Amazon Not Friendly to PayPal

eBay's(EBAY Quote - Cramer on EBAY - Stock Picks) PayPal division thought it had dodged the bullet.

But the real shootout may just be getting started for the popular online payment service, which currently counts as eBay's biggest growth engine.

While PayPal has continued to thrive since the highly hyped and promoted Google(GOOG Quote - Cramer on GOOG - Stock Picks) Checkout joined the field in 2006, the new payment service launched by Amazon.com(AMZN Quote - Cramer on AMZN - Stock Picks) on Friday has what it takes to take a bite out of PayPal.

That has to concern eBay CEO Meg Whitman, who recently took the opportunity to highlight PayPal's trouncing of Checkout and who was banking on continued impressive growth to bolster the company's stock, which has traded essentially flat for eight months.

eBay investors, too, should pay close attention to Amazon's progress in this market.

For starters, the Amazon Flexible Payment Service, or FPS, is much more of a true competitor than Google Checkout ever was. While Checkout stores credit card information and makes it more convenient for users to make purchases online, it lacks the option of a direct link to a purchaser's bank account. Both PayPal and FPS, however, have that capability.

The ability to transfer funds directly from bank accounts instead of through credit card billings, meanwhile, has been the key to PayPal's massive profitability. Fund transfers directly from bank accounts usually cost PayPal a small fraction of what credit card companies charge for processing an order.

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