How Amazon is Disrupting the Payments Industry

It seems like there’s nothing Amazon can’t do. It has already disrupted the traditional retail, it is a major player in the virtual assistants & voice payments space, and we might soon see an Amazon Bank.

However, this time I would like to focus precisely on the payments industry as the e-commerce powerhouse is significantly expanding its presence here. Despite the fact that at the moment it is not a huge part of the business, it is most definitely poised for the continued growth in the future.

Steadily and over the years Amazon has been building out a payments ecosystem. Here are the KEY things everyone (and I stress – EVERYONE) must be aware of.

Amazon has introduced an easy and secure way for consumers to make online payments and merchants' to accept them with the help of Amazon Pay. With Amazon Pay, users can now make frictionless and secure payments on participating merchants websites by using a one-click checkout, which leverages the payment information the user has saved on his Amazon account.

The e-commerce powerhouse further built out this capability by allowing consumers to make convenient payments in-store via Amazon Pay Places. This new feature is allowing users to order ahead and pay for goods in-store via the Amazon app. We must stress that it is one of the most ubiquitous apps downloaded in the US and in some age cohorts it bypasses even Facebook with installed base.

TGI Fridays (in Boston, Philadelphia, Baltimore, Washington etc.) will be the first merchant to accept the payment option, but this is highly likely be rolled out extensively. Although this is very similar to other mobile wallet offerings, it is still another step by Amazon to begin squeezing out traditional payment players by building consumer habits around using the Amazon app for purchases. Thus, Apple Pay, Samsung Pay and other mobile wallets should pay a very close attention to this.

Moreover, using Amazon Pay, there is no need for a traditional merchant account, machine or dongle when Amazon Pay is already in the customer's pocket. Hence, this should also worry such players as VISA, MasterCard, American Express and Discover as consumers lose payment brand awareness and replace it with merchant payment brand awareness.

Consumers then have the opportunity to add cash to their Amazon accounts and the ability to earn rewards, essentially giving these users a banking account. Amazon has introduced a service that enables customers to add cash to their Amazon accounts at select brick-and-mortar stores, which is very similar to depositing cash at a bank (only in a more simple and convenient way). This was followed by a new rewards program in the US that gave Prime members 2% cash back when they load money into their Amazon Balance via a debit card or attached bank account. By giving these users incentive to easily add funds to their accounts, Amazon could find more consumers willing to spend online and in-store via Amazon's payment offerings. This would allow Amazon to earn on these transactions, similar to PayPal, which charges the merchants with fees that are as high as 2.9%. 

Finally, Amazon also offers traditional banking services, such as loans (via the Amazon Marketplace), which are becoming increasingly popular. As I have stressed this earlier, the firm has paid out over $1 billion in small loans in the last year alone — for the reference, from 2011 to 2015 this service was used to lend out circa $1.5 billion. Imagine what the numbers might look like if this service would be scaled out extensively.

Why Should Anyone Worry?

Well, as noted in the beginning, the steps taken by Amazon should be monitored closely by everyone since you never know whether your industry is safe from the disruption anymore. Yet, the competitors should be watching Amazon with the magnifying glass. And there are 3 core reasons for that.

Amazon has the reach. The company has a massive user base — the Amazon app is installed on three out of 4 smartphones in America. To add, the company's subscription based loyalty program, Amazon Prime, has an estimated 80 million members in the US alone, and Amazon Pay has over 33 million users.

It has huge pile of cash. Amazon not only accounts for a massive amount of sales — in Q2 2017, it expects sales to grow 16-24% year-over-year to between $35 billion and $37 billion — but it has also shown a willingness to make big bets on future growth opportunities that aren't always obvious (here we must note the exceptional leadership by Jeff Bezos). Its recent acquisition of Whole Foods for $13.7 billion is a very good example.

It has the infrastructure in place to build out a payments network quickly. Amazon Web Services (AWS), the company's cloud solution, has the capacity to handle the processing of payments if it were to push further into the space. As of Q1 2017, AWS controlled 33% of the global public cloud market, more than Microsoft, Google, IBM, Alibaba, and Oracle combined, according to the most recent figures available.

Bringing it all together

Rephrasing one of the conclusions from my earlier article about Amazon, we can quite confidently state that Amazon is one of the key trends that leaders in every industry should watch for. And payments executives – especially.

If ignored, this can be yet another industry that the technology company will disrupt. I have briefly covered GAFA (Google, Apple, Facebook and Amazon), and their approach to banking in my last 3 passages. Follow the links for Part I, Part II, and Part III.