Amazon’s new mobile card reader waltzes onto Square and PayPal’s dance floor

The online retailer is doing what it does best—undercutting the establishment.

Megan Geuss – Aug 13, 2014 2:12 pm | 60

Credit: Amazon

Amazon just announced its new Local Register service, a mobile card reader and app that allows merchants to swipe cards and take payments without a traditional card reader. The service is akin to those from Square and PayPal, which both use a physical card reader that plugs into a phone or tablet’s headphone jack and lets customers swipe magnetic stripe cards.

As Amazon’s done many times before with books, tablets (not phones), and hosting services, among other things, the company is dramatically undercutting the incumbent companies right out of the box. Amazon’s card reader only costs $10, and the company has promised that customers who register for the service before October 31 will only be charged 1.75 percent on all transaction fees made through the swipe reader until January 1, 2016. Outside of that deal, merchants using Amazon Local Register are charged 2.5 percent for each swiped transaction and 2.75 percent for all manually keyed-in purchases.

That’s compared to Square and PayPal, which charge 2.75 and 2.7 percent, respectively, on swiped transactions. Both competitors charge 3.5 percent + $0.15 for manually keyed transactions. Square and PayPal both offer their card readers for free when a customer registers with them, but the true cost of the readers is in the transaction fees. Amazon, for its part, says the first $10 in transaction fees will be credited back to the customer to make up for the cost of the swipe device.

A Square spokesperson told Ars in an e-mail, “We’ve long been focused on building a complete register service for local businesses. This reinforces our mission and shows the demand for all of our services.”

PayPal, too, said it was undeterred by the competition. “Payments isn’t just about the swipe, it’s the experience, and PayPal has always strived to bring retailers new and better experiences for them and their customers.” The company added, in an apparent jab at Amazon’s online storefront, that “PayPal is committed to enabling merchant growth and not competing with them.”

One concern about Amazon’s foray into the mobile payments space is that the magnetic stripe card reader is on its way out. On October 15, 2015, most major credit card companies will shift liability for card fraud to the merchant if the merchant is not equipped with an EMV reader, which works with chip-based credit cards. Square announced its own EMV reader earlier this summer, but other companies have been slow to jump on the bandwagon for transactions in the US. (PayPal, too, has an EMV reader, but it’s marketed to a European customer base.)

An Amazon spokesperson told Ars, “This card reader does not have EMV capability. We are looking forward to getting customer feedback and will continue to monitor industry requirements to ensure we are meeting those needs and creating solutions that help our customers.”

Thankfully, however, it seems that Amazon’s local register service will have a strict wall between it and other Amazon products and services. When asked if Amazon would use the payment information it gathers to augment suggested products on its online marketplace, the spokesperson told Ars, “All data from Amazon Local Register customers is securely protected, it will not be used for any purpose other than fraud protection and risk management for Amazon Local Register.”