Amazon.com launched a beta version of Amazon Flexible Payment Service. It extends the company's previous payment system, Amazon Payments, into a full-blown Web-based solution that can be used by other Web sites.
Rumors of the new service surfaced on GS Online's MLS Forum Aug. 2, 2007; Amazon spokespeople refused comment until Aug. 6. Amazon Flexible Payment Service is seen as a competitor to PayPal and Google Checkout.Previously, Amazon.com customers were able to purchase goods from third-party sellers on Amazon's site.
With the new service, other Web-based merchants can use Amazon's payment system. This allows them to send and receive money using credit cards, bank accounts or an Amazon Payments balance transfer, with Amazon receiving a fee for every transaction.
Amazon customers can now use their Amazon.com passwords and payment information on file with Amazon to pay for goods and services ordered through third-party Web sites. They do not need to access www.amazon.com first.
Deutsche Bank Analyst Jeetil Patel stated in a recent buy alert that Amazon's pricing model on bank debit transactions has a lower markup than PayPal's.
Amazon's charges for credit card purchases (1.9% to 2.9% plus $0.30 per transaction) are similar to PayPal's. But Amazon's debit card fees (2% plus $0.05 per transaction) undercut PayPal's.
The new payment system operates under the umbrella of Amazon Web Services, a new division that allows other businesses to rent on-demand the Web services Amazon has developed.
Scott Devitt, a Stifel Nicolaus Analyst, published the following in response to Amazon's announcement: "In the long term, we believe that the card companies and certain categories in the traditional retail channel have the most to fear about the activities by technology-driven online innovation."
Aite Group LLC Analyst Adil Moussa predicts Amazon will face an uphill battle versus PayPal and Google Checkout. "There certainly are some compelling reasons that Amazon -- with their millions of customers -- could earn success with a seamless purchasing system," he said. "But I'm still skeptical."
Moussa said Amazon would be stuck "competing between a payment-focused company on one hand, and a deep pocketed company that can afford to lose money on its payment service for a number of years on the other."
He suggested Amazon, with its thinner profit margins, would have a hard time competing with PayPal's strong focus on the payment business, as well as with Google's "ability to subsidize its payment processing business and offer discounted rates to merchants."
Moussa said undercutting PayPal on certain transactions will be popular with merchants, but PayPal has been extremely responsive to the marketplace.
"If Amazon's pricing turns out to be important to merchants, I would anticipate PayPal reacting to that quite quickly," he said.
He believes that to succeed Amazon will have to emulate PayPal's practice of aggressively pursuing large merchants. "I don't see that as part of their business model," he said. "I think their focus is mostly on their current partners."
Others argue that Amazon's huge customer base (reported to be in the tens of millions) and brand recognition will help it reach a large number of consumers who have already entrusted the company with their payment and financial details.
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