Friday, January 23, 2015

AMZN: Why is Amazon Leaving Billions on the Table?


Amazon is no longer a player in the mobile payment arena


Earlier this week, Amazon.com, Inc. (NASDAQ:AMZNannounced its intention to squash its mobile payments app, Amazon Wallet. After only six months of testing, it seems that the company has garnered enough data to determine that it has no future in the realm of mobile payment processing.

However, as the world’s largest e-commerce company in terms of total revenue, Amazon should put more effort into developing the industry’s best smartphone wallet solution, rather than abandoning the project.

No King Has Been Crowned


Mobile payment processing is perhaps the only aspect of the mobile space that hasn’t yet had a single, overwhelmingly popular or successful solution. A number of potentially viable apps exist from the industry’s big players, such as Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) Wallet, PayPal, Inc., and most recently Apple Inc. (NASDAQ:AAPL) Pay.

While each of these apps essentially accomplishes the same task in the same manner, one has not risen above the others to claim the mobile payment throne.

It would seem, then, that Amazon’s decision to abandon its smartphone payment program becomes a missed opportunity to capitalize on an otherwise fragmented market. Each of the solutions mentioned above has been readily available for quite some time, suggesting that their lack of popularity is not due to a lack of awareness by consumers.

Google first released its Wallet app in September 2011; PayPal’s mobile app has been available since 2009; AAPL’s newest iteration, Apple Pay, was launched near the end of 2014.

Why Is a Mobile Payment Solution Important?


Without a proprietary mobile payment system, AMZN will give up the chance to generate additional revenue from customers making purchases via their smartphones or tablets. Considering a recent report from Jupiter Research that estimates there will be more than 500 million transactions with mobile payment apps by the end of the decade, it just doesn’t make sense for Amazon to willingly walk away from such significant volume.

A smartphone payment solution seems a logical addition when discussing the world’s largest online retailer.

Aside from pulling consumers into its online ecosystem, a mobile payment program could generate potentially significant additional revenue for AMZN. According to Bloomberg, banks generate approximately $40 billion annually from “swipe fees” associated with credit card purchases.

Last September, Apple CEO Tim Cook called mobile payments “huge business” and described his company’s desire to capture some of the $12 billion worth of daily credit card transactions in the U.S. A recent report from BI Intelligence predicts that mobile payment volume in the U.S. will increase to $818 billion by 2019, which equates to a five-year compound annual growth rate of 172%.

Since Amazon Wallet’s existence was cut short, and considering the service was not marketed to the masses, it’s impossible to estimate how much revenue AMZN has passed up by terminating the project. However, we can get a rough estimate of what could have been possible by examining the competition.

E-commerce giant eBay Inc (NASDAQ:EBAY) released fourth-quarter earnings earlier this week, and reported that PayPal’s total mobile payment volume was $46 billion for the year. PayPal typicallycharges merchants between 2%-3% per transaction, based on monthly volume.

Apple Pay charges 1.5%, but the service hasn’t been around long enough to gauge revenue. Google, on the other hand, doesn’t charge merchants for processing transactions, but gets revenue from targeted ads instead.

Bottom Line


Each of these major players has chosen a different method of revenue generation with respect to their mobile payment apps, but the point is that there’s plenty of money to go around and plenty of ways to bring in revenue.

Clearly, $818 billion is an outrageous amount of money (for a good visual, $1 billion in cash would require 12 pallets stacked 4 feet high with $100 dollar bills), and AMZN should be taking steps to grab as much market share as possible.

Article originally appeared on InvestorPlace.com (01/23/2015)