In my previous article we investigated the new strategy implemented by Starbucks in which they closed their online stores and force consumers to physically enter their stores to purchase something. This runs strictly against the business models of giants like Amazon who are happy to sell to consumers in the c omfort of their own home – epitomized by the launch of Amazon Prime – a same day delivery service on selected items bought on Amazon.
But what are Amazon (AMZN) doing in response to this apparent new culture of buying in store? In true Darwinian fashion, they strike back with their own vision of how consumers will be purchasing in the years to come through an appropriation of the semi-monopolized safeguarding market.
Electronic payments are a growing market. Traditionally, everyone had a bankcard that was linked to two providers – Mastercard (MA) and Visa (V). These two safeguard companies are well trusted by users and renowned worldwide as being safe, secure and trustworthy. Since the launch of the internet, new providers came along such as PayPal (PYPL) – who ensured a safeguarding through internet transactions. But the market seems to be shifting in another direction now, which will leave these companies in the rubbish-bin of history.
Moody’s Stephen Sohn and his team of analysts tell us that the electronic payments market is large, with plenty of new entrants. This poses a threat to current payment ecosystems of networks and cards. The potential interlopers include, but are not limited to: Alphabet Inc’s Google (GOOG), Amazon.com Inc. (AMZN), and Apple Inc (AAPL). The new goal is to create a gateway system that bypasses Visa and MasterCard’s safeguarding by doing it in-house. Alongside this, we are seeing a myriad of new entrants into the market. If this happens, we could see an even more centralised power from online companies.
We can infer two things from this shift. Firstly, the fact that there are new entrants into the market means that there is a market to be tapped into. This must mean that consumers feel more comfortable doing in house deals with companies than in the past. If there is more competition for roles that were traditionally accomplished by Visa and Mastercard, then it means people are not as suspicious as they once were – which is understandable – consumers often have a lot of faith in companies like Amazon and Google.
Secondly, that online companies are themselves pushing for easier trading on the internet – which is directly opposed to Starbucks’ (SBUX) vision of the future. If this market were tapped by online retailers, they could cut out costs making it cheaper and quicker to purchase online.
This being said, Sohn reports “material displacement of traditional electronic payment providers remains unlikely.” As we have established, Visa and MasterCard have near universal acceptance in the USA which will make them very difficult to dislodge. This may make it difficult for online companies to fulfil their ambition of securing their place in this market.
As a generalisation, tech companies such as Alphabet and Amazon subscribe to the philosophy “if you can’t beat ’em, join ’em.” So far, there have been collaborations between already existing safeguard mediums (Visa and Mastercard) and new-comers into the market (inc. GOOG and AAPL).
So, what can we make of all of this?
It seems that there is a heavy focus on consumer perception to predict the future of sales. Amazon are dependent on online sales to survive and cannot allow Starbucks, or any other competitor such as Nike, to create a social-trend where experience is crucial in the buying of goods. Their response to this is in creating better and easier ways to buy and sell online. Although Starbucks wish to create a new trend, online companies are building on an already existing one.
We will have to wait and see how consumers react to Amazon’s adaptation of buying online.
(Please note: James O’Leary does not currently hold a position in: Amazon (AMZN), Starbucks (SBUX), Nike (NKE), or PayPal (PYPL). Henry James International Management does not currently own a position in: Amazon (AMZN), Starbucks (SBUX), Nike (NKE), or PayPal (PYPL).
(Please note: James O’Leary currently holds a position in: APPLE (AAPL), VISA (V), and MasterCard (MA. Henry James International Management currently owns a position in: APPLE (AAPL), VISA (V), and MasterCard (MA).