Next Target for Amazon Is Credit Card Readers at Stores

 
The king of online retail is flexing its muscle to win over Mom and Pop.

Amazon, the online retail giant, on Wednesday announced its own take on a credit card reader, pushing the company into the crowded and complicated world of mobile payments. Already, many companies are elbowing one another to win the trust — and millions of business transactions — of small and medium retailers the world over.

The new product, Amazon Local Register, is a black, compact rectangular card reader stamped with Amazon’s logo across the front. The $10 device plugs into a merchant’s smartphone or tablet, and works in conjunction with a smartphone app to process and track all of a merchant’s business transactions. It also comes with an enticing offer: lower processing fees.

The device is a new stomping ground for Amazon, which has expanded its online storefront over the years to include goods of nearly all sorts — books, furniture and electronics, to name a few. While many of the products on Amazon.com are sold directly by Amazon, which is based in Seattle, the site also lists products sold and shipped by smaller retailers.

And that, some analysts say, is why this move was not entirely unexpected.

“So much of this is about Amazon building platform lock-in,” said Heath Terry, an Internet analyst with Goldman Sachs, who said the Local Register card reader was just one more component filling out an entire suite of offerings for the small businesses that sell goods on Amazon.com.

“If you’re a third-party seller on Amazon’s site that’s using them for one thing, ultimately you’re using Amazon for everything,” Mr. Terry said.

This should all sound familiar. Square, the San Francisco payments start-up valued at $5 billion, has offered its sleek version of a mobile card reader since 2010.

PayPal, eBay’s payments division, which processed $55 billion in transactions last quarter, offers a similar device.

And then there are the huge incumbents like Verifone, which has sold its own terminals to merchants of all sizes for decades.

So by most measures, Amazon is late to the game. And yet no company with a mobile card reader has emerged as a clear winner. Amazon could push its way into the market with its own set of attractive incentives for small businesses.

For instance, Amazon is offering early adopters an especially low processing fee on each credit card swipe processed. If a merchant signs up before the end of October, each swipe will cost 1.75 percent of the total transaction, a deal that will last until the end of 2015.

That is a full percentage point below Square’s cut, which is 2.75 percent per swipe, and less than PayPal’s 2.7 percent charge as well. Even after the promotional deal expires, Amazon will charge merchants 2.5 percent.

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Amazon Local Register competes with similar mobile offerings from Intuit, PayPal and Square.Credit Business Wire

This is classic Amazon. With its low rate, the company is most likely losing money on transactions it processes, according to Colin Sebastian, an Internet analyst with Baird Equity Research.

“In typical Amazon fashion, they’re using price as a motivator,” Mr. Sebastian said. “It’s pretty obvious in this case that they’re losing money on the swipes at least.”

That is similar to the company’s strategy with Kindle Fire tablets and smartphones; while Amazon makes little to no money on selling the Fire devices, each one acts as a portal to Amazon’s retail universe, where customers are encouraged to spend more money buying goods online.

But a better rate does not necessarily guarantee it success. As competition has increased, payments companies have expanded the scope of their services, aiming to attract merchants with more than just a lower transaction cut on credit card swipes.

Both Square and PayPal, for instance, offer lending programs for merchants looking to expand their operations.

This week, Square started an appointment scheduling service for businesses. And this month, Square acquired Caviar, a start-up that provides food delivery service to small restaurants that do not otherwise offer it.

“We’ve long been focused on building a complete register service for local businesses,” a Square representative said in a statement. “This reinforces our mission and shows the demand for all of our services.”

Some businesses may be reticent to sign up for Amazon’s new reader, lest they hand over scores of information to the online retailer. Packaged with its new card reader, Amazon’s Local Register software will manage detailed data on a merchant’s overall business operations, including sales trends and volume. That is the kind of data set that could help Amazon operate more successfully in the long run.

“That’s always the threat of doing business with Amazon,” Mr. Terry said. “If I’m really successful selling on Amazon, there’s a pretty good chance that one day they’ll end up competing with me.”

Correction: August 15, 2014
An article on Thursday about Amazon’s introduction of a credit card reader referred incorrectly to an Internet analyst who commented on the company’s pricing strategy. It was Colin Sebastian, an analyst with Baird Equity Research — not “Mr. Baird” — who said: “In typical Amazon fashion, they’re using price as a motivator. It’s pretty obvious in this case that they’re losing money on the swipes at least.”