The world's largest online retailer, Amazon.com (NASDAQ:AMZN), is famous for being in constant search of new business opportunites. The company, which was founded as an online bookstore, is now present in various industries, from cloud hosting to consumer electronics.
This time, the company plans to conquer the online payments world --currently dominated by eBay's (NASDAQ:EBAY) PayPal -- by releasing its own platform for online payments. The service, which will allow more than 240 million users all over the world to use their credit details stored in Amazon.com to pay for various services, from phone bills to music subscriptions, is likely going to become a major competitor for PayPal. Why is Amazon.com releasing its own online payments platform? Can the company succeed in capturing market share from PayPal?
The attractive industry of online payments
In a nutshell, the industry of online payments could become a huge revenue source and growth driver for Amazon.com. As users increase their time spent online --specially via mobile devices-- the relevance of such platforms is clearly going to keep growing.
PayPal --which saw its revenue increase by 19% in its most recent quarter-- generated $6.6 billion in revenue for eBay in 2013, with more than half of this coming from international business. The service counts with over 148 million active accounts across more than 190 markets, processing more than 9 million payments per day.
Amazon.com could, in theory, replicate PayPal's success, as the company's 240 million users database is set to attract plenty of merchants. Simply put, merchants have a huge incentive to start accepting payments via Amazon.com, as they would be able to offer a one-click payment choice to 240 million potential customers.
There are more benefits. The company tested its payments platform on Ting, a mobile phone company. The results were amazing. On average, those who used recurring payments via Amazon's online payments platform increased their spending by 30%.
Note that the announcement of Amazon.com's online payments platform comes ahead of an event scheduled for June 18, in which Jeff Bezos is expected to release a highly innovative smartphone with 3D capabilities. The timing of the release of both services suggests that Amazon.com's payments system may be optimized for mobile devices. This is clearly the right direction to go, as mobile payments are the fastest growing segment within the industry.
Trust is vital
To attract more merchants, Amazon.com has stated that it will only keep the value of each transaction its database. In other words, the company does not plan to use its platform as a way to obtain information about consumer trends via data mining.
From now on
The competition against PayPal won't be easy, as PayPal has over 8 million merchants registered. However, Amazon.com could use agressive pricing --including heavy discounts-- in order to capture market share at the beginning.
Such a strategy isn't new for the online retailer, which offered one-year free trials to webmasters interested in using its cloud farms service. By providing free-trials, Amazon.com managed to quickly adapt thousands of relevant users to its cloud technology. In less than one year, the company was able to create a strong community of developers.
The same strategy could easily be applied to the online payments service in order to gain merchants. For the first year, Amazon.com could offer mechants several discounts in Amazon.com's online store, which combined with a low commission per transaction, could help the online retailer to quickly become a must-have for anybody with an online business.
Final Foolish takeaway
Amazon.com's new online payments platform looks promising. The company could use its more than 240 million users, aggressive pricing, strong branding and mobile focus to attract many more merchants. In the mid run, there's a high chance that this service ends up becoming a meaningful revenue source for the online retailer.
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Victoria Zhang has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.