Amazon Unveils Mobile-Payments Service for Local Shops

Credit-Card Reader Attaches to Phones, Tablets and Challenges PayPal, Square

Not content to be an online sales leader, Amazon.com Inc. AMZN +0.23% is thrusting itself into the physical world.

The company on Wednesday began offering a mobile-payment service and smartphone-compatible credit-card reader aimed principally at food trucks and mom-and-pop shops. The service, dubbed Local Register, enters a crowded arena, competing against similar offerings from eBay Inc. EBAY -0.92% 's PayPal, Square Inc. and Intuit Inc., INTU +1.65% as well as more traditional payment systems.

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.

"We've long been focused on building a complete register service for local businesses," said a Square spokesman. The Amazon announcement "reinforces our mission and shows the demand for all of our services."

Amazon likely will focus on small retailers because it would be difficult to upend the more complicated systems used at larger retailers. As well, those companies negotiate volume discounts with credit-card processors that may result in lower rates than Amazon is offering.

Mr. McKee said Amazon could make headway with beauty salons and quick-service restaurants, industries that, unlike bookstores, don't see the Seattle company as a natural competitor. Further, those merchants are more likely to use Amazon's daily-deals service, which offers coupons and other discounts.

Amazon brings strengths and weaknesses to the payment fray. It holds credit-card information from more users than PayPal, but it has virtually no experience in brick-and-mortar retailing.

As it moved toward an in-store payments system, Amazon last year bought technology and hired engineers from GoPago Inc., a San Francisco startup that offered checkout systems. GoPago is now a unit of DoubleBeam Inc.

Amazon said its payment service is backed by the same technology that powers Amazon.com purchases. The app that hosts the service is available free, and businesses that sign up will receive the card reader via mail. The reader costs $10, but Amazon said it would credit the first $10 in fees back to a merchant's account.

Source: http://online.wsj.com/articles/amazon-unveils-mobile-payment-app-and-card-reader-1407932568