News Column

Groupon Dives Into Credit Card-swiping Business

Sept. 20, 2012

By Jon Swartz

Mobile check out

Groupon CEO Andrew Mason says key to the daily-deal company's success is for it to go "deeper" into an estimated $3 trillion local-commerce market.

On Wednesday, Groupon added the latest piece to its portfolio: It plunged into the mobile credit card payment business, joining a crowded field that includes Square and PayPal.

"We're not trying to make money hand over fist," Mason said in a rare interview Wednesday. "The goal is to enhance (services) for daily deals."

The new service -- an iPhone and iPod Touch app, coupled with a free credit card reader/swipe or $100 durable smartphone case with built-in swipe -- lets restaurants, salons and spas, retailers and other local businesses accept credit card payments at a lower rate than other providers.

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

Square, a start-up led by Twitter co-founder Jack Dorsey that is popular at coffee shops, taxis and food trucks, charges 2.75 percent per swipe. EBay's PayPal Here service charges 2.7 percent.

Groupon shares soared 14 percent to $5.34 in trading Wednesday, reversing a slide that had sent shares tumbling more than 75 percent this year.

If there is a piata for the next dot-com bubble, it has been Groupon. The Chicago-based company -- valued at a lofty $25 billion last year -- is worth about $3 billion today amid concerns over the discount market and its hypercompetitive climate.

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Groupon's grand plan is to become the "operating system" for local commerce. But it faces intensifying pressure from Google, LivingSocial and others because its business model is easy to replicate. That has forced Groupon to expand into new categories, such as goods and a customer-loyalty program in a bid to become the of local commerce.

"The daily-deals business in the U.S. has slowed" the last year, to about $3 billion in 2012, says analyst Edward Woo of Ascendiant Capital Markets. Mobile payments help Groupon diversify beyond daily deals with the more than 250,000 merchants it does business with. However, Woo remains concerned by quarterly dips in Groupon's business.

The company, which raised $805 million last year in its initial public offering, recently posted its first profit. Mason predicts mobile-related sales will account for half of its business in two years. Today, it's about 33 percent, he says.

Source: Copyright USA TODAY 2012

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