Amazon Offering Payment Service to E-tailers

Amazon.com announced yesterday that it is testing a program called "Amazon Flexible Payment Service" that allows e-tailers to use its payment system, a move that positions the company to compete with PayPal and Google Checkout.

The system (Amazon FPS) is offered by Amazon Web Services, a division of the company that allows businesses to rent their computing and Web services on an on-demand model. One key feature of the payment protocol, as the name implies, is its flexibility in setting up billing transactions.

"Developers can create payment instructions that are as simple or complex as they desire. Our aggregation feature lets you track and aggregate micro-payments into a single payment transaction, saving on transaction processing costs and avoiding having to build complex ledger functionality into your own applications," according to Amazon.

A second significant benefit is the fact that Amazon customers can use their Amazon password and payment information on file to pay for items at these third-party sites without first visiting Amazon.com.

"This helps Amazon customers keep their payment information secure and removes the friction you would face if you needed to get customers to enter their payment information before they could make a purchase," the company says in a statement at its site.

Toronto-based FreshBooks, an online invoicing and time tracking service for professional service firms that do lots of hourly and automated recurring billing, is one of a few companies tapped by Amazon to try the system during the limited beta test.

CEO Mike McDerment said the Amazon FPS is especially effective for organizing micro-payments. "It's been going well, this platform really is flexible in that it gives a lot of control to developers to allow for micropayments, for instance, to run a balance based on each customer and then charge them monthly. It's been fantastic so far."

In fact, at the FreshBooks blog, he said: "Anyone who has ever used Amazon Web Services has noticed Amazon can bill as low as only 1 cent a month. If you've ever been jealous they can do that and you can't, well, now you can. With FPS, you can now bill as low as 1 cent, and Amazon will charge a transaction fee of one quarter of one cent. Bring back the penny candies, because this changes the game for the entire Web. There may have been micropayment solutions before, but none backed by a major trustworthy player like Amazon."

McDerment also said that an important function of FPS is that it is the first payment system that separates a charge from a payment. This means e-tailers can allow customers to pre-pay for services or goods and deduct fees over time from the balance.

"Think of independent digital music stores that let customers purchase, say, $10 credit to buy 100 songs for $0.10 each. Alternatively, you can accrue charges over time, and let your customers pay the balance owing all at once at the end of the month, much like your VoIP phone company charges long distance. This dramatically cuts down on credit card transaction fees."

There are no minimum fees and no start-up charges to use Amazon FPS. In addition, use of the Amazon FPS Sandbox is free of charge. Fees are assessed on a per-transaction basis and vary depending on the payment method used and the transaction amount. A detailed description of the program is here though the Amazon Web Services site outlines the following as key features:

Send and receive money using credit card, bank account or Amazon Payments balance transfer as payment methods.
Create "Payment Instructions" to define conditions and constraints desired for a given transaction, and obtain payment authorizations or "tokens" that represent these Payment Instructions from customers.
Execute one-time, multiple, or recurring payments on behalf of customers.
Aggregate micro-transactions into a single larger transaction using Prepaid and Postpaid capabilities.
Build payment applications where you are neither the sender nor the recipient of funds. You can build marketplace applications that enable the movement of money between two third parties.
View account balances, transaction histories, and transaction details on the Amazon Payments web site.
Utilize the Amazon FPS sandbox to build and test applications without using real money or incurring any transaction charges.

McDerment said he believes this puts Amazon in a great position to compete with PayPal and Google Checkout, and industry watchers seem to agree, citing that Amazon's pricing model on bank debit transactions is lower than PayPal.

Facing up to Extra Profits

In other e-commerce news: Aimed squarely at taking market share from eBay, Buy.com today unveiled its new Garage Sale service that lets members of Facebook buy and sell goods directly on their social networking pages.

Facebook members can add the Garage Sale feature from Facebook's application suite and upload product information and photos to begin selling on their personal profile pages using Garage Sale's secure transaction system.

With Garage sale, merchandise can be bought directly on profile pages, so shoppers never have to leave the page to complete the purchase transaction as they do with some eBay widgets that redirect visitors to eBay's listings. Another difference: rather than being charged a listing and final transaction fee, Buy.com charges a flat 5 percent commission.

For small online store owners, Neel Grover, CEO of Buy.com said Garage Sale is an effective way to generate new revenue. "For small Web shop owners, it's another marketing tool," he said. "They can create another storefront that's easy to download and add it to their profile page in two or three clicks."

Grover said the application looks similar to a widget, featuring a product photo, short description and price but rather than redirect users to a storefront, Garage Sale includes an "Add to Cart" feature so transactions can be completed.

Right now Garage Sale is currently available to Facebook users, but Grover said the company plans to roll out the service to other online social networks and will also make it available at Buy.com by the end of the year.

Michelle Megna is managing editor of ECommerce-Guide.com.

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