Amazon Launches Flexible Payments As a Commercial Service

Eighteen months after introducing it to developers as a beta project (Digital Transactions News, Aug. 6, 2007), Amazon.com Inc. on Thursday commercially launched its Flexible Payments Service (FPS) as the latest entry in an increasingly crowded field of alternative-payment engines that includes industry giants PayPal Inc. and Google Inc. The launch follows the Seattle-based online retailer's introduction last year of its Checkout by Amazon and Amazon Simple Pay services, which allow online merchants to take payments using a system hosted by Amazon and relying on Amazon payment credentials (Digital Transactions News, July 30, 2008). The commercial version of FPS, which is intended for merchants that want to build their own payments system, includes some new features aimed at easing adoption, including so-called Quick Start programming that allows developers to more quickly integrate the payments program into their Web sites. Like the beta version, the commercial service also features a micropayments capability that aggregates transactions but lets merchants track discrete payments. Amazon won't say how many merchants have adopted FPS so far. “We're pleasantly surprised by the growth we're seeing,” says Mark Stabingas, general manager for Amazon Payments, the unit that manages FPS, Checkout by Amazon, and Simple Pay, in an e-mail message. “Specifically, we're pleasantly surprised by how many businesses in many different types of industries are using the services.” Three current users, Jambool, Meetup, and 1000 Markets, were named in a press release Amazon distributed Thursday. Jambool produces payments programs for social networks and game sites. Meetup is a social network. 1000 Markets is a network of online boutiques. While FPS handles payments via the automated clearing house, credit cards, and through proprietary Amazon Payments transfers, it's the micropayments capability that could have the most potential as merchants increasingly seek out ways to monetize small-value content. Electronic-payments consultant Steve Mott estimates the size of the so-called legitimate digital-content market (excluding pornography and gambling) is $5 billion in annual sales, but says the market would be as much as four times larger if a workable micropayments product were available. While most micropayments startups to date have failed, Amazon's market reach could give it an edge. “They could be a breakthrough provider,” he notes in an e-mail message. FPS offers both prepaid and postpaid functionality for micropayments, in both cases aggregating transactions through a program for which Amazon provides a Quick Start application programming interface for faster integration. Aggregation allows merchants to reduce transaction-processing costs. Pricing for the commercial product remains the same as for the beta version. Amazon Payments transfers cost 1.5% plus a penny. ACH debits are 2% plus a nickel, and the fee for payments backed by credit cards is 2.9% plus 30 cents. This pricing compares favorably with that of PayPal, which enables card, ACH, and prepaid transactions, and Google Checkout, whose e-wallet feature for now allows only credit card charges. For transactions under $10, though, Amazon's credit card fee rises to 5% plus a nickel, and for Amazon Payments balance transfers of less than a nickel, the company levies a fee of 20%, with a minimum fee of a quarter of a cent. Developers who sign up for FPS by March 15 and implement it by June 1 qualify for free processing for 90 days until total volume reaches $500,000. Though Mott says the FPS offering is “compelling” for smaller online merchants, he adds large retailers might balk for competitive reasons. “The biggest hurdle will be with larger merchants who decide that their competition with Amazon overrides the economic value they get by piggybacking on Amazon's platform,” he notes. And, though backed by the biggest seller on the Web, FPS will face stiff competition from the likes of Google Checkout and PayPal, which is now reinforced with its acquisition of the popular Bill Me Later service. Even so, while he won't discuss competitors, Stabingas says FPS has a key advantage. It was assembled, he says, “specifically with developers in mind, and offers a degree of customization not available elsewhere.”