Amazon Takes Shopping Offline With a New Mobile Credit Card Reader

Amazon

Amazon is launching a new piece of hardware today, but it’s not for reading or watching or even buying things from Amazon. Instead, it’s for buying stuff in the one place Amazon doesn’t sell: Offline.

Amazon’s new credit card reader plugs into the headphone jack of mobile phones and tablets, just like those made by Square, PayPal, and a range of other companies. The reader works in tandem with a mobile app that, along with handling the basic transaction, gives merchants access to data on sales trends, peak sales times, and more. Amazon is branding the reader and app together as Amazon Local Register.

Considering such devices have been available for the past half-decade, you could dismiss Amazon as a very late mover. But since no other company is like Amazon, you have to ask what competitive advantages it brings, even if the product itself is far from original.

Amazon

The first sign is Amazon’s low introductory rate for users who sign up for Local Register before October 31. Amazon will charge a flat rate of 1.75 percent per swipe until January 1, 2016—low by the convoluted standards of the traditional credit card industry, and even by the flat rate pioneers at Square, which charges 2.75 percent. Acting as the middle man in credit card transactions already is a low-margin business, and Amazon appears to be ensuring its margins are even lower. Making money on mobile payments essentially means chasing as many swipes as possible.

But if any company has shown an appetite for growth over profits, it’s Amazon. Amazon’s low prices and willingness to spend big on its ultra-convenient shipping options has ensured massive growth in Amazon sales over the past several years at the expense of profitability. The approach to its card reader appears to be similar—make the fees so low that merchants have a hard time saying no.

Another Amazon advantage is simple brand recognition. As a company starting from scratch, Square has had to work hard to make itself known. Even a company like PayPal has to work hard to make users aware that, along with its online payment option, it has a card reader, too. Amazon, meanwhile, has the option of putting its card reader at the top of its homepage. The card reader just becomes something else you buy on Amazon (the reader will cost $10, but Amazon is waiving the first $10 in swiping fees to make the reader effectively free).

That brand awareness could also help on the consumer end. Hundreds of millions of people have already entrusted Amazon with their credit card information when they shop on the site. Swiping their cards through a reader emblazoned with the Amazon logo might make the relatively unusual experience of paying via smartphone feel a little more familiar, even though you’re not paying or buying anything from Amazon at all.

Lastly, Amazon has a long history of working with third-party merchants, albeit online. Some 40 percent of the merchandise moved on the Amazon site is sold not by Amazon but other vendors who use the site to sell and take orders and payments, and many of whom stock their inventory in Amazon warehouses to be shipped by Amazon. A mobile card reader and app give Amazon a way to act as a backend service provider to offline sellers as well, though in a more modest way.

That said, Amazon may not be targeting the kinds of merchants that likely already have their own card-reading abilities, the storefronts that so often compete with Amazon by selling similar merchandise. The testimonials from users in Amazon’s press release include a hair and makeup artist, an event venue owner, and a massage therapist—none of whom would directly compete with Amazon for sales. For them, the card reader is a way for Amazon to provide a service for sellers whose businesses only make sense offline.