An Amazon-PayPal Partnership Could Benefit Several Parties

The recent news about Amazon.com and PayPal discussing a partnership makes sense on several levels. Both companies possess valuable assets, and their alliance would likely benefit both companies here and abroad. However, the potential deal terms could also raise concerns, particularly but not exclusively among third-party sellers.

Offering Amazon customers a PayPal option at checkout seems like a no-brainer. Amazon is one of the two largest online retailers in the world; PayPal is one of the largest payment processors globally. There are several lingering obstacles, however:

• PayPal was an eBay subsidiary for over a decade before it was spun off into a separate company in July 2015, and it seemed unlikely to join forces with eBay’s rival any time soon.
• Amazon already offers an Amazon Payments service that allows customers to pay for purchases at external sites in just three clicks via their Amazon accounts.
• Last April, Amazon also launched a Payments Partner Program for marketplace sellers, a move that was interpreted as a shot across PayPal’s bow, partly because it charges similar fees.
• There’s significant growth potential in payment processing, and Amazon has proven quite willing to invest heavily in such opportunities — often at the cost of short-term profits.

Shoppers are often more loyal to their payment preferences than to any store; 25 million people have used the same credit card for at least 10 years, and 20 million have never switched cards. Given that fewer than 24 million customers had used Amazon Payments through January 2016, PayPal’s nearly 200 million active account holders worldwide are a strong selling point. Offering PayPal could help Amazon increase traffic, repeat visits and sales in the U.S. How much is uncertain, though; Amazon became the dominant U.S. e-tailer without PayPal, after all.

Overseas could be a different story. PayPal is one of the top-three online payment methods in every European country where Amazon does business. It’s also popular in emerging economies like India and Brazil, where 83 percent and 62 percent of e-commerce sites, respectively, offer it at checkout. Adding a PayPal option would enhance Amazon’s appeal to the growing consumer audiences — and current and prospective marketplace sellers — in those countries.

U.S. marketplace sellers, on the other hand, might have some trepidations about a PayPal-Amazon deal. They already pay 6 percent to 45 percent commissions (depending on their category) and variable closing fees on Amazon-enabled orders, and they won’t want to pay additional fees to PayPal. Amazon, for its part, would rather not pay PayPal out of its own commissions.

Of course, Amazon already accommodates a variety of payment types and its accompanying fees, and the advantages of a deal to both companies, as well as to consumers and sellers, could very well override such concerns. Consider the following:

• In addition to the opportunities abroad, Amazon could expand its U.S. customer base by catering to PayPal-only shoppers.
• PayPal could see an increase in transaction commissions and its own user base, given consumers’ rising worries about retailer data breaches and its own reputation for security.
• Amazon customers could access another, highly popular payment option at checkout.
• Sellers could close sales to PayPal-centric consumers without violating Amazon policy.

It’s obviously far too early to determine the real consequences of a partnership between Amazon and PayPal; much would depend on the final terms. A partnership offers intriguing possibilities for both sides, though, and it would also likely benefit consumers. While its effect on third-party merchants is uncertain, it’s safe to say that Amazon’s and PayPal’s competitors won’t be happy.

Tom Caporaso is the CEO of Clarus Commerce, a leader in e-commerce and subscription commerce solutions. Among its various properties, Clarus Commerce owns and operates FreeShipping.com, the pioneer of the pre-paid shipping and cash-back movements.