Rumor has it that Amazon is working on a service that could compete directly with Square and others in the mobile payments space.

Leena Rao at TechCrunch reports: “A tipster and an industry source both tell us that Amazon is going after smaller chains of retailers for the product, and could be offering significantly lower credit card processing fees for merchants. Rumors are that Amazon could be offering a rate as low as 1.9 percent. Current offerings include fees of around 2.7 percent.”

Beyond Amazon, competition in the space is already heating up. Groupon, for example, just launched its own product last week, complete with card readers and everything.

This would seem like a natural extension of Amazon Payments, which has been around for years. The company is already making a push into the physical world, something Walmart’s halt on Kindle sales will likely only fuel. These stores already accept Amazon Payments.

The company has also been expanding its locker service in retail stores, and as Rao notes, is looking to launch some retail stores of its own, where such an offering could be used primarily.

Interestingly enough, in the online world, Amazon is also reportedly taking away searches from Google.

As for Amazon, it’s also reportedly getting into the wine business. More on that here. This week, the company also launched eco-friendly retail site Vine.com.