Amazon And Payments: The Sell-Side Evaluates How PayPal, Credit Card Issuers Could Be Impacted

Payment processor stocks were under selling pressure throughout Tuesday's trading session amid a Bloomberg report that Amazon.com, Inc. AMZN is offering retailers on its platform a discount if they use its online payments service.

The Analysts

Wedbush's Moshe Katri said in a Thursday note that Amazon's reported ambitions have a "neutral" impact on the payment space. Bernstein's Harshita Rawat said there is "limited news" in the Bloomberg report.

Wedbush: Reports Are 'Noise'

If reports are accurate, Amazon will pass on discounts it gets on credit card fees to retailers if they use its online payments service, Katri said in a note. The online giant is reportedly also interested in sacrificing profits from its payments system to "spread its use," the analyst said.

This strategy would imply that Amazon is targeting vendors with merchant processing capabilities, including Square Inc SQ and Paypal Holdings Inc PYPL.

Amazon would have to overcome multiple obstructions along the way, most notably dealing with a lack of integrated payments capability, the analyst said. Amazon would need to also gain merchants' confidence in terms of accessing consumer data.

In the meantime, Amazon's reported interest in the space is merely "noise" and "neutral for the space," Katri said.

Investors in the space should be concerned if Amazon builds or acquires its own payment ecosystem with the ability to underwrite and issue credit, Katri said. Doing so would be seen as "disintermediating the entire existing network," the analyst said.

Bernstein: PayPal Investors Have Reason For Concern

Amazon's ambitions to enter the payment space have been known for some time, and the logic is simple, Rawat said: Why wouldn't it want to build a platform similar to PayPal or AliPay, each of which valued north of $80 billion?

Over the past year, Amazon rebranded "Pay with Amazon" to Amazon Pay, introduced Prime Reload and Amazon Cash and is reportedly looking to add payment capabilities to Alexa, the analyst said.

Despite the Bloomberg report containing "no new news," PayPal investors should still be concerned with the long-term implications should Amazon enter the space, Rawat said. Amazon accounts for up to 3 percent of total global card payment volumes and boasts 100 million Prime users.

PayPal's stock multiple should "start showing signs of strain," as Amazon's success would be "painful" due to its exposure to PayPal's bread and butter: small online merchants.

Amazon would bring "some risk of brand obfuscation" to Visa Inc V and Mastercard Inc MA, Rawat said. While Amazon accounts for around 2-3 percent of Visa and Mastercard's portfolio today, it's "not a scale that Visa and Mastercard haven't dealt with before," Rawat said.