The war for the title of head payment processor extraordinaire wages on with exciting new advances in the way we digitally transact. The basic premise has always been to give merchants the tools they need to accept payments online, and in turn a fee is extracted for the service. Consumers, on the other hand, can choose which form of payment they would like to use – for free – as long as they don’t go down the path of leveraging credit or transferring money to others.

PayPal, Google Checkout, and Amazon FPS all now charge roughly the same fees and accept the same major credit cards we care about. How the big 3 differentiate themselves consist of the following:

• The size and scope of their networks.
• Leveraging their existing technologies.
• Partnerships and acquisitions.
• Merchant tools.
• Consumer incentives.
• Being first to market with new features.
• Customer service.
• General branding and marketing.

There are some fundamental differences in services and strategies as they compete for your virtual wallet, but it is a tough battle with many new entrants whittling away at their percentage.

What has the battle ground looked like so far?

PayPal

PayPal was indeed first to market when it came to offering merchants and sellers a means of transacting online. Customer service was notorious at first, and even led to the creation of PayPalsucks.com. But those days seem like forgotten history because they are still cruising right along with annual revenue approaching $3 Big B’s a year. Having eBay as your Daddy, and BillMeLater as your baby, doesn’t hurt matters, and they even have little old VeriSign thrown in there for good measure. PayPal allows you to sign up for a credit card (Mastercard), establish an ACH account, send and receive money, and take advantage of what really appears to be the best, full suite of tools available for invoicing and running reports.

However, there are still issues with customer service and verification of funds. And for many merchants (especially the larger ones), the idea of not being able to capture your customers’ data, or control the checkout process and corresponding branding, is unacceptable.

Google Checkout

Google Checkout is still in the wings integrating their payment processing service with AdWords and Search. Merchants see a benefit in search relevance, and consumers can enjoy buying items right there in the browser. As mentioned before, fees are basically the same as PayPal and the rest, but Google provides additional value for not-for-profits. Their initial selling point of maintaining greater privacy is really a mute point, and they no longer offer discounts through AdWords. I think it is safe to say most merchants simply provide Google Checkout for search marketing purposes, it is easy to implement, and because some buyers habitually prefer it. 

A big black eye for Google Checkout has always been their mediocre customer service, and the occasional horror stories of law abiding merchants having their accounts suspended for what looks like no good reason. But this also happens with PayPal. I believe the reason why Google has not taken the lead in payment processing is because it hasn’t been their core focus, and the haven’t made any direct strategic acquisitions in this area. Furthermore, their interface is not intuitive enough, and they have not evolved as quickly as PayPal and Amazon. But they are clearly a contender in the mobile search and mobile operating system market, and this could give Google a competitive edge.

Amazon FPS

Amazon FPS came in to the mix swinging with a solid strategy based on catering to the needs of developers and providing more flexible micropayment processing. Oh, and let’s not forget their network! While PayPal did have micropayment options, it seems it wasn’t well known or needed. Amazon really put their money where their mouth is by backing it up with a Sandbox, a Developer Forum, and a level of respectable transparency and open conversation. Couple this with their hosting services like S3, and you’ve got a nice little package to launch an ecommerce website that is flexible and scalable.

Amazon’s real problem appears to be a lack of awareness in an already competitive market. It faces a difficult time convincing merchants, and their contracted developers, that there is greater value in using them. Also, it is a little more complex to use than what the average merchant is accustomed. However, the added flexibility and accompanying web products do attract tech startups and sophisticated, larger merchants, who are looking for a flexible and robust payment gateway. I wouldn’t be surprised if we see a mobile device come from them.

Of course, PayPal isn’t taking any of these forays by competitors laying down. They were the first to release a mobile application for the iPhone, power Twitpay, and they even got in early with Facebook by handling the ad purchases on the Facebook network. They’ve also taken cues from Amazon by reaching out to developers through several avenues, including their annual conference, PayPalX, as well as giving further access to their code.

What does the future of ecommerce look like?

Mobile

In Europe and Asia, many customers transact and move money via mobile devices and/or pins. Here in America we are seeing companies like Obopay emerge and make great strides. Not only does Obopay have deals with Nokia and Mastercard, but they were also selected as “2010 Technology Pioneer by the World Economic Forum.”

Instead of moving away from that old trusty credit card, Square counted on the large percentage of people that can’t kick the habit. Two problems exist here: one, you’re asking users to carry an extra device, albeit a small square, and two, as of now it only works with iPhone and Android devices – RIM’s operating system, which Blackberry uses, still represents 36 percent of the U.S. market. Security, despite what they say, is also a big concern.

Mobile companies like Intuit’s GoPayment and VeriFone work across most all operating systems, and they also provide devices such as credit card swipe machines and terminals to aid in the transaction process. Where they fall down is the lack of web-based tools for merchants, and they don’t seem to be out playing with the online community of developers.

Where are the competitive advantages in the mobile market?

If you’re a company deciding how to embrace the future of mobile payment processing, you need to consider:

• Brand/Creative Control
• Affordability
• Ease of Use
• Compatibility
• Network/Search
• Supporting Products and Services
• Continuing Innovation
• Customer Service

Putting yourself in the shoes of merchant, you simply want to know the fastest and most affordable way to get your branded shopping cart on the website, which will also work in the mobile environment. Another company – Unity Mobile – is trying to do just that. They’ve got the branding, affordability, and ease of use side down, as well as the compatibility with both mobile devices and websites. They’re even working with barcodes. Why haven’t you heard of them? My guess is their lack of a network, not working with outside developers, along with no supporting devices. It’s cool that you can automagically create a mobile ecommerce site, but it is also relatively easy to use CSS on your existing website to accomplish the same.

Other Contenders

Authorize.net also provides merchant services and merchant accounts, and their payment gateway is preferred by many ISO and MSPs because of their superior processing capabilities and fraud protection. They’ve done an excellent job of comparing their services to those of PayPal and Google, so I won’t rehash them all here. But suffice to say, their niche has been larger merchants who don’t need access to a 3rd party network because of their specialized offerings. They do care very deeply about keeping the customer on their branded website, as well as giving them a safe and reliable transaction experience. The next big factor is time in which it takes to get paid. Authorize.net is much quicker than PayPal or Google. Incremental fees are not as important as branding and security, but nevertheless they are competitive with the bigger 3. Where your additional costs come from are building out and designing your own ecommerce platform. Finally, if you’re in the business of building your customer database, well, PayPal and Google aren’t going to help you do that. As said before, they prevent merchants from accessing customer email addresses.

Meanwhile, American Express recently purchased a company by the name of Revolution Money. Their go-to market strategy has been to tout the added privacy of a nondescript “credit card” that is powered by a personal pin. It appears they have signed on quite a few impressive merchants, but how large the network actually is would be anyone’s guess. Unless they come up with something incredibly innovative for merchants and/or consumers, they are going to have a tough road convincing either party they are worth the effort.

If you ask Steve Jobs, the new battleground is combining application development with mobile search and compelling advertising. If you find what you want, and you need to buy it right then and there through your mobile device, great! The consumer can have the option of using a pin, credit card number, or something else entirely. Who knows? Maybe the banks will start issuing their own phones or mobile apps that work any where. Either way, there will always be a manner of subtracting a fee for the convenience of using virtual money. We can be sure merchants will have to pay to be featured on Apple devices, browsers, and networks.

Conclusion

It is an interesting game with many different variables, but one thing is clear – neither PayPal, Google, or Amazon will be going away any time soon. Apple will further enter the market just as we’ve seen them do with music, movies, podcasts, and applications. This is good news for the merchants and consumers because we benefit from increased competition. PayPal and Amazon will always be at the mercy of search, but Google needs them around, or they may come off looking like an out-of-control monopoly. Each of the Big 3 will continue to acquire companies to enhance their product and service offerings. Customer service, fraud protection, and brand control must be a priority.

Banks will still be involved, and I suspect their fees will stay relatively the same or trend downward. The big What If? is whether they can get rid of the middle man. Hints of this come when companies like American Express scoop up alternative payment processing companies like Revolution Money. Historically, banks have lagged behind innovators like PayPal, Google, and Amazon, but I wouldn’t completely rule out a merchant play of some competitive force. In order to succeed, it must not only pass considerable savings and functionality on to the merchant, but also reach consumers at the buying stage. That’s a tough order, but they’ve got the motivation. After all the payment gateway is a super highway just begging for a new toll, right?

In a perfect world, we’d all have access to open source software that allowed us to connect merchants and consumers in every customizable fashion imaginable without paying a fee. This day may come, but issues of security and greed will always be corrosive factors. Meanwhile, I’m still using my credit card for online purchases because, somehow, I feel a bit more comfortable using someone else’s money in the digital exchange of dollars, even if I do have to pay a fee.