Amazon Declares War On eBay

Amazon has officially declared war on eBay.

The opening salvo in what will prove to be one of the
most epic business battles on the Internet
has taken place.

Amazon's act of war was its decision not to accept
eBay's Bill Me Later payment system.

eBay's Bill Me Later payment platform allowed
buyers an extended period of time to pay for their
purchases.

The payment system was designed to encourage more
purchases from customers that might not have
the available funds for an immediate payment.

Using various metrics, including a credit check,
Bill Me Later would process the order, pay the
seller, and then allow the buyer up to 180 days to
complete the payment.

The buyer can be subject to a small interest rate
on his purchase, although in some instance the interest
rate is 0.

But the real issue arises when customers are unable
to pay their bills.

Bill Me Later has up to 180 days to initiate a charge back,
and retrieve the payment it has made to the seller.

So imagine an online retailer like Amazon discovering
6 months later that it will not be paid for the merchandise
it shipped out.

Even if the default rate is 1%, that translates into
tens of millions of dollars of lost merchandise for Amazon.

In economically strong periods default rates are pretty low,
but in today's recessionary environment the fear of default is
much higher.

Amazon seems to feel that the increased volume of sales on account of
eBay's payment system are not worth the risk of consumer default.

Or perhaps, the issue has nothing to do with Bill Me Later.

Amazon might be simply retaliating to eBay's encroachment
on its own turf, through eBay's focus on Buy Me Now auctions.



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