Canada's FreshBooks pilots Amazon payment service

While Amazon’s new Web service, which allows developers to incorporate payment processing into their sites and applications, is still in the closed beta stage, both early adopters and analysts say the system could provide the first true test to PayPal’s dominance.

Just as Amazon's Simple Storage Service (S3) provides on-demand storage capacity and its Elastic Compute Cloud (EC2) provides as-needed computing capacity, Amazon's Flexible Payments Service (FPS) “shields developers from many of the messy and complex issues which arise when dealing with money,” wrote Jeff Barr, Amazon's Web services evangelist, on the company's blog.

Toronto, Ont.-based FreshBooks, which provides an online invoicing and time tracking service, is one of a select few companies partaking in the invite-only beta. FreshBooks CEO Mike McDerment said that once it goes live, Amazon FPS will be one of 12 payment services that it will offer its clients. He said the greater variety of payment options open to his clients, the better.

“This will have a positive effect on the businesses we serve, as it’s going to give them a greater variety of ways to collect payments from their customers,” McDerment said.

And while there is certainly no shortage of online payment systems floating around, such as 2Checkout, eCheck and Authorize.Net, none of these companies have managed to dethrone PayPal.

But Avivah Litan, analyst at Gartner, said that Amazon has all the intangibles to change that.

“Millions of customers already trust them with their credit card numbers,” Litan said. “If it can turn all of those existing customers to payment customers, then I think merchants will be happy to adopt the payment system.”

McDerment agreed, saying that Amazon’s tens of millions of existing customers provide the company with an incredibly strong starting point.

“So, if you have an Amazon account, you can now use it to pay someone or to collect payments from someone,” McDerment said. “And they’re just walking into this space with that install base, so it’s huge when you think about it.”

But the biggest differentiator, according to Litan, is how Amazon handles micro-payments. She said the fact that Amazon is aggregating micro-payments into a single payment transaction, as well as the already announced low payment rates, make the system an appealing alternative to small and medium businesses. According to Amazon, aggregate micro-payments would save on transaction processing costs and avoid the need for companies to create complex ledger functionality into their applications.