Aside from generating billions in revenue each quarter, Amazon.com (NASDAQ:AMZN) has a core e-commerce platform that's been an invaluable tool in creating entirely new businesses from scratch.
Amazon has also long been viewed as a potential entrant into mobile payments. To that end, it recently rolled out a product that pits it directly against online-payments power PayPal (NASDAQ:PYPL).
Bank of Amazon?
According to Re/code, Amazon recently announced the public rollout of out its "Pay With Amazon" functionality to third-party websites and mobile apps in the coming months. The product is currently available in the U.S., but reports indicate that Amazon wants to grow the service's geographic footprint in earnest. Per the Re/code report, Amazon said its payments team is "tripling down" on expanding Pay With Amazon in other developed tech markets such as Japan and Germany.
Still, this isn't Amazon's first attempt at launching a potential PayPal competitor, and investors in both companies should view Amazon's efforts with some skepticism. Amazon launched the first iteration of its payments products in 2007, and its progress in producing a competitive product similar to PayPal has moved in fits and starts in the years since. Earlier this year, Amazon unceremoniously killed its Amazon Wallet product, just six months after taking it live, but there's also reason to think this time could be different for Amazon.
Earlier this year, Amazon hired away former PayPal executive Patrick Gauthier to get its third-party payments product in order, and it appears he's done just that. Although we're notably lacking a baseline figure for context, Gauthier did reveal that Pay With Amazon's external transaction volume has increased 180% year over year. So while Amazon currently enjoys few marquee partners for Pay With Amazon, PayPal investors will want to take notice this time around.
What this means for Amazon and PayPal
For Amazon, launching a successful online-payments business would be a win in a few critical respects. First, a payments service could create another fresh revenue source to support Amazon's core e-commerce business, much as AWS leverages Amazon's technological infrastructure to create an adjacent profit center. Second -- and this could change in Pay With Amazon's final terms of service -- the product could give Amazon valuable shopping data from other retailers. This point could be a difficult sell with merchants, some of which might compete directly with Amazon.
Either way, Amazon's entry into this space represents a threat to PayPal. It's smart for Amazon to get in line, as the number of PayPal competitors is rather lengthy. A few noteworthy recent entrants into the online-payments market include Apple, Stripe, and Square.
Thankfully for PayPal shareholders, new market entrants don't appear to be affecting PayPal's ongoing business expansion so far. PayPal's recently reported third-quarter earnings came in better than Wall Street expected, and PayPal demonstrated impressive strength across its entire business. GAAP revenue and fully diluted EPS increased 15% and 28%, respectively. Furthermore, PayPal grew its total payment value by 27% to $70 billion, still offering ample room for growth in the estimated $2.5 trillion market for digital payments. The company managed to increase both its aggregate customer base and the number of transactions each customer completes.
Over the year's I've covered Amazon, I've come to appreciate the company's willingness and ability to take on huge new challenges. Given Amazon's deep proximity to the way so many users buy and sell things online, only a fool (lowercase) would dismiss Amazon as a potential threat. However, as we've seen in PayPal's few earnings reports as a publicly traded company, that company appears to be clicking on all cylinders in virtually every regard. So although PayPal investors shouldn't lose any sleep right now over Amazon's gradual entry into online payments, this storyline is one that all PayPal investors will want to watch closely as it unfolds.
Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Amazon.com, Apple, and PayPal Holdings. 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.