September 19, 2012 / 6:53 PM / 6 years ago

Groupon launches credit card payment business

(Reuters) - Groupon Inc, the world’s largest online daily deals provider, launched a payment business on Wednesday and entered a crowded field where it will compete with eBay Inc’s PayPal and start-up Square Inc.

People enter and leave Groupon Inc corporate office and headquarters in Chicago, Illinois, November 4, 2011. REUTERS/Frank Polich

Groupon said the new service lets restaurants, salons and spas, retailers and other local businesses accept credit card payments at a lower rate than other providers.

Any merchant that runs a daily deal with Groupon in the United States can sign up for the payments service, the company added.

Daily deals offer large discounts in local areas. A typical offer could involve a customer paying $20 for a voucher that is worth $40 of goods and services.

Groupon will charge 1.8 percent for MasterCard, Visa and Discover cards, on top of a 15 cent fee per swipe. For American Express cards, it charges 3 percent plus the 15 cent fee.

Groupon’s competitors in the daily deals market include LivingSocial, Google and Amazon.

Groupon Chief Executive Andrew Mason and Chief Financial Officer Jason Child want the company to grow to a size where it becomes the “operating system” for local commerce, as Mason put it earlier this year.

While Groupon’s goals have been met with skepticism by Wall Street, the company has rolled out a slew of new services for local merchants, including a scheduling system, a customer-loyalty program and now 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 shares rose 6.9 percent to $5.01 at midday. The stock has lost about three-quarters of its value since the company went public last year.

The payments business has become highly competitive in recent years. Square, a start-up backed by Twitter co-founder Jack Dorsey, has won small merchants as customers by offering easy credit card acceptance through a small swipe device that plugs into smartphones.

PayPal launched a rival service earlier this year called PayPal Here.

PayPal’s service charges a fee of 2.7 percent of the purchase price for all types of credit and debit cards - including those issued by American Express. Transaction fees for processing AmEx cards are often higher. Square charges 2.75 percent per swipe.

Groupon’s payments service may be designed to encourage merchants to run Groupon deals and use the company’s other services. Merchants that don’t run Groupon deals will be charged a higher rate of 2.2 percent to accept MasterCard, Visa and Discover, plus the 15 cent fee.

“They’re not looking to make a lot of money from this,” said Sameet Sinha, an analyst at B. Riley & Co.

Still, the new service may help Groupon attract more merchants cheaply, Sinha added.

Aite’s Oglesby called Groupon Payments a “loss leader”.

Groupon already has thousands of merchants in its databases and the company’s massive sales force can offer the payments service to merchants while they are arranging daily deals, Sinha explained.

Reporting Alistair Barr in San Francisco and Nivedita Bhattacharjee in Chicago; editing by Jeffrey Benkoe, Sofina Mirza-Reid, Richard Chang and Andrew Hay

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