Amazon's New Service Takes Aim at eBay's PayPal

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The lines between online giants Amazon.com and rival eBay  just keep on blurring, and a recent move from Amazon is yet another example in the evolution of this budding rivalry.

Amazon is developing a service it calls "Login and Pay with Amazon," which will allow users to buy items off third-party websites using the payment options that customers have saved with their Amazon.com accounts. Seems easy enough. Buyers now have a seamless way to purchase goods from a smaller website, while also keeping their highly sensitive payment information safe at the same time. Talk about a win-win.

But things get interesting when considering that in rolling out this service, "Login and Pay with Amazon" is in many ways a carbon copy of eBay's payments business PayPal. So, how should investors look at this most recent move?


Fool contributor Andrew Tonner breaks down the news in greater detail and discusses the implications for investors in the video and accompanying transcript below.

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Andrew Tonner: Hey Fools, Andrew Tonner here. I'm a tech and telecom analyst with the Fool.

Now, an interesting trend we're seeing emerge is Amazon rolling out a service that really mirrors and challenges eBay's PayPal service. The story here is Amazon rolling out what it calls "Login and Pay with Amazon." It's almost a carbon copy of PayPal.

The service itself will allow users on other websites to log in and pay with their Amazon ID, and basically create a one-click buying option for websites, outside of Amazon's specific ecosystem.

Now, it's interesting to note, too, that costs are identical to PayPal. PayPal charges 2.9% of each transaction, plus a $0.30 fee for every transaction that it processes, and Amazon is actually matching them here as well.

In terms of the economics, this is a great move for Amazon as well, because we know that payments are an extremely high-margin business.

When you look at eBay's segment breakout, PayPal generates around 25% operating margin, and for a company where this is, A, complementary and, B, that operates in, by nature, a very low-margin business, this is a potential accretive move for Amazon and something they should be quite excited about.

I think it's also interesting that it demonstrates the borderlines we're seeing between Amazon and eBay, where these companies are going toe to toe in more industries, day by day.

Now from an investor's perspective, I do think there's a tailwind for both of these companies and, from the long-term investor's perspective, these are two companies that, although competing directly against each other more and more, they also are going to have a gigantic tailwind in the sense of e-commerce just becoming a more and more prominent generational shift as a whole.

These are two companies -- although, again, emerging on a new battleground -- that I like for long-term investors as a whole as well.

Thanks a lot, and Fool on!

The article Amazon's New Service Takes Aim at eBay's PayPal originally appeared on Fool.com.

Fool contributor Andrew Tonner owns shares of eBay. Follow Andrew and all his writing on Twitter at @AndrewTonnerThe Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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