Amazon Eats PayPal's Lunch Money

There's no such thing as a PayPal killer, but that doesn't mean a rival can't take a good whack at the kneecaps of eBay's (Nasdaq: EBAY  ) ubiquitous transaction service.

Amazon.com (Nasdaq: AMZN  ) is rolling out a pair of payment services today. Checkout by Amazon and Simple Pay are merchant-geared offerings, allowing online retailers of all sizes to incorporate Amazon's proven shopping-cart checkout system into their own sites.

These services are still a far cry from the consumer-driven PayPal, of course. Amazon's effort resembles Google's (Nasdaq: GOOG  ) tentative foray into this space two years ago with Google Checkout. In short, PayPal has nothing to worry about.

Google gave payment-processing the old college try, turning heads when it attracted merchants by slashing credit-card processing fees. It also hoped to go viral by offering shoppers merchant-specific discounts for going the Google Checkout route. How is that battle going today? Google Checkout may still be around, but PayPal continues to be the fast-growing category-killer.

Then again, Amazon may have a few advantages over Google. It's a recognized transaction expert. Its proprietary "one-click" shopping is convenient for buyers and a conversions enhancer for sellers. In short, it works.

However, you can't truly take on PayPal unless you similarly offer high interest-bearing cash balances on idle funds. The reason that PayPal is so popular -- now up to 62.6 million global accounts and counting -- is that consumers swap money between themselves. Since they have little reason to redeem the cash in their PayPal accounts, given the service's attractive yields, it's there as "found money" the next time they wind up at a merchant who accepts PayPal.

Amazon has no interest in that, for now. It simply wants to be the middleman in a credit card transaction. It knows better than to follow in the flawed footsteps of companies like Citigroup (NYSE: C  ) , Wells Fargo (NYSE: WFC  ) , and even Yahoo! (Nasdaq: YHOO  ) , all of which tried and failed to topple PayPal by attacking it head-on. Amazon's starting small, aiming for small businesses that need a little help in sealing the deal with their e-tail endeavors.

Is this the start of something even bigger? Can Amazon grow from nibbling on PayPal's ankles today to socking it in the back of the head tomorrow? It's highly unlikely, but at least Amazon knows that you have to start at the bottom if you want to take down a giant.

Other checkout stories to check out:

Google is a Motley Fool Rule Breakers selection. eBay and Amazon.com are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz wonders whether express checkout lanes matter in cyberspace. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.


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  • Report this Comment On July 30, 2008, at 3:45 PM, Spoot1 wrote:

    3 things that are great about Paypal, and why I would be unlikely to switch my paypal shopping cart based store:

    1. Paypal Money market pays interest on your account funds.

    2. Paypal debit card with 1% cash back linked to my account.

    3. Easy to print USPS shipping labels with a click on the transactions.

  • Report this Comment On July 30, 2008, at 5:12 PM, rich4444 wrote:

    How does the title of this article match up to it's content? This is one of the most annoying things about articles in the online world - misleading titles.

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