Why Amazon Can't Compete with Silicon Valley For Payments

Amazon launched a new service this week for buying stuff with your Amazon username. Here's why it will fail.
Posted October 9, 2013

Mike Elgan

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So you want to buy an electric toothbrush. But where?

If you're like millions of people, you'll just head straight to Amazon.com and buy it there. Why? Because it's super easy.

Amazon is easy for three reasons. First, you know Amazon is going to have a good selection of electric toothbrushes. Second, you know they're going to ship it to you fast. And third, they’ve already got your current credit card and shipping address on file. You click a button and a box comes to your door.

If you go to ElectricToothbrushesRus.com, it’s not so easy. You'll have to enter in your whole credit card number, full name, expiration date and that three-digit number on the back. Then, you'll have to enter the different parts of your mailing address into a form.

So that’s why Amazon gets so much retail business. But that business will be under threat in the future when competitors make buying stuff on ElectricToothbrushesRus.com as easy as on Amazon.com. And that’s why Amazon wants to beat them to it.

Amazon's New Service Isn't Really New

Amazon this week launched a new service called Login and Pay with Amazon. The service enables people to use their Amazon username and password to log in to sites other than Amazon – say, ElectricToothbrushesRus.com -- then use the credit card they already have on file with Amazon to pay for things instead of using PayPal or a credit card.

Amazon charges up to 30 cents per transaction (depending on volume), plus 2.9 percent of the total. So if you buy something using Amazon's service that costs $100, the merchant will pay Amazon $3.20.

While the service is new in terms of it being a new web site and a new API for developers, in fact Amazon has enabled payments since 2011 and logins since the beginning of the year.

What Amazon.com really announced was a new program that unifies what Amazon already offered.

Amazon claims 215 million people have active Amazon accounts, meaning they have currently usable credit cards on file with the service. These customers will be able to buy things on sites that have "Pay with Amazon" buttons by simply entering their Amazon user ID and password.

Login and Pay with Amazon is an improvement over what Amazon used to offer for online payments precisely because it's unified. While some customers may enter a site expecting only to "window shop," the new program enables their log-in to enable very convenient purchase without additional hassle.

Consumers will love Login and Pay with Amazon. Online retailers? No so much.

Why Amazon Can't Win

From the consumer side, Amazon has a huge advantage. Online shoppers have awareness, confidence and knowledge about Amazon. However, Amazon has two major problems to overcome in the years ahead.

First, Amazon isn't the only tech company aggressively pursuing online logins combined with payments. All its competitors are powerful and innovative Silicon Valley companies: Apple, Google, Facebook, PayPal and dozens of scrappy startups.

Although PayPal is way ahead in online payments, Apple, Google and Facebook have much higher name and brand recognition. (And all three have log-in services which can be combined like Amazon's is with online payments.)

As these companies roll out their online payment systems, online stores will strongly prefer the Silicon Valley companies over Amazon. And the reason is simple: Amazon is a competitor.

If you're selling toothbrushes online, Amazon is probably your biggest threat. If they haven’t driven you out of business already, they’re working on it. Why would you partner with and help the company that is trying to kill your company?

It's telling that many of the sites the already use Amazon for payments are non-competitors. Sites like Kickstarter, for example. Normal online retailers have already rejected payments with Amazon and will continue to do so in the future.

The second reason is that ultimately Apple and Google will be able to better authenticate buyers than Amazon.

Apple's Advantages

Apple recently shipped its iPhone 5S , which has a very appealing and usable Touch ID fingerprint reader built in.

With Amazon's service, all a crook would need is your username and password in order to order physical goods (the shipping issue would require that they also know your three-digit security code).

But with Apple's upcoming online payment system, criminals would also need your finger, and your finger would have to be attached to your living body.

And if Amazon has an advantage with customers because of all those credit cards on file, Apple has an even bigger advantage. Apple CEO Tim Cook recently claimed that Apple has 575 million credit cards on file. While Apple is saying "credit cards" and Amazon talks about "active accounts," Apple does claim to have more than Amazon no matter how you define it.

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Tags: Facebook, Amazon, ecommerce, Apple

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