Amazon.com (NASDAQ:AMZN) wants to be more than just the world's biggest online retailer. Earlier this month, the e-commerce giant added new login services to its rap, making it a direct competitor to eBay's (NASDAQ:EBAY) PayPal service. The new platform, named Login and Pay with Amazon, lets online shoppers make purchases on thousands of third-party sites using their existing Amazon.com accounts. Let's take a closer look at how Amazon plans to cash in on this service, and what it means for rival PayPal.
Here's how it works.
Pay and get paid faster
Login and Pay with Amazon makes it easier for online retailers to attract new customers, because visitors don't need to create new accounts in order to check out. Instead, customers can simply log in with their existing Amazon credentials. Similar to PayPal, the shopper's shipping and payment information is then auto-populated on the site -- simplifying the payment process.
Keep in mind, PayPal has been in the online payments business much longer than Amazon. But Amazon currently has more than 215 million active customers, compared to PayPal's 132 million active accounts today. This could spur more online sellers to add Amazon payments to their checkout options even if they already offer PayPal, since participating retailers gain access to those active members.
Some early adaptors of Amazon's login platform include Gogo, which offers in-flight Wi-Fi services, and Build.com. Not to mention, the simple integration of the "Pay with Amazon" button and its ability to work across mobile and PC devices should make this an easy sell for online sellers.
On top of this, Amazon is pitching its new service as a way for merchants to reduce fraud charges. This makes sense for the company, because it's able to leverage the fraud detection technology that's already in place on Amazon.com. Participating e-tailers must pay Amazon $0.30 per transaction, plus a 2.9% fee for monthly average sales below $2,999, which decreases to 1.9% for sales of $100,000 or more per month. PayPal charges a similar rate for its service.
The ultimate payoff
Online shoppers in the U.S. will spend an estimated $327 billion on Web purchases by 2016, according to Forrester Research. That means there should be plenty of room in the online payment business for both Amazon and PayPal. Nevertheless, PayPal remains the market leader today with more than $7.7 million payments processed every day. Moreover, PayPal is on track to process as much as $20 billion in mobile payments alone this year. So while Amazon's sheer size and existing customer count are sure to give it a strong head start in the space, PayPal will be sure to give it a run for its money.
Fool contributor Tamara Rutter owns shares of Amazon.com. 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.