In August 2014, online retail giant Amazon.com launched 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 intends to expand from its online sphere of dominance to the brick-and-mortar merchant environment.
Amazon priced the reader at $10 and made it available 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.
The reader and app are compatible with a variety of smartphones and tablets, including Apple devices operating iOS 7, 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.
As a new competitor in the realm 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."
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.
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