Equity Research 9 September 2019 FOCUS Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 21. Restricted - Internal U.S. Payments, Processors & IT Services Amazon: Payments ‘Weaponized’ AMZN is changing payments from a “toll” to a “tool”. Merchants have historically conceived of payments as a sunk tax or utility-like expense. AMZN, conversely, has based its entire retail model on using payments to drive growth. The eCommerce giant’s extended ecosystem is based on locking in the consumer with stored payment credentials, then using purchase data-powered targeted ads to drive higher levels of recurring revenue. It is this payments-centric relationship, that enables AMZN to pivot its significant user base toward new offerings/channels such as cashier-less checkout at Amazon Go locations and voice-activated purchases via Echo. Commerce platforms, payments companies, and even merchants that understand payments have changed this from a one-dimensional money transfer process into a broader customer monetization tool, and are capturing outsized economics, commanding premium valuations, and gaining power in the traditional payments value chain. Is AMZN looking to disrupt Payments? More likely it wants to reinvent them via AI. Investors frequently ask: does AMZN wish to disrupt the payments industry? Our answer is: probably not. Instead we see the company solving for a future where dominance in AI will increasingly translate into payments market power. Whether in the context of voice powered commerce (eg, Alexa) or computer vision-powered payments (such as at Amazon Go cashier-less stores), AMZN appears to be investing heavily in channels where payment transactions can only occur by way of the company’s own AI algorithms, potentially making AMZN an even more critical node in the payments value chain over an extended period of time. Who in payments is at risk? As commerce platforms such as Amazon insert themselves into the traditional payments value chain and take ownership of the merchant and consumer, we see acquirers as more vulnerable than networks such as V/MA. For acquirers, the primary risk, in our view, is not disintermediation, but rather commoditization—or becoming “dumb pipes” for powerful front-end commerce-enabling platforms like Amazon. Separately, while Amazon Pay represents...
