Groupon is reportedly testing a mobile payments solution enabling retailers to process credit card transactions using an iOS device such as an iPhone or iPod touch, a move that could be attractive to retailers if the terms are right.

According to published reports, Groupon is testing the mobile payments solution in the San Francisco area. Groupon is facing growing competition in the deals space and could use the strategy to attract more retailers by offering a one-stop mobile loyalty, deals and payments solution.

“Groupon needs to close the loop between mobile marketing and mobile-commerce transactions,” said Wilson Kerr, vice president of business development and sales at Unbound Commerce Inc., Boston.

“The high percentages that they retain have come under fire,” he said. “By letting the retailer accept mobile payment through a tool that Groupon provides, Groupon can allow any retailer to own the payment element, all within the Groupon ecosystem, at the exact moment the consumer is in the place of business redeeming their coupon or special offer.

“If they were to retain a smaller percentage, versus accepting the payment and then writing a check to the retailer for half the amount, they could probably quiet some naysayers.”

Competition grows
Mobile is playing a bigger role for Groupon all the time in how consumers access and purchase deals. For April, the company reported that nearly 30 percent of its North American transactions were completed on mobile devices, up from 25 percent in December 2011.

However, one of the biggest challenges Groupon faces going forward is continuing to build momentum in the mobile channel as it tries to demonstrate to shareholders that its business model has longevity.

This is especially true as competition in the mobile deals space continues to grow. For example, Facebook recently reentered the deals space after a short-lived attempt last year.

At the same time, mobile payments solutions such as Google Wallet and PayPal are offering relevant offers and special deals.

“The mobile payments space is a very crowded and complex one,” Mr. Kerr said. “Banks, Google, PayPal, credit card companies, carriers, device manufacturers, and many others are all vying for a piece of this very rich transactional pie.

“At the same time giving retailers or restaurants or service providers of any size the ability to conduct a transaction means that Groupon can extend its reach to even the smallest retail operations that may not have an online, connected point-of-sale system in-place,” he said

Closing the loop
Groupon is coming late to the mobile payments game, with Square, PayPal and others already offering retailers a way to process credit card transactions using an attachment for mobile devices.

However, Groupon is reportedly trying to make its solution attractive to retailers with a competitive offer that includes 1.8 percent per transaction fee compared to the 2.75 percent fee charged by Square and the 2.7 percent by PayPal and Verifone.

Groupon is also reportedly offering merchants a free iPod touch for processing transactions.

The news follows Groupon’s introduction earlier this month of the Groupon Rewards loyalty program, which gives consumers a way to get rewards on their credit cards for their purchases at certain merchants.

“Adding a transactional mobile payment element is a logical step in order to complete the mobile experience loop,” Mr. Kerr said.

“From the delivery of the marketing message, to the tracked, proven incremental sale — logged and measured as a real transaction — mobile marketing and mobile payments are merging so that the real proof in the pudding is no longer foot traffic, but foot traffic that results in sales lift occurring as a direct result of the original marketing message,” he said.

“While email still remains Groupon’s primary delivery mechanism, an increasing number of consumers are accessing these email messages everyday via their mobile devices.”