Amazon takes on Square and PayPal in mobile payments market

Amazon has waded into the mobile payment market with the launch of its new Local Register system.

Payment technology is developing quickly and as smartphone and tablet penetration grows worldwide, it seems inevitable that mobile payments will be the next great frontier after the rise of credit and debit cards.

That’s why so many companies have tried to break into the market – and now Amazon has waded in.

Wired has all the details on how it actually works as Amazon has just announced Local Register, a mobile credit card reader that plugs into the headphone jack of the customer’s smartphone.

It functions through a mobile app that handles the transaction and gives the merchant access to different sales data.

The technology is far from new and in many ways is similar to the systems being offered by Square and PayPal among others. In many ways the biggest difference is the price – any firm that signs up for Local Register by the end of October will be charged 1.75 per cent per transaction until 2016. That’s far below the 2.75 per cent that Square offers, for example.

The lower price is ultimately just a means of attracting merchants, especially the smallest outlets such as food trucks and independents. It’s unlikely that profits will be particularly high.

But Amazon’s business model has been built on sales volumes over profitability for quite some time, and launching its own payment system is a natural step to gain a foothold in physical retail – one of very few sectors where it does not have a presence.

In many ways, its biggest challenge might be persuading retailers to work with a company that they have come to see as a rival and a threat. But if Square’s example is anything to go by, Amazon Local Register will find that it sees the biggest uptake in the smaller outlets which have not traditionally seen the online retailer as a competitor.

Beyond price, issues such as the technology itself may hold back Amazon’s progress. GeekWire reports that Dave Fester, a small business owner in the US, tried to sign up this morning only to be disappointed with the sign-up process and quality of the service. But Amazon is likely to improve the service as revenue comes in and will keep pursuing the mobile payments market. It’s likely others will join them.