The Escalating Payments War

Yesterday, Amazon made waves with the announcement of its Amazon Local Register, a secure card reader and mobile app designed to provide businesses with the ability to accept credit and debit cards from a smartphone or tablet.

Many painted this as a broadside against Square, perhaps the most notable in the mobile card reader space. Amazon introduced an introductory swipe fee of 1.75% that lasts through the end of 2015. After that period, the rate becomes 2.5% per swipe, which is still below Square's current 2.75%.

But this latest news is more than just about a battle between Square and Amazon. Square has already moved beyond just card-swiping capabilities, including things like an appointment-scheduling service and small-business lending. Amazon itself has delved into payments-related products prior to this. Last December it acquired mobile payments startup Gopago, as well as offering payments services like Checkout by Amazon. With its large, built-in customer base of more than 200 million, Amazon can become an even bigger player in the payments space.

Banks should be paying close attention to all of this, if they are not already. Payments is perhaps the easiest arena for disintermediation, with many technology companies creating payments offerings. While banks will likely never be completely cut out of the payments ecosystem, they do run the risk of being reduced to back-end facilitators of transactions, while the likes of Amazon and others provide the customer-facing services. Indeed, Ben Katz, CEO of Card.com, says that consumer culture "is rapidly becoming mobile-first and industry giants like Amazon are trailblazing the way for new financial services that are accessible, affordable, and in many cases, fun."

Players like Amazon will continue to delve further into payments, even if they have no desire to become full-fledged financial services providers. Which means that banks need to place a high priority on payments innovation.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio