Chris Devore got my brain juices going with his piece on how Amazon could (and probably will) take on Apple and Google in a big (and uniquely Amazonian) way. Well worth reading. 

One word Chris used a couple times really stuck in my head: wallet. Amazon is all about being where you buy anything and everything. What more natural goal could they have for their entry into the handheld device market? To be your universal wallet. This would put not only Apple and Google in their crosshairs. It could be a Visa killer. 

This device would do all the usually smartphoney things but could also be pointed at any real-world product to buy it from Amazon. It would be a natural extension of the behavior they already promote (as if they even need to… people do it anyway) of shopping at brick and mortar stores, then price comparing and buying on Amazon. 

Would this be the death knell for brick and mortar retail? I think not, and this is where it gets really interesting. Amazon could enlist retailers to be an army of promoters to seal its lock on mobile payments. 

Here’s how it could work:

Retailers have little choice but to buy into the Byzantine set of transaction fees that card processors charge so that all of us can pay with that free convenient mobile payment system called the credit card. Amazon could step in with its own payment processing system that could be used to buy anything in the store, if necessary undercutting current card processor fees to gain market share. 

But why would retailers make a deal with the devil who uses their stores as showrooms for products it sells cheaper online? Because Amazon could give them a cut. Pay full retail to get the product immediately from the storefront, or take delivery later for the usual discount, with a commission kicked back to the storefront. Amazon could guarantee that the storefront gets credit via some super secret proprietary connection between the Amazon phone and point of sale device. This would also provide an extra measure of security and ensure that only a genuine Amazon device would work. 

For example, say Beth’s Gift Shop sells Acme Scented Candles. Say she keeps 50 in stock, pays $15 wholesale and sells for $20 retail. If 10 people buy in the store per day with their Visa card and her average credit card processing fee is 2.5%, she pockets $45. But another 10 people find the scent they want and buy on Amazon for $18. Let’s say shipping costs Amazon $2 per, so Amazon makes $10 and Beth makes zilch. Oh yeah, and she owes her distributor $750 for stock on hand. 

Enter Amazon Wallet. Let’s say they charge Beth only 2% to process in-store payments, and kick back 2% for online purchases of products she stocks. Now Beth makes $46 on in-store purchases, plus $3.60 for the online purchases — transactions she needs to lift nary a finger to fulfill. So now she’s made nearly $50 on the same number of people through her door. Furthermore, she can start reducing stock on hand, lowering both costs and risk. Amazon, meanwhile, buys itself top dog status in the world of all payment processing. And once established, it can start squeezing everyone’s margins to recoup its losses. 

Could Amazon bully it’s way in without allying with retailers? Maybe. But the surest way to get this device in everyone’s pocket is to establish the kind of universal acceptance that Visa and MasterCard currently enjoy, and it could happen almost overnight with retailers onboard. 

As Chris says, consumers will surely be winners in whatever scheme Amazon launches. But there’s a chance local retailers could win too.