How mobile payment providers can survive the Amazon threat

Paypal and Square aren’t the only companies put at risk by Amazon’s smartphone-and-tablet-based Local Register. Smaller mobile warriors have also been battling it out to capture a share of the market – and for them, the Amazon invasion will be even harder to grapple with.

Amazon’s entry into the mobile payment space “has no doubt struck fear in the hearts of competing providers of this technology,” says Forbes contributor Erika Morphy, “And with good reason.” Amazon is a household name. The company’s years of experience in facilitating transactions between sellers and customers, coupled with an aggressive strategy of undercutting competitors, sees them well placed to colonise the space. But, says Morphy, if smaller companies survive the disruption, changes in consumer habits should open up long-term opportunities for healthy competition – and in the short term, she says, “there is a way for them to compete.”

First, there is the issue of trust. In October, a study of US retailers by Mercury Pay found that, whilst nearly two thirds (65%) of respondents planned to adopt mobile payments in the coming three years, 71% would look to their existing POS provider to implement solutions in this area and most of these (64%) had already gone through a process of comparing two or three suppliers before setting on their current one. With 46% also claiming they’d only use a system that had been proven to work, Amazon may find it harder than expected to undermine existing trust relationships, especially given that many small retailers still view the internet giant with suspicion.

Of course, customer loyalty doesn’t always stand firm in the face of financial savings, and Amazon’s offering is certainly cheap. Customers pay just $10 for the card reader and can download the app for free, whilst transaction fees are a full percentage point below the competition. Clearly, smaller companies are not going to be able to compete on price.

But, whilst Amazon’s cheap and cheerful solution might do the job for a pop-up shop or a street food seller, most businesses will need smarter features. This, says Morphy, is where smaller competitors can focus on adding value. “Most small businesses, such as food trucks, coffee shops, retail shops, and salons, require a more complete solution that manages the critical tasks – from ringing up sales to inventory management to loyalty programs – in order to reach new customers and grow their business,” she says. Rather than focussing on price, smaller outfits need to think about what they can offer that Amazon can’t.

Amazon’s arrival is certainly a valid cause for concern, but there is a silver lining. The entry of such a big name into an arena that has not yet caught up with chip and pin or contactless card payments can only legitimise it in the eyes of the consumer, helping to change the way that people expect to shop. Just as the company helped to revolutionise online shopping, ultimately priming new markets for other web-based outlets, their entry into the mobile payment space may well lay the ground for niche providers whose USP is precisely that they do things in ways that Amazon does not.

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