory, Rebecca Minkoff, J Brands, True Religion — to name but a few — selling the very same products sold in their stores and/or on their very own websites, right there on Amazon Fashion. Making sales has a funny way of getting brands to buy in — pun intended.

All of this, of course, is happening at the same time that online sales are growing at triple the rate of in-store sales — according to latest Census stats, 14.3 percent last year against in-store sales growth of roughly four percent. Sure, that’s rapid growth on a small base, but a base that, as I mentioned earlier, is delivering a world of hurt to some sectors already. And it’s growth in a channel that’s coming at the expense of traditional retail’s operating margins — by some estimates — slicing those already fragile margins by as much as 25 percent.

Concurrently, Amazon appears to be cornering the share of those online sales. Last year, the company captured 53 percent of the overall online sales growth in 2016 and accounted for 43 percent of all online sales.

Amazon is also reshaping consumer’s expectations for retail service. For instance, Amazon Prime customers get their orders in two days, and they get it shipped to them for free. Free shipping in traditional retail isn’t really free at all — it comes with a price tag measured by twice as many days as it takes Amazon to ship products to a consumer. So it’s not too surprising that more and more consumers start their buying journeys on Amazon. Our research of more than 2,000 consumers in 2015 reported that 55 percent of all consumers started their search on Amazon. A year later, it wouldn’t surprise me to find that number well north of 60 percent.

Additionally, Amazon Payments is moving off Amazon to other retail sites to offer those consumers the benefit of their one-click checkout experience. Sites that accept Amazon — 10 percent of the top 1,000 retail sites by our last count — eliminate checkout friction by prompting check-in, using the familiar Amazon log-in. Bypassing the retailer’s own log-in entirely, once consumers are ready to checkout, they’re one click away, using their registered Amazon card and shipping preferences pre-populated.

And, finally, all of this is happening at the same time that Amazon’s building an entirely new voice-activated ecosystem — Alexa — that’s intended to recast the consumer’s commerce experience. Alexa and her ecosystem is not only intent on taking commerce anywhere that a consumer is able to access her, it’s using Alexa to make commerce contextual and conversational, ushering in an important, yet subtle, shift in the commerce experience for both consumers and brands.

Alexa abstracts the buying environment by transforming it into a relationship between the consumer and the brand a consumer wants to buy via a friendly interface named Alexa. Not a consumer and a website. Not a consumer and even Amazon’s website. But a conversation that consumer is having with Alexa about buying something.

“Hi, Alexa, I want to buy a pair of black suede Louboutin’s — the ones with the 3.5 inch heel in a size 35 — who has them in stock?”

“Hi, Karen, (she knows me via voice printing) I see they’re in stock at Saks in Boston for pick up today; Neiman’s only has the higher heel in stock, but they can be shipped out tomorrow. has them in stock, and if you buy from them today, they’ll ship them overnight to you at no charge. Which do you prefer?”

With Alexa in that scenario, Neimans and Saks and Mr. Louboutin don’t have to co-mingle their merchandise on Amazon, or even have the Amazon button on their site to enable that purchase. All they need is a skill inside of the Alexa ecosystem.

And if consumers want to buy that way from Alexa, why would those brands and those retailers say no?

Which brings me to the “Amazon Effect” on Payments.

The Amazon Effect on Payments

Today Alexa is a voice on the other end of a growing list of devices: at home via Echo and the Dot, on the road with Amazon Tap — even in the car and in the browser.

And as of last week, Alexa’s on the iPhone via the Amazon app — one of the most downloaded and used apps in Apple’s app store.

RBC Capital Markets issued a report two weeks ago that estimated the size of the Amazon Alexa market. They project that by the year 2020 — just three years from now — there will be 128 million Alexa Echo, Dot and Tap devices globally and 500 million active Alexa users via those devices. This is exclusive of users who access Alexa via apps in the car, the browser, the Amazon app itself or the many other hardware/software environments that will likely emerge over that period of time. Alexa, as we’ve observed, is a fast-moving train. Two years ago, there were less than one thousand skills on Alexa; last year this time there were five thousand; this year there are more than eleven thousand.

Those users, RBC says, are also using Alexa to buy stuff.

As part of their analysis, they surveyed Amazon customers to ask about their interest in using Alexa to shop. They found that 17 percent use it already — my guess is that’s mostly food delivery or the purchase of simple things from Amazon itself. RBC believes that the percent of commerce attributed to Alexa will only increase and will drive incremental sales of existing Amazon customers by 15 percent, simply because it’s easier to shop using her. They estimate that incremental lift to be $5 billion a year.

That’s $150 million more than the entire annual revenue of Under Armour in 2016.

That’s also not including what might happen if everywhere Amazon was accepted off Amazon Alexa went along for the ride.

What does all of this have to do with payments, you ask? Well, it all depends on who’s answering.

If you’re an issuer or a card brand, you’re probably not sweating all that much yet — but hold that thought. Amazon users register those cards on file today, and where Amazon and Alexa go, those card credentials follow and are used to make those purchases.

If you’re one of the “Pay” players, you might be sweating — and sweating a bit more now that it’s quite apparent that Amazon and Alexa want to meet consumers and commerce anywhere they might want to do business. Remember when everyone was worried about Apple as the big, bad payments and commerce gatekeeper? Today, that powerful new intermediary is Amazon.

Think about it. How does one get to use Amazon on a site off Amazon? By checking in with an Amazon account. How does one get to order Dominos from Alexa? By first registering an Amazon account with them. Those same Amazon accounts that don’t today include any of the mobile wallet “Pays” that Apple, Android, Samsung and PayPal would like consumers to use when ordering pizza from Dominos online.

Amazon, like any other merchant or merchant services platform, will make decisions about payment methods on the basis of what adds value to their consumer experience and eliminates friction. Retailers  too. If consumers aren’t using the “Pays” to shop online today — which with the exception of PayPal they really aren’t — not being able to use those Pays with their Amazon accounts or Alexa is something consumers won’t even notice they’re missing. Retailers won’t care either.

There is one exception — and another player whose name starts with an “A.”

If I were Alipay, I’d be investigating short-term rentals in Seattle and not leave until a deal to allow Alipay to become a payment option inside of Amazon was done. For Alipay, it’s a key merchant win for the Chinese consumer who seeks alternatives to Alibaba’s online marketplaces to spend their growing piles of disposable income.

For Amazon, it’s the fastest way to close in on a billion consumers — Amazon’s existing 300 million, plus Alipay’s 450 million, plus the hundreds of millions of others that Alipay is enabling (like India’s Paytm) who like to shop and spend a lot online. It’s also Amazon’s back door into China via a powerful Chinese company that’s struggled to succeed outside of China. And who, in the face of the MoneyGram uncertainty, might like to put a big score like this in the win column.

Access to those consumers, of course, is also a new incentive for merchants to play with Amazon — on Amazon, off Amazon and with Alexa. New consumers with money to spend is just what the retail doctor ordered too.

Making, at least for now, a bit of a gloomy picture for the Pay Players who, for Amazon, just represent a layer in between the cards on file that their consumers already have registered with them and a friction-free checkout.

The Amazon Effect on Payments

Some have said that the real risk to payments is Amazon flipping all of its many cards on file to DDA-accounts on file. I doubt it. Why create friction for consumers, when they can, instead, create friction for the card networks and issuers to negotiate better deals?

Look no further perhaps than the new Visa-branded, Chase-issued Amazon Prime Card that runs over ChaseNet, as one example.

I got one when it was first introduced. It’s a great-looking card, has amazing cash back benefits, and, given the economics of the Chase/Visa deal, I’m sure with very competitively priced terms that favor Amazon. Terms that are part and parcel of the ten-year deal that Chase and Visa signed — now 4 years ago. Terms that will likely serve as critical thresholds as negotiations between the networks, the Pay players and Amazon happen over the next three to five years. Deals that will likely include the same sort of “tariff” that Apple set when it launched Apple Pay. And perhaps a new business model that provides an incentive for me, in my example earlier, to pick Saks over Neiman’s — funded by the issuer or the network. All setting the course for commerce for the decade to follow.

Unless, of course, a serious rival to Amazon emerges. At the moment, it’s crickets in that department, despite a few players out there with the scale and assets and potential to change the field of play. If you’re reading this and you’re one of them, now might not be a bad time to let the world in on your plans. Otherwise, the only commerce playing field that might be left are the ones in the space that Bezos has decided not to pursue. Mars and the moon are already taken.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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