Amazon.com, Inc. (NASDAQ:AMZN) stock has mostly been known for its e-commerce business. Now, its on-demand video streaming service has also gained popularity. But there is one other thing that is little known even to Amazon stock investors. And this thing could be huge.
The Little-Known Catalyst for Amazon Stock
I’m talking about “Amazon Payments,” the company’s online payment processing service launched in 2007. Although it’s still in the shadow of industry giants like Paypal Holdings Inc (NASDAQ:PYPL), Amazon Payments could be a huge catalyst for AMZN stock.
The key here is ecosystem—a word that almost every tech company likes to use these days. For Amazon, offering an online payment service can help deepen its relationship with consumers.
Amazon’s competitive advantage in this segment is the massive userbase of its e-commerce platform. People are already spending money on Amazon. It would be convenient if they can also use Amazon as a payment service when they shop on other online shopping web sites.
But why make it easier for consumers to buy elsewhere? Well, according to Patrick Gauthier, vice president of external payments of Amazon, the company offers this service “Because we know it solves a problem in their life. It’s the same logic as video. It deepens our relationship with customers.” (Source: “Amazon Payments Persuades Small Retailers to Work with ‘the Devil’,” Bloomberg, April 1, 2016.)
And note this: before Gauthier took his current job at Amazon, he was the general manager of emerging retail services at PayPal.
The plan seems to be working. Even though small online retailers have always viewed Amazon as “the devil” that took their business, some of them are still willing to use Amazon’s payment processing service.
Peter Grant, general manager of AuthenticWatches.com, said that Amazon Payments is “an order saver.” Red Dress Boutique, an online women’s clothing store, saw 20% of its orders going through Amazon Payments in less than a week after signing up for the service.
Of course, what Amazon stock investors really care about is whether the service will make money for the company. Amazon did not break out the details of its payment processing service. But the company does have a decent business model in place: for each transaction handled by Amazon Payments, the company charges merchants 2.9% plus $0.30.
Amazon has done a tremendous job in terms of deepening its relationships with both customers and merchants. At first, the company was no more than an online bookstore. Now, you can pretty much buy anything you need from its e-commerce platform. In some cities, you can even get Amazon to deliver fresh groceries to your door.
“Amazon Video” is another great strategy for the company to enhance its ecosystem. The on-demand video streaming service is part of Amazon’s “Prime” membership. The streaming service has plenty of appeal of its own. Its original TV show Mozart in the Jungle recently picked up two Golden Globe awards. With perks like Amazon Video, the company is able to boost its Prime membership.
For merchants, Amazon is no longer just a marketplace to sell their products. More and more vendors are signing up for the company’s “Fulfillment By Amazon” (FBA) service. FBA provides storage, packaging, and shipping for vendors selling products on Amazon’s e-commerce platform.
The Bottom Line on Amazon Stock
Slowly but steadily, Amazon’s ecosystem has become an integral part of many people’s lives. With the expansion of Amazon Payments, the company could take its business to another level. And that’s reassuring for Amazon stock investors.