Amazon.com, Inc. (Nasdaq: AMZN) is reportedly offering discounts to merchants who use its in-house payments processing service, Amazon Pay. Analysts say Amazon appears to be taking a familiar approach to disrupting the payments industry by sacrificing profits in an effort to gain market share from Paypal Holdings, Inc. ( PYPL) and other payments leaders.
Amazon Pay currently has about 30 million users, which can use the service to make purchases online. Retailers can now also choose to offer Amazon Pay as a payment option and potentially avoid a portion of the fees typically charged for credit transactions. Paypal stock initially dropped more than 3 percent this week on the news.
[See: 8 Catalysts That Are Moving Amazon Stock.]
Bernstein analyst Harshita Rawat says the news should come as no surprise to investors. Rawat says e-commerce giants eBay ( EBAY) and Alibaba Group Holding ( BABA) have each already created their own highly successful payment companies in Paypal and AliPay. Each of these payment companies now have stand-alone valuations of greater than $80 billion, and Rawat says it makes sense for Amazon to follow that blueprint.
Rawat says Amazon has several advantages in entering the payments business, including its established network of more than 2 million merchants, 100 million Prime users and 30 million Amazon Pay users. In addition, Amazon has a track record of using technology to disrupt established industries.
Rawat says it’s unlikely Amazon’s larger retail competitors, such as Walmart ( WMT), will add an Amazon Pay option. However, Amazon Pay has a lot to offer small and medium-size businesses, including better pricing, a massive online shopper base and additional logistical features.
“Amazon, in particular, if successful, is especially painful because of its skew toward small online merchants — PayPal’s bread and butter,” Rawat says.
Bank of America analyst Jason Kupferberg says Amazon Pay adoption may be more of an uphill battle than Amazon investors realize.
[See: 7 Stocks Primed for an Amazon Buyout.]
“Some SMB merchants may very well add Amazon Pay to their website if the economic incentive is large enough, but we think the bigger challenge for Amazon Pay is on the consumer side — for a consumer who is already an active user of PayPal, why would they switch to Amazon Pay?” Kupferberg says. “The value proposition is simply unclear, and it is notoriously hard to change consumer behavior.”
Nevertheless, Bank of America has a “buy” rating and $1,840 price target for AMZN stock.
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Amazon.com, Inc. (AMZN) Is Going All-In on Amazon Pay originally appeared on usnews.com
