Thursday , December 13, 2018

Can Amazon Pay Win in Stores? It May Depend on Processing Costs And the Right Incentives

Amazon.com Inc.’s strategy to push its Amazon Pay wallet into physical stores could depend crucially on its ability to cut payment-processing costs and generate marketing advantages for merchants, including Groupon-like incentives, experts tell Digital Transactions News.

The new strategy has been in the works at least since 2017 but reached a new plateau last week when The Wall Street Journal reported the online giant has been targeting gasoline marketers, restaurants, and other retail outlets to expand the reach of Amazon Pay, which has at least 33 million users. Reached by Digital Transactions News, an Amazon spokeswoman would not comment on the Journal story or related initiatives.

Petroleum companies like Chevron Corp. and BP plc have already demonstrated a willingness to partner with mobile wallets, with both companies signing up this year to accept PayPal Holdings Inc.’s product.at the pump, for example.

And Amazon brings several key advantages to this new effort, experts say. One of them is the sheer size, and desirability, of its user base. The company’s 100 million Prime members, for example, are widely considered to be loyal Amazon spenders. At the same time, the wider Amazon customer base, including but not limited to Amazon Pay, claims some 300 million consumers who have registered payment credentials, estimates San Carlos, Calif.-based consultant Richard Crone. All told, “that demographic is really attractive,” he says.

Could Amazon Go play a role in the expansion of Amazon Pay to physical stores?

Still, as fruitful as its point-of-sale effort could be, success for Amazon is far from a sure thing. The three major third-party mobile wallets—Apple Pay, Google Pay, and Samsung Pay—are widely considered to have fallen short of initial expectations for adoption, despite years in the market, according to observers. “If Amazon is to be successful with a digital wallet at the physical store, it will need to do something different than what other wallets are already doing,” says Mesa, Ariz.-based payments consultant Rick Oglesby.

What could set Amazon Pay apart is its ability to generate customer data that could fuel lucrative marketing programs for accepting merchants. For example, Oglesby envisions a program that would not only process payment on Amazon Pay but also funnel users to targeted stores via special incentives. “The Groupon model could be a reasonable comparative opportunity that Amazon could pursue,” he says in an email message.

Amazon could supercharge its in-store effort for Amazon Pay by backing it with the full weight of its technology, Oglesby says. This would include its cashierless Amazon Go system that allows customers to simply walk out of a convenience store and have items charged to a card on file. Amazon has opened six such stores so far in Seattle, San Francisco, and Chicago. A strategy that “bundles together multiple Amazon capabilities, such as cashier-less checkout, marketing services, loyalty services, or some other tangible merchant benefit … could be a game changer,” he says.

Amazon started down this path a year ago when it opened up Amazon Pay to developers for purchases through its Alexa voice-commerce service. Earlier, it trialed Amazon Pay for order-ahead meals at select TGI Fridays restaurants.

But Amazon Pay could also upset longstanding transaction-pricing arrangements by trading free or nearly free payment processing where warranted for valuable transaction data, Crone argues. “The table has been set for a real disruption in interchange,” he says. That data would aid Amazon in a wide range of promotions, he adds. “I wouldn’t sell your Amazon stock today,” Crone says. “There’s some upside there.”

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