Groupon has launched a payment service that allows businesses to accept credit cards using an iPhone or iPod Touch, becoming the latest company to enter the growing mobile payments market.

The discounts-and-deals company will charge merchants that uses its coupons lower fees than competitors Square and PayPal, according to a statement from the Chicago-based company.

Groupon Payments

'Groupon Payments' lets restaurants, salons and spas, retailers and other businesses that run Groupon daily deals accept credit card payments, analyse and review transaction history, daily sales reports and review revenue trends.

Groupon said credit card payments will be deposited overnight in vendors’ bank accounts, faster than the typical delay of two to three business days.

“Now the merchants can track the time of purchases and what time the customers walked through their door, how many people were with them and what they bought,” Mihir Shah, Vice President of mobile and merchant products for Groupon said in an interview.

“That’s incredibly valuable data.”

Mobile payments market

Each time a merchant swipes a credit card issued by MasterCard, Visa or Discover, Groupon will charge a 1.8 percent fee plus 15 cents for each transaction, while American Express cards will be assessed a 3 percent fee plus 15 cents.

In comparison, Square charges 2.75 percent per swipe, or $275 per month and PayPal charges 2.7 percent.

These fledgling services are also up against traditional credit card processors from Visa or American Express.

Groupon can afford to charge a lower rate because its business already supports a large sales staff and other costs associated with rolling out a payment product to hundreds of merchants, Shah said.

“We already have the sales force, we have the distribution advantage, we have the relationship with the merchant,” Shah said. “All we have to do is turn on the service.”

“Slash the complexity”

The service is aimed primarily at small businesses that, until now, haven’t accepted credit card payments because of high transaction fees.

The service takes advantage of the proliferation of smartphones in recent years.

“Our goal is to provide powerful and affordable tools to help Groupon merchants run their business,” Shah added.

“We talk to a lot of Groupon merchants and the one thing that came up again and again was that they felt like they were paying too much for credit-card processing. We set out on this mission to slash the complexity and cost of collecting credit cards.”

Groupon’s goals

Sean Harper, Director of Product Management for Groupon Payments, says the service aims to make money and enhance the relationship with merchants.

Harper says Groupon can cut pricing on payments for local merchants and still make a profit, noting that the company's size means it gets favourable rates from payment networks such as Visa and MasterCard.

The company also has a distribution advantage because the Groupon sales force can cross-sell the payments service to local merchants that they already know.

Distribution and sales is a big cost that rivals typically have to suck up, Harper added, though he said Groupon is willing to accept lower profit margins than existing companies in the payments business.

Groupon's Payments is now available to Groupon merchants in the United States, however it is unknown when it will arrive in Australia.

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