Article

Amazon enters the mPOS competition

The online retailer Wednesday introduced Amazon Local Register with a better transaction rate than Square.

August 14, 2014 by Will Hernandez — Editor, NetWorld Media Group

Amazon is ready for a fight in what has become a boxing ring filled with mobile point-of-sale providers. But it might have the early advantage against the reigning heavyweight champ thanks to a generous pricing model for first-time users.

Amazon Wednesday released Amazon Local Register, a mobile card reader similar to offerings from Square, PayPal, ROAM and a fistful of others. The online retailer hits the market with an attractive 1.75 percent transaction rate for merchants who sign up for the service by Oct. 31. Merchants receive that rate for every swipe until the end of 2015.

Amazon will still hold an edge in pricing at 2.5 percent when the promotional period ends, compared with Square at 2.75 percent. The online retailer's pricing model falls in line with the company's overall business plan in offering goods cheaper than its brick-and-mortar competitors.

"We always work to offer the lowest prices for the best possible services," an Amazon spokesperson said in an email. "We have actually heard from some business owners that the only thing that would make them change their POS system is cost savings."

Amazon's official entry into the mPOS market leaked last month when 9to5 Mac got its hands on a Staples inventory list. 

Like its competition, Amazon Local Register works in conjunction with an app for Apple iOS and Google Android. Naturally, the device will work with Amazon's FireOS devices, including the company's new Fire smartphone.

Amazon charges $10 for the device with free two-day shipping, but merchants receive a $10 statement credit down the road to cover the initial purchase. Merchants receive funds from transactions within one business day and have the option of spending them within minutes on Amazon.com.

No EMV

One glaring omission from Amazon's reader is EMV support. Its entry into the market comes two weeks after Square announced a new dongle that will support EMV transactions of the chip-and-signature variety, which the card brands have established as the standard in the U.S.

"While this card reader does not have EMV capability, we are looking forward to getting customer feedback and will continue to monitor industry requirements to ensure we are meeting those needs and creating solutions that help our customers,” the Amazon spokesperson wrote in the email.

Still, the initial lack of EMV is puzzling.

"It seems to me a little perverse," said Andrew Copeman, a U.K.-based analyst with Aite Group. "I'm slightly surprised by that decision. Maybe they want to get established first, but they will have to reissue dongles as they reengineer the process [for accepting EMV cards]."

Jordan McKee, a senior analyst with the 451 Research Mobility Team (formerly Yankee Group), believes Amazon omitted EMV capability for now in an attempt to establish itself first and at a cheaper cost.

"If they went the EMV route, they would've had to charge for the reader," he said. "They wouldn't be able to get away with giving an EMV reader away for free. Even though Amazon is known for operating on razor slim margins, I don't think that would've been a sustainable approach for them.

"This approach helps them get embedded with SMBs, and then as we start to near the liability shift, they will inevitably make the switch to EMV."

Meantime, Amazon will need to figure out where it fits with various merchant segments.

Add-on services

Square and others have long targeted micromerchants, which have the smallest revenue opportunity because of infrequent transactions and relatively small ticket sizes. And this appears to be the market Amazon will target with its product. In its press release, the company mentioned food trucks, contractors and accountants as businesses (or individuals) that would benefit from Amazon Local Register.

"Amazon Local Register is ideal for any business or individual — regardless of size or margins — that needs a secure, inexpensive and simple way to accept payments," the spokesman said in an email.

McKee said he was surprised that Amazon did not follow the brick-and-mortar point-of-sale opportunity in the same way as Leaf, NCR Silver and ShopKeep. These companies offer small and medium-size businesses software-as-a-service products that combine front-end capabilities such as payment acceptance with back office tools such as inventory management, tracking employee hours, and related business tasks.

Such products are ideal for small to medium-size business such as restaurants that have much a higher transaction volume each month than micromerchants.

Amazon is offering ancillary services with Local Register, but not on the level as Leaf, NCR Silver and ShopKeep.

The accompanying app will enable merchants to track sales trends, peak sales times and additional valuable data.

Amazon's customer support also should differentiate itself from its competitors, McKee said. "That is a fairly significant component of the overall value proposition," he said.

Kindle Fire HDX tablet users will have the luxury of using the company's famous Mayday button to summon Amazon tech support at any time.

"I think we're seeing a redefinition of what mPOS is," Chapman said. "A lot of players are adding a variety of add-on services such as analytics. I think, however, there are still challenges there ... because a lot of those small merchants are not in position to make sophisticated use of that data.

"There are those merchants that are very open-minded about analytics, but a lot of mom-and-pop stores are not sophisticated enough to do detailed analytics of their customer base."

Perhaps those analytics could be of more use to SMBs should Amazon loop its mobile wallet into the Local Register transaction and enable loyalty and other offers. The wallet app, which is a beta version, does not support mobile payments, but lets users to store loyalty and gift cards in a single place.

McKee envisions future scenarios where the mobile wallet and Amazon's 1-Click ordering all come into play on Local Register.

"I have to imagine this is really just the tip of the iceberg," he said. "They are using [Local Register] as the entry point into the physical world and it would seem in the near- to mid-term, we'll start to see some commerce related services introduced by Amazon that are very much complementary to the point-of-sale product."

About Will Hernandez

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Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.

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