Amazon Pays the Price

There's a new force on the micropayments scene. Amazon.com (Nasdaq: AMZN  ) is launching Amazon Flexible Payments Service, though it's not quite the immediate PayPal-killer that some may make it out to be.

Amazon FPS is billed as "the first payments service designed from the ground up specifically for developers," though eBay's (Nasdaq: EBAY  ) PayPal has given developers incorporation flexibility for years.

There's also an important distinction here. PayPal actually handles the money, while Amazon is simply using the payment information that its nearly 70 million active Amazon.com accounts already have on file to make it easy to spend money on third-party websites.

Amazon FPS -- like Google's (Nasdaq: GOOG  ) nascent Checkout service -- isn't a true clone of PayPal. At least, not yet. One of the greatest advantages of PayPal is that its accounts have $2 billion sitting idle. Users have little reason to cash out, given that PayPal is paying those balances a wickedly generous 5% yield. However, that money is there, serving almost as "found money" when they stumble into a merchant that offers PayPal.

This doesn't mean that eBay can afford to ignore Amazon. When you have a built-in audience of some 70 million active accounts, it's all too convenient for a potential shopper to go that route, rather than having to enter new credit card information. It will definitely make Amazon's platform attractive. It's a less ambitious tack than Yahoo! (Nasdaq: YHOO  ) and Microsoft (Nasdaq: MSFT  ) once attempted -- and failed at -- but it's a smart approach. It plays to Amazon's strengths as an experienced and trusted transaction-handler.

This is also critical for eBay, because PayPal is growing a lot faster than its namesake auction business. eBay would hate to see PayPal's growth slow from its healthy pace, leaving the company to wait until someone else took a legitimate swipe at its Skype business, too. Absent PayPal and Skype, eBay would be left with no easy growth drivers.

So even if Amazon FPS is not a PayPal-killer, it does have the potential to kick its bigger rival in the shins a few times.

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Longtime Fool contributor Rick Munarriz misses the good old days when actual greenbacks traded hands. He does not own shares in any of the companies in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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