Amazon Payments persuades small retailers to work with Amazon
April 1, 2016 10:38 AM
(Bloomberg) -- Amazon.com Inc.'s relaunch of its online payments business in 2013 was greeted with skepticism. PayPal Holdings Inc. had a huge head start and credit card companies like Visa Inc. already had products that made buying something on the Web as easy as swiping a card.
It seemed doubtful digital shop owners would want to team up with Amazon and share valuable information about their best-selling products and prices. And yet: "There's a market for selling your soul to the devil," said Gil Luria, a Wedbush Securities analyst. "When you accept Amazon Payments, you get access to the coveted Amazon customers. The trade-off is you are opening your kimono to your biggest competitor."
It's a risk some companies are willing to take. Amazon does not disclose the number of businesses using Amazon Payments, but since the service launched in 2013, more than 23 million customers have used their Amazon accounts to pay for things on other businesses' websites. Southwest Airlines Co., Gogo Inc., which provides in-flight internet access, and Comcast Corp.'s online tee-time booking site GolfNow all use it. Their ranks tripled in 2015, Amazon said.
Many small businesses say that Amazon Payments saves their customers time and hassle, and that's enough for them. "It's an order saver," said Peter Grant, general manager of AuthenticWatches.com, which sells watches that cost thousands of dollars. About a quarter of his orders are paid for through Amazon accounts. Grant doesn't have to verify the identities of his customers; Amazon does it for him.
Amazon’s payments business is following a typical script. The company launches a new product or service with little fanfare and slowly builds it, forsaking profits as long as it sees potential. This is how the company built its online video-streaming business, among others.
Last year, Amazon hired Patrick Gauthier from PayPal where he ran emerging retail services. He's now leading the expansion of Amazon Payments.
"Why would we make it easy for customers to buy elsewhere? Because we know it solves a problem in their life," Gauthier said. "It is the same logic as video. It deepens our relationship with customers."
Amazon wants to capture as much business as possible from consumers shifting their spending from stores to desktop computers and smartphones, even if the transaction isn’t done on Amazon.com. Processing payments is another way to do that by charging merchants 2.9% plus 30 cents for each transaction handled by Amazon.
PayPal is still the number one choice for online payments, processed $82 billion in transactions for nearly 180 million shoppers. But some independent businesses say that when they offer Amazon Payments, customers choose it over PayPal.
Online women’s clothing store Red Dress Boutique, No. 678 in the 2015 Internet Retailer Second 500, added Amazon Payments to its website in April and within a week, about 20% of all orders went through the service, surpassing PayPal, said Josh Harbour, who co-owns the company with his wife Diana.
"It’s easy to think of Amazon as a big bad competitor, and that’s true," Harbour said. "But merchants have to find ways to compete with them in some areas and work with them, too."
R. Riveter, a North Carolina company that sells bags made by the spouses of U.S. soldiers, switched from PayPal to Amazon Payments in February, two days before the company was featured on the television show "Shark Tank." In anticipation of the show airing, founder Lisa Bradley expected a surge in orders, prompting the switch.
She says about 30% of customers chose to pay with Amazon since the conversion, compared to the 13% share previously handled by PayPal, which the company had been using for about three years.
Small businesses may like Amazon Payments, but larger retailers will never sign on, said Jordan McKee, payments analyst at 451 Research. "We will never see Walmart or Target take any measure to align themselves with Amazon," he said. "It’s retail suicide."
Amazon is No. 1 in the 2015 Internet Retailer Top 500 Guide.