Amazon (NASDAQ:AMZN) made a big push into the payment-transaction market for physical retail stores when it launched Amazon Local Register on Wednesday. The service, which looks a lot like the one offered by Square, includes a secure card reader and mobile app that provides local businesses with the tools they need to easily accept credit and debit cards from a smartphone or tablet.

The company is aggressively targeting category leaders Square and eBay (NASDAQ:EBAY)-owned PayPal by offering lower rates than those established players charge.

Square and PayPal charge 2.7% of every swiped transaction. Amazon announced a standard rate of 2.5%, as well as a launch promotion where the rate drops to 1.75% through Jan. 1, 2016, if customers sign up before Oct. 31. Offering a rate that's nearly a full percentage point lower should be incredibly enticing to those using Square or PayPal. It's also a lower rate than most retail stores pay per transaction to banks and other processors of credit card payments. Local Register also includes a suite of tools for tracking sales and taxes, and monitoring business performance.

Amazon clearly sees a big potential market for its cash register/credit card processing solution.

"From clothing stores to contractors, food trucks to accountants, businesses and organizations using Amazon Local Register will enjoy industry-leading low rates, trusted and secure payment processing, and access to award-winning customer support," said Matt Swann, vice president of Amazon Local Commerce. "We understand that every penny and every minute counts, so we want to make accepting payments so easy and inexpensive that it no longer gets in the way of a business owner doing what they love -- serving their customers and growing their business."

Amazon is making a big play into a market that has not yet taken off, while also attempting to grab a share of the traditional credit card business. The company has to be aggressive because many stores have lost business to the online retailer and may not be inclined to give it a cut of credit card sales. But with a much lower price per transaction guaranteed for more than a year, it's hard to imagine any store not at at least considering the Amazon service.

How do stores process credit cards?
Owners of independent stores make a deal with a payment processor to handle credit card transactions. In some cases, the stores work with their existing banks, but the market in general is very competitive. In the two years I spent running a large toy and hobby store that did more than $1 million in credit card sales each year, I was regularly pitched by financial institutions looking to take over our processing. In most cases, these companies would come in, analyze what we paid in transaction fees over the previous 12 months, and offer us a promise -- but not a guarantee -- of a better deal.

Amazon is not offering a promise of cheaper transaction fees, it's guaranteeing lower rates. On $1 million in sales, the difference between 2.7% and 1.75% is an extra $9,500 in the store owner's pocket. That's not a huge amount, but it's noticeable, and the savings grow as sales do. For a mutli-store operator doing $10 million in sales,  an extra $95,000 falls straight to the bottom line.

As the new player in the space, Amazon is also making it very easy for customers to get started with no major equipment expenses. To use Amazon Local Register, stores must create an account on, purchase a $10 card reader, and download the free mobile app from Amazon Appstore, Apple App Store or Google Play store, according to Amazon. You also need tablets or mobile phones to run the app. The $10 card reader fee will be credited to each customer's account once the product is in use. That makes devices to run the app the only cost to stores -- with Amazon's own Kindle Fire, starting at $139, being a logical choice.

Amazon is also offering terms in line with industry standards, as money from transactions can be deposited directly into a bank account within one business day. It can also be spent on "within minutes."

Will it work?
Square and PayPal have both struggled to get retailers to adopt their services. That's not because they don't offer good products, but because retailers are slow to change, and dropping the traditional cash register/credit card terminal is a big change. Stores could use a solution like Local Register alongside a traditional point-of-sale register system such as Intuit's QuickBooks POS, or they could choose to abandon the traditional system entirely. For customers caught between the two worlds, Amazon does offer cash drawers and receipt printers designed to work optimally with its system.

That's not necessary, however, as many retail stores -- including the one I used to run -- use one system (in our case QuickBooks POS) to process sales and a second to process the credit card transaction.

Amazon, purely due to its offer of a low price, becomes an immediate contender, and Square and PayPal will likely have to consider lowering their rates. Whether Amazon succeeds in this space will likely depend upon how existing players -- the online ones and the traditional ones -- respond.

The real winners here are clearly smaller retailers, which now have a low-priced offer they can use to negotiate better rates with their existing providers.

If they offer to match Amazon's deal -- or come close -- then it may be hard for the online giant to win market share. If they stick to higher pricing and bet on customer loyalty, Amazon could come bursting through the door.