Amazon's Mobile-Pay Pricing Promo Is a Big Gamble

Amazon's Square-like card reader comes at a very un-Square-like price, undercutting Amazon's competitor by a full 1% per swipe. But that promotion will eventually go away — and when it does, Amazon's merchants might go with it.

If price is Amazon's only advantage over its rivals, Amazon risks repeating what Google went through with Google Checkout, an online payment service that originally offered free processing to merchants who also purchased advertising through Google's AdWords. When Google eliminated the free processing option, many merchants grew impatient with the service's rough edges and threatened to walk away.

One merchant told me in 2009 — three years after Google Checkout's launch — that the technology still felt like "a beta-mode product." The free processing was its main attraction, and when Google brought its fees in line with competitors, Google Checkout looked a lot less appealing. Google eventually shut down Google Checkout and migrated its users to the newer Google Wallet.

In its early marketing push Amazon is working to convince merchants that its card reader, called Amazon Local Register is user-friendly. In its announcement, Amazon emphasized that its reader comes with business-tracking tools, works with various cash drawers and receipt printers (also for sale on Amazon.com) and provides access to year-round 24-hour customer support, including the Mayday video-chat support service.

But Amazon needs to ask itself: Even with all of these perks, will its merchants stay when its fees come closer to those of Square and PayPal?

Based on early merchant feedback, Amazon has a lot of work to do before its promotional pricing expires. As of August 19, less than a week after the product's launch, Local Register has an average review score of two out of five stars on its product page. Sixty-two percent of the product's 89 reviews rate it at just one star.

"I always go with the company that gives me the best deal," Amazon customer frannie2 wrote in a one-star review. "However, I want the DEAL to work as it is stated."

The Local Register app would not recognize frannie2's Internet connection, but Square's device had no problem with it. "I had to pull out the [Amazon] reader and insert the square and BAM!!! it worked, what a miracle."

Many other reviews, including the product's featured three-star review by Johnny Saigon, complain that users are not able to accept payments with their existing Amazon.com consumer accounts, even if they convert those to business accounts.

The review also states that "the app still feels like it's in beta form. It is slow and clunky, definitely not as quick, easy and simple as the Square app." However, Saigon notes that the card reader itself feels sturdier than Square's.

A Square user named Jason Q. stated in a comment that he was eager to switch to Amazon's new reader simply because the Amazon brand looks better, but the brand image and price advantage didn't make up for the need to maintain a separate Amazon.com merchant account. The reviewer is willing to pay Square's higher fees to avoid Amazon Local Register's growing pains.

"I am gonna wait for Amazon to address this issue," Jason Q. wrote. "Competing only on rates doesn't make Amazon stand out."

Daniel Wolfe is Editor-in-Chief of PaymentsSource.