In online payments, Amazon.com Inc. is gunning for Google Inc.
Amazon, which introduced a transaction processing service last fall for online merchants, is currently offering it temporarily for free. Observers say the Seattle retailer is trying to pick up customers who may be unhappy with a sharp rate hike that took effect at Google this month.
Google previously offered lower processing fees than its rivals, but the rates it announced in March are identical to the standard rates at Amazon and the dominant player, eBay Inc.’s PayPal Inc. Analysts said the companies are no longer competing on price, and even though Amazon’s offer of free processing to new online merchant clients through September will likely attract users, the company’s long experience in retailing could prove a big advantage in persuading new customers to stay.
“It’s clearly a bid to gain market share with the very recent changes to Google,” said Nick Holland, a senior analyst at Aite Group LLC.
Google has long used its Checkout processing service to promote its AdWords advertising service, cutting fees for AdWords clients and sometimes waiving processing charges completely. But Holland said the poor economy has driven down advertising, and the model is no longer viable. “The loss of ad revenue was killing it.”
Many of the Mountain View, Calif., search engine provider’s merchant clients were outraged by the higher processing rates, and even before Amazon began its free-processing promotion, some said they were thinking about switching to Amazon.
One business owner with the screen name “singer74” posted on Google’s merchant forum on March 20, “We were all set to use Google Checkout exclusively. Now we will be going to PayPal, and I am also looking into adding the Amazon service also. We are dropping Google Checkout entirely, and it will happen before May 5,” when the new fees took effect.
Amazon’s payment system has ramped up in recent years. The Checkout By Amazon service, which offers simple payment buttons for merchants to include in their software, was launched in the third quarter. Previously it had more complex services, such as Amazon Flexible Payments Service, released in 2007 for experienced Web developers.
Amazon is offering new customers free processing for up to $2 million of transactions through Sept. 30. Otherwise its fees are comparable to those of its rivals.
For merchants with U.S. transaction volume of less than $3,000 per month, Amazon, Google and PayPal all charge 2.9% of the transaction plus a base fee of 30 cents. The rates fall in lockstep as volume increases. For transactions under $10, Amazon also offers a rate of 5% plus a 5-cent fee.
Holland said Amazon is wise to offer the promotion for a finite period. “It’s not sustainable, and it’s not something they can do long-term.”
Amazon did not return calls. Google said it could not discuss Amazon’s strategy.
Mary T. Monahan, the managing partner and the research director for Javelin Strategy and Research, said Google’s rate hike creates an opportunity for Amazon, though the real challenge will be drawing merchants’ attention away from PayPal.
“PayPal is the king of the hill,” she said.
Amazon should play up its experience in streamlining the payment process, Monahan said. “Amazon’s about processes, simple processes … while it’s similar to PayPal and Google, they’ve always focused on process improvement.”
Merchants are becoming more aware that pricing is not the only factor to consider when evaluating a payment provider. In the post, singer74 wrote about being attracted to Google’s service for its lower price but deciding to consider other capabilities after struggling to implement the technology. “When shopping for any product or service, there are other considerations besides just finding the rock-bottom price,” the merchant wrote.
Andrew Schmidt, a research director at TowerGroup Inc., an independent research unit of MasterCard Inc., said PayPal is “definitely the gold standard here, but Amazon also does a fantastic job of understanding the retailer and the consumer, so it seems to be a very interesting battle lining up.”
Outside of Amazon’s free processing promotion, the companies are doing little to compete on price, so the battle is being fought over other services, Schmidt said.
“It’s just a matter of who can best match the greatest number of needs for the customer at the right price. … PayPal has the model down in terms of being able to make the payments, but Amazon has a tremendous number of retailers that it works with, so it already has a good amount of knowledge of what the retailers are looking for,” he said.
PayPal seems unconcerned by Amazon’s newly aggressive stance. “PayPal has always faced competition,” said spokeswoman Sara Gorman, “and we’ve been successful by staying focused on providing a comprehensive payment service.” She would not discuss Amazon’s strategy.
