Why the Visa/Mastercard 'button' threatens Amazon

Visa and Mastercard's "single button" for online payments seems like it would most directly threaten PayPal, but the card networks' campaign puts just as much pressure on Amazon's omnichannel push.

It's a product that Amazon has come close to building on its own by extending its merchant services across the web, allowing its subsidiaries and partner merchants to let shoppers pay with the credentials they already have on file with Amazon.com. If Visa and Mastercard usurp this role, it greatly diminishes Amazon's influence in e-commerce and emerging channels.

Luke MacGregor/Bloomberg

"A single network button is a barrier to entry," said Richard Crone, a payments consultant. "If there's a single button that has a one-touch type of capability, it becomes the default payments type and is the default winner."

Amazon has reached out in two ways that could cost the company billions of dollars while extending its reach. Amazon is reportedly offering discounts to retailers in exchange for adopting Amazon Pay, the e-commerce giant's online payment service. Amazon has also reportedly made a counter bid of as much as $12 billion to acquire Indian e-commerce giant Flipkart, a company that Walmart is close to acquiring (though Walmart was seen as being the favorite to land Flipkart as of Thursday morning). Amazon didn't return a request for comment by deadline.

Amazon's aggressive online merchant acquiring strategy bumps up against Visa and Mastercard's effort to use EMVCo standards to create a single experience for online payments. The card networks contend the current system, in which traditional and alternative payment brands compete for merchant attention, is too cumbersome. A standardized experience would reduce cart abandonment, a major problem for merchants that sell online.

"The reason merchants are motivated to add a new tender type is to reduce abandonment rates," Crone said. "And e-commerce now bleeds into all other payment scenarios, such as buy online, order online and pickup, order ahead, e-commerce or in-store."

As with most of its moves outside of its core model, Amazon will rely on bulk to make a quick hit if it acquires Flipkart or reaches out to merchants with discounted fees. Access to Amazon Prime's 100 million members would be attractive to most merchants, and Flipkart would bring Amazon's range of technology, services and international reach to India, with the potential for collaboration on international retail and e-commerce projects.

Amazon has already made several moves in the past year to improve its ability to build out omnichannel capabilities, including retail technology, debit rewards and delivery services that go as far as to allow delivery in cars and homes when the owners aren't there.

Excluding Amazon's properties, Amazon Pay is on about 78,000 websites, with about 33 million users, about half of whom are Prime members. By comparison, PayPal has 19 million merchants and 237 million users; PayPal's social payment app Venmo has 10 million users and 2 million merchants. Visa has 46 million merchants in its network while Mastercard has about 45 million merchants.

Amazon would additionally offer a discount at a delicate time for issuers, merchants and third-party wallets. These groups are debating what constitutes "card not present" and what the fee structure should be; this category was once considered riskier than card-present transactions, but the advancement of digital security options has narrowed that gap.

"Amazon’s offer of a reduction in merchant service fees for merchants who offer the Amazon Pay button is happening when Visa and Mastercard are joining forces to increase the value of their respective payment buttons, and neither of them have the ability to differentiate on price," said Thad Peterson, a senior analyst at Aite Group. "It also positions Amazon to compete against payment facilitators like Stripe and Braintree."

But Amazon also has a challenge that these other companies do not.

While Amazon Pay operates distinct from Amazon's e-commerce business and external merchants already play a major role on Amazon's core e-commerce site, Amazon has a model that's also competitive with other merchants' business goals. Larger merchants are more likely to see Amazon as a direct rival, and would not be willing to pay it to handle their transactions.

Amazon's strategic moves are often seen as a threat to retailers, an issue Amazon has to overcome to generate merchant acceptance for its payment button. Also, merchant payment fee discounts that are floated in exchange for technology adoption aren't predictably beneficial.

"Amazon's discounts] may incentivize a few merchants to carry Amazon Pay alongside PayPal, but not instead of PayPal," said Rick Oglesby, president of AZ Payments Group. "Discount to the merchant isn’t a compelling reason for a consumer to switch and it’s not likely that Amazon’s discount will be so large that it will motivate merchants to strongly promote Amazon Payments, particularly when a huge percentage of the merchant population considers Amazon to be a competitor and they don’t want Amazon to get ahold of their customer information."

Visa and Mastercard's single button has challenges of its own. Other efforts to simplify online payments have sputtered in the past, and the details of the single online payment button still have to be worked out.

"Even in a one-button environment you have to be able to select among payment brands and accounts. With Visa and Mastercard, both have debit and credit and prepaid options," Crone said. "It's the same for PayPal and Venmo. There has to be an easy selection in any of these environments."