American Express is joining the "checkout button" movement to compete with PayPal and others. Source: flickr user Maria Elena
American Express (AXP 0.57%) recently launched Amex Express Checkout, which is a new method of checking out at participating merchants similar to PayPal's (PYPL 1.17%) online checkout product. While Express Checkout does have certain advantages over PayPal, whether or not it's a legitimate competitive threat to the payments giant is another matter. Here's what you should know about American Express' new product, and if it could have an impact on PayPal.
What is Amex Express Checkout?
Amex Express Checkout is a new way for the company's card members to pay for goods and services on the websites of participating retailers. On these merchants' websites, an "Amex Express Checkout" button will be among the payment choices listed, similar to the one pictured below:
After choosing Amex Express Checkout as the payment option, cardholders simply enter their username and password from their existing American Express account and choose the card they'd like to pay with. American Express then securely fills in all of the checkout fields with the account holder's information. The account information is transmitted to the merchant using a token, which American Express claims makes Amex Express Checkout safer than traditional online checkout methods.
Initially, Amex Express Checkout is available at seven merchants: BarkBox, Burberry, Ledbury, Newegg, Sabon, Ticketmaster, Warby Parker, and The Wall Street Journal. There are plans to add at least 10 more merchants in the coming months, and American Express is working with Stripe to allow merchants using that payment platform to enable Amex Express Checkout for their customers.
Some advantages over PayPal, but not much of a threat
Amex Express Checkout does have advantages over PayPal, mainly having to do with its integration into existing account information. There is no need for cardholders to sign up for any new payment accounts, or give credit card information to a third party -- most existing American Express cardholders already have login credentials they can use with Amex Express Checkout.
However, there are some downsides as well. Amex Express Checkout only works with charge or credit cards -- American Express' prepaid cards aren't eligible. The limited availability on merchants' websites (at least in the beginning) will make it tough to take a real bite out of PayPal's market -- the seven merchants that use Amex Express Checkout to process online checkouts pales in comparison to PayPal's vast reach. More than eight million businesses -- mostly online -- use PayPal to process credit card transactions.
More importantly, keep in mind that Amex Express Checkout isn't the first product of its kind. Visa and MasterCard launched Visa Checkout and MasterPass, respectively, in 2014, and both checkout options have built a pretty widespread presence in e-commerce. In fact, MasterPass is featured on thousands of merchants' websites. Additionally, Google offers a "buy with Google" feature for online shopping, which allows customers to pay using their Google Wallet.
Many merchants use several of these options, in addition to their traditional checkout methods. For example, this is a screenshot of Newegg's checkout options:
Even though all of these other checkout options have been on the market for quite some time, PayPal has continued to grow and prosper. In fact, the company added 19 million active customers in 2014, and grew impressively in terms of transaction volume, revenue, and cash flow.
Source: PayPal investor presentation
PayPal's brand recognition and massive customer base of 165 million active users gives it a strong competitive advantage over these other products. Customers trust PayPal, and don't necessarily feel the need to create new payment accounts or consider the use of new options such as Amex's new feature.
In addition to its online checkout offerings, PayPal has massive growth opportunities in other areas of e-commerce, including peer-to-peer payments, lending, mobile payments, and in-store payments. According to PayPal's latest investor presentation, online and mobile payments are expected to grow into a $25 trillion addressable marketplace, so there's plenty of opportunity for all of these companies to thrive.
Source: PayPal investor presentation
Could boost American Express' revenue
To sum it up, Amex Express Checkout could provide a nice boost to American Express' bottom line, especially if it ends up being picked up by lots of businesses. Making American Express an easier and more secure way to pay could entice cardholders to use their Amex cards more often, which would lead to increased income for the company. However, PayPal has a massive head start, and since other competitors with a larger presence than Amex Express Checkout haven't been able to derail PayPal's growth, it's unlikely that American Express' offering is going to have a different impact.
