Amazon.com, Inc.'s Answer to Square: How Big Could It Be?

Amazon just introduced its own credit card reader. Here's how big it could grow.

Aug 19, 2014 at 9:30AM

Another day, another high-growth industry disrupted by Amazon.com (NASDAQ:AMZN). In a clear swipe at Square and eBay's (NASDAQ:EBAY) PayPal Here, the online retail behemoth just launched a new secure credit card reader called Amazon Local Register.

Amazon Stock Local Register

Amazon's Local Register Secure Card Reader, Credit: Amazon.com,

And it's hard to blame them. Though Amazon's online retail presence continues to grow quickly -- with net product sales jumping 19.6% to $15.25 billion last quarter -- research from A.T. Kearney estimates 90% of all U.S. retail sales in 2013 still came from brick and mortar stores.

In true Amazon fashion, Local Register also undercuts the prices of its primary competition. For customers who sign up for Amazon Local Register before Oct. 31, 2014, all major credit cards will be accepted for 1.75% per swipe until Jan. 1, 2016. After that, Amazon's per-swipe fee reverts to 2.5% -- still notably lower than the 2.75% and 2.7% charged by Square and PayPal Here, respectively. Amazon Local Register will also charge just 2.75% for each manually keyed transaction, compared to 3.5% + $0.15 per transaction from both Square and PayPal Here. 

So how big could Amazon Local Register be?

First, it's unclear how much revenue eBay generates from its PayPal Here card reader operations, but eBay has stated PayPal is its single fastest growing business. Specifically, PayPal's active registered accounts have grown by double digits over the last year to 150 million -- compared to more than 250 million for Amazon, by the way -- which translated to 20% year-over-year revenue growth on a constant currency basis to $1.9 billion.

Meanwhile, Square expects total transaction volume to grow by roughly 50% in 2014 to $30 billion, which should result in sales of nearly $1 billion. However, The Wall Street Journal estimates roughly 70%-80% of Square's revenue ultimately gets kicked back to credit card companies, which would put Square's 2014 net revenue somewhere in the range of $200 million-$300 million.

Assuming a similar split for Amazon, and if Amazon Local Register is able to eventually follow suit and achieve $30 billion in annual transaction volume, it would mean total sales of roughly $810 million, and incremental annual net revenue of $162 million-$243 million. That's certainly nothing to scoff at, but at the midpoint still only represents around one quarter of 1% of Amazon's current annual revenue run rate.

Even then, however, Square is reportedly unprofitable with its higher fees, so it's obvious Amazon is once again foregoing short-term profits in the name of growing revenue. At the same time, the wider scopes of both Amazon and eBay's other segments provide a key advantage over Square here, as both can rely on supplemental positive cash flow to sustain their respective card reader businesses as they shuffle for market share.

Of course, we should also keep in mind Amazon Local Register might suffer from one key disadvantage: Namely, that the very customers it's targeting might be loathe to support the retail monster which undercuts the prices of their merchandise in the first place. But you might be surprised, especially considering Amazon's Marketplace Sellers community already includes more than two million businesses of all sizes, which Amazon previously stated have sold more than a billion units through Amazon.com worth "tens of billions of dollars."

In the end, as long as any meaningful slice of retail sales are still happening offline, it makes plenty of sense for Amazon to introduce new services to grab as large a piece of the pie as possible. However small its impact on Amazon's overall near-term results, Amazon Local Register appears capable of helping it do just that.

Your credit card may soon be completely worthless
At the same time, however, keep in mind the plastic in your wallet will eventually go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Steve Symington 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers