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Friday, August 15, 2014

Amazon launches Amazon Local Register

On Aug. 13, 2014, online retail giant Amazon.com made the rumors official by launching its own mobile card reader. The dongle-based Amazon Local Register is an obvious new rival to Square Inc.'s mobile payment offering and evidence that Amazon is intent on expanding from its online sphere of dominance and into the offline, in-store merchant environment.

Amazon is pricing the reader at $10 and making it available for purchase on its website and in Staples Inc. stores beginning August 19. Amazon is dangling a promotional 1.75 percent transaction fee for customers who use the reader, undercutting Square's standard rate by a full percentage point. The promotional rate is good until Jan. 1, 2016, when a flat rate of 2.5 percent for swiped transactions kicks in. Amazon is also reimbursing dongle buyers with the cost of the reader by crediting the $10 purchase price back to customers' accounts once the readers are in use.

Additionally, the reader and app are compatible with a variety of smartphones and tablets, including Apple devices operating iOS7, Amazon's Kindle Fire tablets and certain Android-based phones. It will also soon be available for Amazon's new Fire phone. The service furthermore sports in-app reporting tools to track sales histories, current trends and other analytics.

Amazon is also providing 24/7 tech support via the Mayday button that comes with Kindle Fire HDX tablets. The reader has a built-in stabilizing feature designed to limit the swivel of the dongle when it is plugged into the audio jack of mobile devices to accept payments. In comparison, Square has been criticized for its lack of customer support and for a reader that may not be as sturdy as competitors' products.

Amazon's dongle users can shop for compatible accessories, like cash drawers, receipt printers and stands, on its website. Amazon's subsidiary Amazon Payments Inc. is managing the reader program.

Amazon versus Square

As a new competitor to Square and other mobile payment firms for the business of micro merchants and small retailers, Amazon enjoys at least one sizable advantage – a vast and loyal customer base.

Nathalie Reinelt, Analyst at Aite Group LLC, said, "Amazon has something that Square doesn't have: an existing user base storing more than 215 million credit cards on file, which along with their brand recognition, should be very attractive to merchants. Amazon would have the ability to convert their online users to offline users fairly easily and likely using mobile payment functionality."

But Rick Oglesby, Senior Analyst/Consultant at Double Diamond Group LLC, believes Amazon will target different market segments than Square. "Square seems to be very focused on the restaurant/cafe space, whereas Amazon's natural strength will be more on the retail side, so they will have some overlap but aren’t likely to be in fierce competition anytime soon," he said.

Both analysts are not surprised that Amazon did not limit its reader compatibility to Amazon devices. "When half of the smartphone population is using iOS and the other half Android, that move would be shooting themselves in the foot," Reinelt said. "Amazon's core business is payments, not hardware."

Oglesby agreed, stating, "There are a lot of existing Amazon merchants that use non-Amazon devices today, and it wouldn’t make sense to turn them away."

A marriage of online and offline

The analysts are also in agreement that Amazon's reader launch makes a potential future acquisition of Square by Amazon an intriguing proposition. Reinelt remarked that, in case of that eventuality, Amazon would replace Square's in-store iPad terminals with its own Kindle terminals.

Meanwhile, Oglesby said the folding in of Square's online marketplace, Square Market, into Amazon's portfolio would represent a "case where the sum of the parts would be greater than the whole." The two portfolios would complement each other, with Amazon gaining such merchants as restaurants, cafes, bars and food trucks, he added.

"As stand-alone businesses, these two companies would build upon their current strengths, which don’t have huge overlap," Oglesby noted. "Together they could build upon their mutual strengths in a synergistic way."

While an Amazon-Square marriage is pure conjecture, it is clear that Amazon's launch of a reader is proof that it is serious about penetrating the brick-and-mortar retail world. How Amazon will go about achieving market penetration remains to be seen, Reinelt said. But it is akin to PayPal Inc.'s approach of "enabling merchants already on their online platform to use their services offline and to support offline merchants who have no online presence," she noted. end of article

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