Coverage: Amazon introduces new card reader

Amazon just can’t help but trying to be all things to everyone. In an effort to capture the offline business, it is introducing a new card reader to rival Square, PayPal and other payment services.

PC World’s John Ribeiro had these details:

Amazon has introduced a card reader coupled with smartphone and tablet apps that aim to provide small businesses with a way to accept mobile payments.

The company is positioning its Amazon Local Register as a secure card reader and mobile app that will provide local businesses a broad set of tools to accept credit and debit cards through a smartphone or tablet and keep track of their operations.

The service can only be used to accept payments in the U.S., and a U.S. bank account is required for transferring funds from the Amazon Payments account to the user’s bank account.

The online retailer will go head-to-head with established players in the market, including Square, Intuit, and PayPal, which also offer small card readers that can be attached to smartphones and tablets. PayPal Here, Square, and Intuit QuickBooks GoPayment, for example, offer the card reader device free.

Greg Bensinger and Joshua Jamerson wrote for The Wall Street Journal that this is yet another venture that is likely to cost Amazon before it makes money:

By targeting brick-and-mortar retailers, Amazon hopes to gain access to a new trove of data from consumers’ spending in stores, where more than 90% of commerce is still conducted. But it will have to overcome the mistrust of some merchants who view Amazon as a rival that has undermined in-store shopping.

To gain traction, Amazon is undercutting rivals with low processing fees, a potentially attractive pitch to small merchants. Amazon’s initial 1.75% fee compares with Square’s 2.75% and PayPal’s 2.7% fees. Merchants using more traditional card processors may pay up to 3% per transaction.

Amazon’s rate will apply only to merchants who sign up through October and will expire in early 2016, after which it will become 2.5%.

“Amazon isn’t going to be making money on the payments processing,” said Jordan McKee, an analyst with 451 Research. “This is about being a presence in physical stores where so much of commerce is conducted today.”

Square is nearly ubiquitous at small coffee shops and food vendors, but transactions on its smartphone-compatible credit-card readers have yielded thin margins. The company recorded a loss of about $100 million in 2013, people told The Wall Street Journal this year.

The Reuters story by Deepa Seetharaman pointed out that some people might shy away from using Amazon because of the data it would collect:

“There may be some hesitation among merchants to process payments through Amazon due to data sharing or competitive concerns,” R.W. Baird analyst Colin Sebastian wrote on Wednesday.

The biggest technology firms like Apple Inc (AAPL.O) and Google Inc (GOOG.O) may also step up their investment in mobile payments, which is taking off as smartphones become ubiquitous.

Amazon hopes to court small businesses in part by charging lower fees than Square and eBay Inc’s (EBAY.O) PayPal. Those who sign up for Amazon’s program before October 31 will be charged 1.75 percent for each card swiped until January 2016.

The Wired story by Marcus Wohlsen pointed out that despite Amazon’s late entry, the company does have some advantages:

But if any company has shown an appetite for growth over profits, it’s Amazon. Amazon’s low prices and willingness to spend big on its ultra-convenient shipping options has ensured massive growth in Amazon sales over the past several years at the expense of profitability. The approach to its card reader appears to be similar—make the fees so low that merchants have a hard time saying no.

Another Amazon advantage is simple brand recognition. As a company starting from scratch, Square has had to work hard to make itself known. Even a company like PayPal has to work hard to make users aware that, along with its online payment option, it has a card reader, too. Amazon, meanwhile, has the option of putting its card reader at the top of its homepage. The card reader just becomes something else you buy on Amazon (the reader will cost $10, but Amazon is waiving the first $10 in swiping fees to make the reader effectively free).

That brand awareness could also help on the consumer end. Hundreds of millions of people have already entrusted Amazon with their credit card information when they shop on the site. Swiping their cards through a reader emblazoned with the Amazon logo might make the relatively unusual experience of paying via smartphone feel a little more familiar, even though you’re not paying or buying anything from Amazon at all.

Because Amazon isn’t afraid to lose money in order to win business, it may have a bigger advantage in the space. I’m sure that Square and other competitors are concerned given Amazon’s deep pockets as well as it huge brand recognition. Whether consumers will agree to have Amazon collect their offline shopping data as well as their online spending habits is a big question.