Amazon, Square streamline payments as their push into banking ramps up

Big technology firms are racing to build financial super apps, and two of them — Amazon and Square — recently have made big moves to more directly connect the point of sale and nonpayment products such as loans.

Amazon is reportedly working on a new point-of-sale project to compete with payment processing firms such as PayPal, Square and traditional bank technology firms, and last week it deployed contactless, checkout-free technology at a non-Amazon merchant for the first time. Meanwhile, Square has launched Cash App Pay, which allows consumers to make payments at merchants with their Cash App account; it is the latest in a series of add-ons for the popular peer-to-peer payment service Cash App.

Those moves coincide with efforts by Amazon and Square to diversify into consumer payment cards,  loans and other financial services. Apple and PayPal are pursuing similar strategies. All four companies are relying on mobile payment apps that are flexible and easy for merchants and consumers to register for and use; the apps allow the companies to intrude on the turf of traditional banks, bank technology companies and payment processors.

"When you have both consumer and merchant relationships, you can use just about any technology to create a wide variety of payment and banking-like solutions," said Rick Oglesby, president of AZ Payments Group.

Amazon has deployed Amazon One, a contactless payment and authentication system that relies on stored palm prints, at the Red Rocks Amphitheatre in Denver. Amazon One uses contactless palm scanners to authenticate shoppers at the Amazon Go checkout-free stores.

Amazon Prime has more than 200 million members globally, according to Statista, noting that number has doubled in the past two years. Consumers do not need to have an Amazon Prime account to use Amazon One, but there are incentives to sign up for Prime such as the ability to view transaction histories and access marketing programs.

Before the Denver deployment, Amazon's broader range of retail contactless technology, which uses cameras and a users' Prime credentials to avoid traditional in-store checkout, has largely been limited to the Amazon Go stores and Amazon's Whole Foods subsidiary. But the e-commerce company is now seeking to offer the technology to other retailers.

Amazon's palm pay technology is said to be tied to Project Santos, a task force at Amazon that's working on new payment concepts. Amazon did not comment on Project Santos or the point-of-sale project, which was reported by Business Insider, citing internal Amazon documents. Project Santos is building a point-of-sale system that will allow third-party retailers to process payments online and in stores and will power data analytics to help merchants manage inventory and other business operations.

As an authentication tool, Amazon One can rival bank biometric ID tests that are are being conducted at BBVA and by Visa and other partners in the U.S., or Apple's work to add biometrics to its card-issuing partnership with Goldman Sachs. Amazon's recent partnership with Affirm allows the e-commerce company to expand its point-of-sale credit. Amazon has long offered installment payments, but Affirm, one of the market's largest fintech BNPL firms, will allow Amazon to reach a larger base of both merchants and consumers.

By offering payment technology and lending, Amazon can offer services similar to companies that sell bank technology, such as FIS, Fiserv and Global Payments. These firms spent billions of dollars over the past few years to acquire payment processors to combine financial services and merchant payment acceptance in a single package.

"If a payment company only has a consumer or a merchant appeal, its options are far more limited due to the dependencies on third parties to bring either merchant or consumers to the table with whatever technologies they have to do so," Oglesby said. "And many of these third parties have legacy technology."

PayPal and Square also offer this mix of merchant technology, payments and financial services such as lending to both consumers and merchants.

Square last week upgraded its point-of-sale technology to link it more closely to Square Cash, making a larger base of consumers more readily available to its merchant base. Square Cash, which has its roots as a peer-to-peer app, powers Square's bitcoin trading and accounts for 80% of Square's revenue. The Cash App generated $5.9 billion in 2020, a 353% jump over 2019, according to Business of Apps. That revenue has freed up funds to build other financial services at Square.

"Square, Amazon and PayPal are trying to engage more deeply at and around the point of sale with small to medium-sized businesses, providing payment acceptance and other financial services," said Eric Grover, a principal at Intrepid Ventures, adding that by serving both business and consumers, these companies can control more of their clients' relationships.

"Where they engage, offer, see and control transactions and relationships on both sides of the network they’re stronger," Grocery said.

Square Cash is a bridge to other products at Square as the company diversifies beyond its core small-business payment hardware. Square debuted a bank account, for example, earlier this year. Square additionally obtained an industrial bank license and a new financial services business that will allow the company to add financial services without reliance on a bank partner. And Square recently agreed to acquire Afterpay to deepen its point-of-sale credit business.

"Square Cash retail payments is a closed-loop payment system,” Grover said. “It should therefore generate richer transaction economics and with control of transactions and data from end-to-end, opportunities to offer promotions generating incremental sales and value for both its small businesses and consumers."

"To the extent funds stay in the system and businesses consumers use their accounts for payments, credit, equity and crypto trading, they compete with banks and other financial institutions," Grover said.