Here’s How Amazon Payments Can Drive Profitability For The Company

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Recently, Amazon (NASDAQ:AMZN) announced that more than 33 million customers have used its payments service “Pay with Amazon” to make a purchase. This is an increase of 10 million compared to the 23 million number with the earnings release in April last year. In 2016, the payment volume on “Pay with Amazon” nearly doubled as the company expanded this service into European countries such as France, Spain and Italy and added new verticals where this service can be used such as government payments and travel. Amazon Payments allows its customers to pay on merchant websites outside of Amazon using the information already stored in their Amazon accounts. This offers its customers the convenience to shop at other sites using a single Amazon login and more than 50% of customers using this service are Amazon Prime members. The company charges merchants a nearly 3% processing fee for each transaction done using “Pay with Amazon” and a 3.9% processing fee for inter-country transactions. With an expanding base of Prime Members and the global presence of “Pay with Amazon”, the company is well poised to generate significant revenues from this service over the long term, as its customers spend on other websites.

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While Amazon’s payment customers are increasing at a rapid pace, its 33 million customer base for this segment is much lower compared to Paypal’s 197 million active customer accounts in 2016. However, Amazon is not purely a payments service provider as Paypal, but it is looking to monetize its large database of customers and credit cards by providing a payment service to other retailers. This is a highly profitable business for the company and, as it expands into newer regions and adds more merchants to this service, there is a strong growth potential for this segment over the long term. In 2016, the average transaction size for Amazon payments was $80, slightly lower than the $84 number for 2015. A 3% processing fee for this transaction size works out to be $2.40. While Amazon has not reported the number of transactions processed by it for this service, the consumer growth in this segment is an indication that the company is looking to grow the number of transactions and make this segment a significant contributor to its overall profitability.

We believe the payments segment has the potential to become a strong profit driver for Amazon over the long run. The company is investing in this business and looking at avenues to grow transactions from this segment, driving profits in the long term.

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