Amazon.com, Inc. (NASDAQ:AMZN) is offering discounts to retailers who pay for goods using its online payments service. This is according to people close to the matter. If implemented, the new moves will be a big threat to Paypal Holdings Inc (NASDAQ:PYPL) and banks that issue cards.
This move is a big indication that Amazon is ready to sacrifice profits it gets from its payment system so as to popularize its use. The swipe card business generate $90 billion every year for banks like Citigroup Inc (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM), networks like Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V) as well as payment processors including Stripe Inc and First Data Corp (NYSE:FDC). All these take a fraction of the sales whose payments they process.
Fees that goes to the financial industry is about 2% of the transaction processed by a credit-card or 24 cents on debit card. Large stores like Walmart Inc (NYSE:WMT) and Amazon have been able to negotiate reduced rates due to their huge sales volume.Now Amazon is opting to offer a discount to any retailer who uses Amazon Pay service in a bid to encourage its use.
PayPal shares went down 4.1% in Wednesday, which is the highest drop since February 8. Square Inc (NYSE:SQ) shed off most of its 3.7% gain and left the stock with less than 1% gain. Visa was down 0.9%
A spokeswoman from Amazon declined to give comment on the matter. It is still not clear how many retailers have benefited from the offer. The company has a culture of testing such features with a small fraction of the target market before finally rolling them out to the broader market.
Initially, online merchants who bought from Amazon were charged 2.9% of each transaction paid for using credit card plus a further 30 cents, which is divided among the payment network, card issuers and Amazon. As its experiment its payment system, the retail giant has started negotiating reduced rates with retailers who make long-term commitments to use Amazon’s services.