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Groupon leverages merchant relationships for payments services via mobile

Groupon, facing significant challenges in the daily deals space, is expanding into payments services, joining a growing list of companies enabling merchants to process credit card payments via a mobile device.

Groupon hopes to leverage its extensive customer base of small and mid-sized retailers to offer them services enabling them  to process credit card payments using a smartphone, similar to what Square, PayPal Here and others are already doing. And, just to make sure no one thinks it is not serious about payments services, the daily deals giant will charge significantly less to process each transaction than retailers currently pay credit card companies.

“Groupon is not known as a payments company and that there is plenty of competition already with companies like Square and Verifone,” said Scott Snyder, president and co-founder of Mobiquity, Wellesley, MA.

“Groupon’s brand name recognition and deep existing network of local merchants could help it stand out from competitors, provided its solution delivers on its promise,” he said.

Competitive fees
The mobile payments solution from Groupon will include an attachment for mobile devices that can be used by small and mid-sized merchants to process credit card payments. Groupon is also reportedly planning to introduce additional merchant services.

Groupon’s daily deals business works mostly with small, local merchants. Since these small merchants are also the primary group interested in mobile POS, it makes sense for Groupon to invest in a business where it already has relationships with large quantities of potential customers.

Groupon will charge merchants 1.8 percent plus 15 cents per transactional swipe from MasterCard, Visa and Discover cards. The fee for American Express transactions will be three percent plus 15 cents.

The program was piloted in the San Francisco Bay Area and is now available to all Groupon merchants in the United States.
Groupon Payments services are available in the latest version of the Groupon Merchants app, making it easy for existing merchants to enroll.

Groupon’s fees are significantly lower than what credit card companies charge, whose fees range between two percent and four percent. The fees are also lower than the 2.75 percent per swipe charged by Square or the 2.7 percent charged by PayPal Here.

Reducing friction
One of the benefits of adding payments services to its offerings is that Groupon can reduce the friction for consumers redeeming its deals at the POS.

“A number of banks, card networks and processors have all begun to offer daily deals because they can redeem these coupons behind the scenes without any action required from either the consumer or the merchant at the time of the transaction,” said Dave Kaminsky, emerging technologies analyst at Mercator Advisory Group, Maynard, MA.

“If a merchant offering a Groupon deal is also using a Groupon mobile POS terminal, Groupon can now provide the same level of service,” he said.

Groupon Payments is just one of several ways that Groupon is trying to extend its business into new areas as consumers showing growing fatigue with daily deals and such offers are being incorporated into the efforts from a growing array of marketers. The company is also focusing on building its direct sales business and boosting Groupon Now, its mobile deals offering.

Mobile POS is facing a similar situation as daily deals, in that the relatively low barriers to entry are encouraging a large influx of competition.

“The new solution is based on a dongle card reader, meaning they are still focusing on card-based payments,” Mr. Kaminsky said.

“This in and of itself will not have a drastic effect on their consumers use of Groupon via mobile,” he said.

“However, it does establish them as a merchant aggregator, which they could in turn use to build themselves as a competitor to mobile payments systems such as LevelUp and Pay With Square.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York