LOS ANGELES - If Amazon.com has helped define Internet retailing, its next self-appointed mission may be to define the future of electronic billing and payments.
So far, its experiences offer a sobering glimpse at how banks are at risk of losing their presumed dominance in what stands to be one of the key financial services of the Internet age.
While Amazon does work with banks to handle the payments to its wildly popular Internet marketplace, the Seattle-based company has found that nonbanks are increasingly the ones touting innovative electronic payment schemes, said Rene Pelegero, director of global payments at Amazon.
"We're always willing to work with financial institutions, but I think they have to be careful of where their competition is coming from," Mr. Pelegero said. "It's coming from companies that are able to move in Internet time."
Bankers for years feared that companies like Microsoft Corp. and Intuit Inc. would come between them and their customers by offering online banking products that skirted banks. Those fears were not realized.
But powerful Internet businesses like Amazon - with direct access to the millions of customers that make up the Internet marketplace - have emerged as the new, and potentially much more dangerous threat. These companies are teaming up with technology vendors to reach for more efficient online transaction methods, and seem to be devising payment services at a pace that could marginalize banks.
"Banks are having difficulty moving at a faster speed," said Mr. Pelegero, in an interview after a speech he gave at the Nacha conference here this week. His position at Amazon - with a title that makes him sound more like a banker than a retail company executive - was created last year.
Mr. Pelegero said nonbanks are developing electronic money and prepaid card schemes that look attractive to Amazon, and may supplant some banking relationships. He said Amazon has received 17 proposals for prepaid cards, and about seven for electronic money schemes from both banks and nonbanks.
Mr. Pelegero said his job is to push the limits of convenience in retail payments, and get the payment companies he works with to do the same. In an interview, he left little room for doubt that Amazon would pursue new directions in retail payment - with or without the help of banks.
In his speech, Mr. Pelegero pointed to online interchange rates as an example of an area where banks have failed to prove themselves nimble. Interchange fees on Internet transactions are higher than the fees charged for sales at traditional retail stores, because online purchases are considered riskier. The bank card associations lump them in the same category with mail order/telephone order (or MOTO) transactions, which are also considered riskier, "non face-to-face" sales.
Mr. Pelegero said this classification was too rigid and did not reflect the fact that Amazon and other Internet sellers let customers store their payment information with the company, so that when someone returns to make another purchase, the credit card data does not have to be sent over the Internet. Since transactions from repeat customers are far less risky, Mr. Pelegero, they should be priced at a lower rate. He challenged banks to lower the interchange fee on these sales.
One banker who heard Mr. Pelegero speak at the conference, Michelle Banaugh, senior vice president at Wells Fargo & Co., said she thought he was "absolutely spot on" in his rationale. "We think the Internet provides authentication over and above telephone orders, particularly if the customer is already registered," she said.
Mr. Pelegero had plenty of other requests. He called for banks to provide a method of verifying that people sending credit card numbers to Amazon are who they say they are. He also said he wanted clarification on whether electronic checks are governed by check rules, or automatic clearing house rules.
And he chided the bankers for failing to put forth a standard method for people to use debit cards for Internet payment. Amazon is eager to let customers use debit cards, and is frustrated by the lack of standards, Mr. Pelegero said. The sooner a good system can be brought to market, he said, the quicker Amazon could start accepting transactions from the millions of consumers who don't have credit cards or who prefer to use debit.
Mr. Pelegero is a payments industry veteran. His resume includes a stint at Electronic Payment Services Inc. of Wilmington, Del., the payment processor acquired last year by Concord EFS of Memphis. He also held payments positions at GE Capital and at Tandem computers, where he helped global banks develop retail and bank card strategies.
With 17 million customers, Amazon seems to have the clout needed to get banks thinking in new directions and supplying more Internet payment options. For comparison, the nation's largest bank in terms of deposits - Bank of America Corp. - has 13 million credit card accounts and 30 million customer households.
"We don't believe we can tell the customer what to do," Mr. Pelegero said. "We're very passionate about meeting customer needs."
Ms. Banaugh of Wells Fargo - whose bank counts about 9,000 Internet companies as payment customers - said Mr. Pelegero is one of a new breed of executives popping up at prominent retail-oriented Internet companies. She says these Internet executives are the bank's "ear to the marketplace" for electronic commerce.
These executives monitor the development of new types of payments - such as electronic money and Internet debit cards - and focus on cutting costs, Ms. Banaugh said. After marketing, the biggest cost many Internet companies face is operations, of which payments are a significant chunk, she said.
Institutions that can meet the demands of dot-com companies may be rewarded with huge streams of new business, Ms. Banaugh said. Wells Fargo, for example, expects that the joint venture it created last month with the online auctioneer eBay will significantly boost credit card processing volumes, she said.
eBay found that an increasing number of auctions were called off by participants who feared that the items they had bought or the money they were due would never be sent. Wells Fargo - working with its joint venture partner BillPoint, a company that eBay bought last May - built a service that uses established credit card methods to support transactions between two people.
First, Wells Fargo made the person-to-person payment service available to eBay's top 48,000 sellers. This week, the bank turned it on for all of eBay's sellers, Ms. Banaugh said. With ten million registered users and $4 billion of trade expected to occur on eBay this year, Wells has high expectations for the volumes the service will generate, she said.
"We would always like to think that we're the ones thinking of the next great product, but often it is our customers," Ms. Banaugh said.