August 16, 2014
Amazon recently launched smartphone-compatible credit card readers for brick and mortar stores. However, a good bit on competition already exists in this business, including PayPal, Square and Intuit.
Contrary to the popular belief, M-POS businesses are not doing so well. Consider the following facts:
Square, the popular m-POS service provider, recorded a heavy loss of around $100 million last year. The transactions made on Square’s smartphone-compatible credit-card readers are yielding very thin margins.
Square has made a number of additions to its merchant services in order to increase its revenue beyond the 2.75% it charges for swiped card payments. A couple of months back, Square launched a credit program for small businesses called Square Capital. The program allows merchants to pay back loans from the sales they do using Square’s payment services. Square makes the lending decisions based on the merchant’s transaction history, creating unique lending rates tailored to each individual merchant.
Square had also launched ‘Square Feedback’, an interactive digital receipt which comes at a cost of $10 per month for the merchant. Along with the standard information about the purchase, merchants can also add a request for feedback from the customers. The receipt based feedback system will act as a direct line between the customer and the merchant. These can all be seen as Square’s attempts to make up for a suffering mobile card reader market.
For this reason it seems more likely that Amazon is stepping into the M-POS realm as a line filling decision, and not as a major move or huge launch.
First and foremost, Amazon is an E-commerce player with big ambitions to disrupt the entire retail sales market. As per U.S. Census Bureau, the retail sales in the country had reached $1.15 trillion in Q1 2014, while e-commerce sales reached only $71 billion in Q1 2014. This is just a tiny fraction compared to the total retail sales transactions, and Amazon knows that. Becoming a factor in the sales occurring through merchants who are still selling offline seems like a wise choice. Bringing the next 25 million merchants (many of them micro-merchants) into the connected world of e-commerce and payments through mobile card readers may be one way. Integration of online payments with offline payments makes a lot of sense for a player like amazon who would want to be at the forefront of this battle. The offline/physical stores based commerce is still 10-15 times larger than e-commerce. This could be a huge opportunity for amazon to hook previously offline merchants into their network and enable them to sell better offline and online. Retail and e-commerce are merging and omni-channel is the way forward.
That said, payments are just a small (yet significant) part of the commerce value chain. It’s the lid of the water bottle. The commerce experience is choosing the right bottle, the right kind of water and drinking in a way that satiates your needs. Once you have done that all you have to do is open the lid and drink. So the Mobile Card Reader is just an incremental addition, another arrow in the quiver. Also because commerce experience is much more important than payments, it puts the physical retailers and e-commerce players at an advantage when thinking of best payment solutions. Starbucks and Uber are a classic example.
Starbucks generates more than 15% of its sales volume through its mobile wallet service. Starbucks processes about six million in mobile payments per week with 12 million customers using mobile apps to pay. This is indeed a staggering amount of transactions for a single retailer. The taxi service Uber provides seamless payments for its service and handles most of the customer experience through its dedicated mobile app. At the end of the ride, the passenger does not have to fumble with a purse or wallet to pay to the driver, as it is automatically deducted from the credit card stored in the Uber app. So Amazon would rather do what it is good at (Commerce) and replicate what Starbucks and Uber are doing rather than actually get into payments solely.
Reasons #2, 3, 4…. why Amazon launching a mobile card reader is less about competing with square: