Amazon launches PayPhrase

PayPal gets some new competition from one of the Web's largest retailers

Amazon on Thursday rolled out a new express payment system called PayPhrase, which reduces the complexity of making purchases online to remembering a simple phrase and PIN.

A PayPhrase is a combination of two or more words (totaling to at least four or more characters, but no more than 100) that a user sets up just once through Amazon. The idea is to pick something creative, personal, and easy to remember, like "Feisty Mango" or "Pat's Great Hounds."

Upon picking a suitable phrase, the user then enters a PIN to go along with the PayPhrase. The PayPhrase/PIN pair is instantly connected to the user's billing and shipping information registered on Amazon. Users with multiple credit card and shipping address combinations will simply have to make multiple PayPhrases/PIN pairs, which could get slightly unwieldy for some people.

Providing additional features like parental controls for teens and students, Amazon hopes to streamline the process of making purchases online by reducing the friction involved in entering billing and shipping information.

Besides Amazon, a good number of online retailers (like JR.com and Buy.com) have already embraced PayPhrase on their own sites. With a combined 2008 sales volume of $800 million, those two sites are ranked 103rd and 33rd, respectively, in the latest Internet Retailer guide. Having big players already adopting its new payment system is a good thing for Amazon if it expects to compete with PayPal.

For quite awhile now, the preferred method of e-commerce money exchange has been through eBay-owned PayPal, which is still the dominant form of payment through eBay. Though Google Checkout has given PayPal some competition since its launch in the summer of 2006, PayPhrase is specifically competing with PayPal Express Checkout, further enriching the contest to be the best online payment system.