Commentary

Large Merchants To Amazon: Like The Fox In The Henhouse

What a difference a day makes!

Twenty four hours after PayPal announced its “Payment Code” update, Amazon threw down the payments gauntlet and sprung its Log in and Pay with Amazon online payment service. And, it’s for real. One of its first partnerships is with Gogo – the in-flight Internet service. Sure enough, as I went-went to Gogo on a Delta flight yesterday, I couldn’t help but notice the not so little Pay with Amazon icon is clear as day – in the top slot, by the way.

Now, some people are in a big tizz about this, and the media is just fanning those flames. Oh, they say, the PayPal killer has arrived! Finally, Amazon has done what we knew it was going to do all along and get into payments (P.S. Amazon has been into payments since it launched). They have more digital wallets on file than PayPal has (they say 215 million), second only to Apple, and so are positioned to win!

If it were only up to consumers, maybe they’d be right. But, as we all know, it’s not that easy in payments.

Here’s my very quick take on this news.

It’s a big announcement – for sure. I love Amazon and its one-click purchasing. It makes shopping online so incredibly easy if I know exactly what I want to buy, and those things are sort of commodity-ish and a pain to get – my fancy-schmancy shampoo and conditioner, mascara, running socks, even perfume. Buying on Amazon saves me a trip to the four inconvenient stores I would have to schlep to get those items. The shipping is free since I am enrolled in Prime, so it is a no-brainer. And, then there’s books! Taking care of all of that stuff is a really great experience, on Amazon.

Off Amazon, the consumer experience may be the same, but there are other larger and even more insurmountable challenges that have nothing to do with how much consumers like the service.

Let’s say that Pay with Amazon is rolled into its web store service – how incredibly easy it will be for small merchants to leverage Amazon’s 215 million accountholders! Sounds good, right? Not only will those merchants get a turnkey web store enabled with a payment method that 215 million people have access to, they’ll be able to sell stuff on their own sites and be broken free from the steep commissions that Amazon charges when that merchant’s stuff is sold on Amazon. But, those merchants will have to figure out how to drive traffic to those storefronts – and that’s sort of the bummer. No doubt, this will be of great appeal to those small merchants eager to build their own web presence and have a simple way for their customers to pay for stuff. Or, for merchants with a captive audience like Gogo.

The big merchants will likely push back and hard. I would imagine that they would rather stick hot needles in their eyes than see an Amazon acceptance mark on their sites. To do so would, to use a trite cliché, be sort of like inviting the fox into the hen house. Remember showrooming? That little concept that was “pioneered” by Amazon and aimed right at the hearts of big merchants??? Well, you can bet that merchants sure do, and I wouldn’t need many fingers to count how many of them would be lining up to be the next Circuit City, Best Buy or Borders! In this case, the “promise” of 215 million digital wallets marching into their virtual storefronts only makes the big merchant fear factor worse!

So, is Pay with Amazon an important development? Yes, it is. Is it the PayPal killer? I don’t think so.

Now, don’t get me wrong though. Amazon’s 215 million accounts and its one-click payments are an incredible asset for making a massive payments play. Add to the scary column the notion that a large fraction of those accounts are regularly used because people buy a lot of stuff on Amazon – even when they are standing in a physical storefront – and you have a base of active digital wallet users. The combo play of one-click and 215 million accounts should be a worry for anyone that wants to be a major digital wallet player. The problem for Amazon though is that it is a COMPETITOR to almost every significant player that could benefit from having those customers march into their virtual storefronts. Sure, PayPal is owned by eBay and eBay is also a retailer, but it doesn’t really compete like Amazon does with large retailers.

Since it’s Throwback Thursday, to give you a little history lesson, when Discover was owned by Sears, even it had a tough time getting accepted at Sears’ competitors. The same will be true for Amazon times like a million or maybe 8 million.

But, it does for once and for all answer the question, “What is Amazon doing about payments?” and it gives all of us one more player to talk about and track. Now, if only we knew Apple’s answer to that question … the one player that could strike fear in the hearts of everyone and doesn’t come with all the baggage.

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