Markets

How Amazon Payments Could Be The Next Big Thing

While retail seems like an old-school business, Amazon has integrated it with innovative and advanced technology, creating a company that challenges players across industries. Amazon.com (AMZN) doesn't just dominate the U.S. e-commerce marketplace - it’s among the top cloud computing platforms, and is well known for its cargo planes and drones too.

To further expand and strengthen its ecosystem of products and services, Amazon launched its payment gateway – ‘Pay with Amazon’ in October 2013 with an aim to provide an uninterrupted shopping experience to its customers and affiliate online merchants. However, number of customers engaging with ‘Pay with Amazon’ trails behind its e-commerce users.

As per a survey report by Channel Advisor, when comparing marketplaces, “more than 60% of respondents said Amazon is generating the greatest sales volume for their products.” However, when it comes to payments, about 70% of respondents named PayPal as the most commonly used payment method by customers after only debit/credit cards. 15% go with Amazon Payments.

While this is reflective of Amazon’s struggle in a highly competitive payments market, it is also indicative of the huge opportunity that lies ahead for Amazon Payments. Here’s why Amazon Payments could become a significant revenue generator for Amazon changing its ‘underappreciated’ status going forward.

Growing E-Commerce Market

While the e-commerce marketplace is expanding fast, it continues to be a small segment of the total retail market. In the U.S., the retail e-commerce sales for the third quarter of 2016 were just 8.35% of the total retail sales that were estimated at $1.21 trillion as per a report by the U.S. Census Bureau of the Department of Commerce. eMarketer estimates that the worldwide retail e-commerce sales will increase to $4.05 trillion in 2020, making up 14.6% of total retail spending that year.

The scope to penetrate further into the e-commerce segment provides Amazon with a big opportunity and gives a fair chance for hundreds of merchants to join the online bandwagon. This indirectly opens a vast ground for its affiliate payment service which nearly doubled the payment volume in 2016.

Beyond The Top Merchants

Amazon’s payment service enables customers visiting websites of partner companies to pay using their Amazon account (shipment address, card information, etc.). However, due to fear of revealing customer data to Amazon, many e-commerce entities have avoided the adoption of ‘Pay with Amazon’. This trend has benefited PayPal, ApplePay, Google Wallet and other payment providers.

Interestingly, there is enough room for Amazon to grow beyond the top e-retailers by roping in second and third-tier online merchants in the U.S. and worldwide who aren’t intimidated by Amazon (with many selling goods through Amazon) and value the trust provided by Amazon payment gateway.

Such partnerships need not be limited to e-retailers but any service provider using digital payment (such as airlines, hotels, restaurants, taxi services). By adding the ‘Pay with Amazon’ button, these merchants make spending much simpler for the 300 million plus user base of Amazon on their portals. During 2016, more than 33 million customers used Amazon Payments to make a purchase.

Connected Cars

Amazon is making its way into the connected car space by teaming up with automobile companies to integrate its cloud-based voice service Alexa to enable customers to play audiobooks, check weather, control Alexa-enabled smart homes and even shop. Amazon’s current tie-ups include brands such as Ford, Hyundai, Volkswagen, BMW, Genesis and INRIX.

While this is just the beginning and most of the features are limited to remote commands to car from home and vice versa, such collaborations would add new customers by offering them a new way to interact with their cars and shop at Amazon.com especially for regularly bought items. This could strengthen its clientele for Prime and ‘Pay with Amazon’ to build a strong sense of trust and service.

Final Word

Amazon is by far the largest e-commerce company in the U.S. and the 8th biggest retailer by revenue (was 15th in 2012) and is rapidly spreading its wings in Europe and Asia. With Amazon’s expansion into newer segments such as connected cars, increasing number of Prime members which constitute half of its ‘Pay with Amazon’ users, and more and more businesses going online, there’s high probability that Amazon Payments will steadily garner a bigger market share and emerge as a strong revenue driver for the company in the future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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