Is Preparing for War With Visa and MasterCard?'s new Local Register product isn't an assault on either Visa or MasterCard, but that doesn't mean these mega companies won't eventually clash.

Aug 20, 2014 at 8:40AM

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Last week, (NASDAQ:AMZN) released a new product, Amazon Local Register. The product is a mobile credit card reader and accompanying app that allows merchants to accept credit and debit cards anywhere with a tablet or smartphone. 

This product is by no means revolutionary -- Square, PayPal, and myriad others already offer the exact same functionality; but when enters the fray, competitors take notice.

Enter Visa and MasterCard
It seems that every time a tech company launches a new product or app in the mobile payments world, the conversation inevitably turns to Visa (NYSE:V) and MasterCard (NYSE:MA). These two behemoths are synonymous with payments, and dominate the electronic transfer of money literally all over the world.

Perhaps because of this worldwide dominance, there are also some major misconceptions about the companies and how they operate. Visa and MasterCard are not actually credit card companies. In fact, they are basically just middlemen who operate the back-end infrastructure that connects the merchant with your bank. The companies are just toll collectors: When you swipe your card, Visa and/or MasterCard facilitate the transaction, and they collect a small cut for their efforts.

Even when companies like Google or PayPal come out with "mobile wallet" products that allow you to purchase goods or services without swiping your card, Visa and MasterCard still get paid. It's not about how you choose to interact with the merchant, it's about the back-end network that connects all the different players, and makes the transaction successful.

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Tech companies by and large have elected to partner with Visa and MasterCard instead of attempting to replace them. Google, PayPal, Square, and now build the front-end user interface, and then rely on the existing payment network to facilitate the transaction.

Amazon isn't challenging Visa or MasterCard today, but let's think longer term
Amazon is a unique case. The company has repeatedly ignored conventional wisdom as it grew from an upstart book retailer to the domineering e-commerce giant it is today. It has eschewed profits for growth, investing every penny of available cash flow to sell more products cheaper, deliver them faster, and pull consumers deeper and deeper into the company's all-inclusive ecosystem.

With the launch of Amazon Local Register, the company now has a toehold in the payments world. If past strategy holds true, we should expect to see Amazon find new ways to lower costs for the consumer, increase speed and convenience, and bring the customer experience deeper and more completely within the Amazon ecosystem.

Amazon may soon go head-to-head with Visa and MasterCard
Creating a replacement payment network that's capable of competing with Visa and MasterCard from scratch would be an incredibly challenging endeavor. It would be a true long shot. But if there is any company out there with the gumption, capital, and technical capabilities to do it, it's Amazon.

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And there's some precedent for this kind of bold maneuvering. To keep consumers within the Amazon ecosystem of streaming TV, movies, and music, Amazon built its own tablet product, its own smartphone, and its own set-top media player. Instead of relying on Google or Apple to distribute its products, Amazon built out distribution for itself. Forget going around; Amazon has a history of running straight up the middle.

Building a global payments network would obviously be a much greater challenge than building, say, a smartphone; but conditions have never been more ripe for such a bold move. The technology that powers digital currencies like Bitcoin, called block-chain technology, seems a likely candidate for a faster, cheaper payment processing technology. This could be exactly the framework that Amazon needs to quickly build and scale its own payment network.

Five years ago, this technology didn't exist; it seems plausible, though far from certain, that five years in the future, it could be ready to upend the status quo in digital payments.

Should investors in Visa and MasterCard today be worried?
At present, this challenge from Amazon is purely hypothetical. The company has given no indication whatsoever that it intends to follow the path laid out here today. Investors today have nothing to worry about in the short and medium term.

In fact, the success of Amazon Local Register would also be a success for Visa and MasterCard. In the current industry structure, any new portal that accepts payments over the Visa or MasterCard network is a win-win situation.

However, if I were an executive at Visa or MasterCard, I'd be working very hard to get in front of this threat, and cover my flank, however low the probability. Time and again, established giants have been brought down by new technologies that seemingly come out of nowhere. It's always a long shot until it happens.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the eight-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.

Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends, Apple,Google (A shares), Google (C shares), MasterCard, and Visa. The Motley Fool owns shares of, Apple,Google (A shares), Google (C shares), MasterCard, and Visa. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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