Launching a payment service, the world’s largest online everyday deals provider, Groupon is ready to step in the competitive world of transactions running against eBay’s PayPal and Twitter co founder Jack Dorsey’s young start up square. The service Groupon Payments will let US dealers who are into Groupon daily deals (that includes restaurants, spas and saloons, small retailers and other businesses) accept credit cards payments at a comparatively lower rate than other providers in the business. The shares of the company accelerated high, almost 13.9 percent to finally close at $5.34 after the new service announcement was made. The stocks had been losing their value since the company went public last year.
As CEO Andrew Mason stated earlier this year, the company wants to expand to a size where it becomes core of the local commerce business. And maybe that is the reason, that despite sensing uncertainty on the Wall Street, Groupon has rolled out a number of bold services for local dealers including customer-loyalty programmes, scheduling system and currently payments. “They are making the right moves, but it’s a highly competitive market,” said Rick Oglesby, a payments industry expert at consulting firm Aite Group.
Groupon plans to charge 1.8 percent for MasterCard, Visa and discover cards on top of a 15 percent swipe fee and 3 percent on the swipe fee of American Express cards. Talking about the competition, Paypal charges about 2.7 percent on all the credit and debit cards and Square takes 2.75 percent per swipe. Square’s services are significantly expensive than Groupon for high transactions where it would charge $27.50 on $1000 transaction than $18.15 by Groupon but the startup has won the hearts of small merchants by offering simple credit card acceptance facilities through a small swipe device that plugs into smartphones. So, for average deals, Groupon is a good option but for lower ones, Square will rule.
Judging the heuristics, it seems the service was designed to encourage dealers to go for Groupon deals and use company’s other facilities. The users who don’t run Groupon deals are charged a higher rate of 2.2 percent for the acceptance of Mastercard and other debit cards in addition to the swipe fee of 15 percent. Groupon CEO Mason told CNBC that the payments service will help the company sell more coupons. Each new business does not need to be “wildly profitable on their own,” he added.
Groupon’s payments service has two goals – to make money and enhance the relationship with merchants, according to Sean Harper, director of product management for Groupon Payments. Now, what factor holds more importance for the company and how the new plans turn out will be discovered soon. The customers can till then try to maximize their gains in lieu of rising competition among the leaders.