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.

“Payments are really a commodity service and it’s basically driven by the merchants,” Litan said. “So, payment accepting companies drive adoption of new payment types and those merchants are because those merchants are driven by price, the lowest price will generally win, as long as they have enough consumers they can bring to the table.”

Many industry experts had pegged Google Checkout, an online payment processing service, to give PayPal a run for its money, but that has not become a reality. In Google’s system, users store their credit or debit card and shipping information in their Google Account and can use the tool to purchase at participating stores.

While the Google offering is somewhat related to these services, it is actually focused on the checkout process of online transactions by integrating it with search and advertising. McDerment said that FreshBooks does not currently offer Google Checkout, despite some interest in the service from his customers.

“We’ve looked at it and I suspect we will put it in at some point,” McDerment said. “We’re trying to give the best experience for our customers, and when enough of them are interested in Google Checkout then it will make sense for us to put it in.”

But analysts such as Litan say Google’s existing payment offering is not in direct competition with PayPal.

“They won’t even release any numbers, which probably means that it hasn’t been too successful,” Litan said. “It’s really just a wallet, so I don’t see it as a low cost payment mechanism. Google makes certain deals in exchange for advertising, so in the end the merchants are still paying Google they’re regular fees, but they have incentives there to boost their advertising revenue. If you’re not an advertiser on Google, it’s not that attractive.”

Litan said that the biggest issues for payment systems lie in its fraud detection. She said that one of the major reasons Amazon can mount such a serious threat against the dominant PayPal is the company’s strong security reputation.

“Amazon’s been fighting fraud ever since they’ve started as the largest e-commerce merchant,” Litan said. “It doesn’t release how many staff they have dedicated to fraud, but I know for a fact that they have one of the most sophisticated fraud departments, because if they didn’t they wouldn’t have been successful. Amazon is already major targets for criminals and they will become an even bigger target when they offer payments, so its success in this may depend on its ability to market the service and keep the fraud down.”

With files from Heather Havenstein, Computerworld (U.S. online)

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