More than 1 in 10 American households have an Alexa-enabled smartspeaker, and that number is rapidly growing. Amazon (AMZN 0.03%) is the leading player in the burgeoning smartspeaker market, and it intends to use that position to do more than sell music subscriptions and new shoes.

The online retail giant is considering using Alexa to enable peer-to-peer payments like PayPal's (PYPL 0.69%) Venmo or Square's (SQ -4.21%) Cash App, according to a report from The Wall Street Journal. Moreover, Amazon's CEO Jeff Bezos is reportedly making financial services a key priority this year. It's already been rumored to be working on a checking account product for the underbanked.

Amazon's financial services aspirations pose a significant threat to both PayPal's and Square's consumer services, which both companies point to as big opportunities on the horizon.

Amazon Echo on a bookshelf.

Image source: Amazon

Reaching a new demographic

Amazon used Alexa to introduce premium music subscriptions like its Amazon Music Unlimited to an entirely different demographic than more popular streaming services. In particular, it was able to attract older consumers who might not be as tech savvy. As a result, the company has acquired "tens of millions" of subscribers in the 18 months since launching the service.

Amazon may find similar success leveraging the simplicity of Alexa to enable peer-to-peer payments. Granted, using a smartspeaker to play music is a lot more intuitive than using it to send payments.

That said, Amazon already has debit card information for many of its customers, and Echo owners are at least already familiar with how to add a bank card to their Amazon account. If Amazon can develop a simple mechanism for finding the right user to send payments to, it could bring in a lot more older people and late adopters to peer-to-peer payments.

Where that becomes a threat to Square and PayPal is the fact that peer-to-peer payments require a network. In order to send and receive payments, both parties must use the same platform. As such, Amazon could quickly steal users away from Venmo and Cash App by bringing in a whole new demographic of users -- one with considerably more money than those typically using PayPal's and Square's consumer products.

Amazon's path to monetization

One of the big challenges for Square and PayPal is how they plan to monetize Cash App and Venmo. They don't charge for most peer-to-peer payments.

Square is looking to provide banking services to the typically underbanked through Cash App. Using an account to store money and the Cash Card -- a prepaid debit card -- to spend down the balance is its first product. It may soon expand to consumer loans -- an adjacency to its Square Capital business loans.

PayPal has followed the same playbook it used to monetize PayPal for Venmo. Merchants can sign up to accept Venmo, and PayPal will charge similar fees as it does for PayPal. PayPal says it's currently making more profit off of those transactions since more Venmo users keep balances in their accounts due to their high frequency of use compared to PayPal.

But Amazon could use its users' data to sell them more products on its online marketplace or improve its growing advertising business. It could use its planned financial services for the underbanked to make it easier for more people to buy things.

It could use peer-to-peer payments as an incentive for people to buy an Alexa-enabled device, and to get them used to sending money via voice. Ultimately, Amazon would love for every home to have an Echo device, as Echo owners are its most valuable customers.

Amazon has a lot more paths to monetization than Square and PayPal. Importantly, it doesn't really have to build new products in order for peer-to-peer payments to prove a valuable addition to its portfolio of services. That makes it a real threat to the two incumbents in peer-to-peer payments.