Groupon Payments hopes to edge out the competition with a lower rate than other providers; 1.8 percent plus 15 cents per swiped transaction for major credit cards including MasterCard, Visa and Discover. For American Express, it’s 3 percent plus 15 cents per transaction. Swipe fees may vary by credit card but they usually fall between 2-4 percent.
The service, which is only available in the United States for now, can be accessed through an app for the company’s merchants.
Groupon’s vice president of mobile and merchant products Mihir Shah would not comment on whether the company can make a profit or a loss with this price structure, but said Groupon intends to make a real business out its new system. Shares of Groupon (GRPN) however were up more than 7 percent in midday trading after the announcement.
According to Shah, the company developed the idea when they realized that many companies did not know the rate they were paying for transactions. Groupon is has rolled out other services aimed at simplifying life for merchants, including a scheduling system and a customer-loyalty program. According to Shah, the company’s mission when developing the mobile payment system was “to slash the complexity and costs of accepting credit card payments.”
Rick Oglesby, a payments industry expert at consulting firm Aite Group, says the company is making the right moves, but it’s a highly competitive market.
Groupon Payments will be a formidable force for even low-cost competitors like Square, that has two plans for businesses: pay one flat fee of $275 per month, or pay 2.75 percent per swipe.
Square is likely to work better for smaller transactions, since charges will be about 14 cents per swipe for a $5.00 transaction (2.75 % of $5.00) while Groupon will charge 24 cents, (1.8 percent of $5.00 plus 15cents).
For larger transactions, like a $1000 payment, Groupon is likely to be cheaper, charging a fee of $18.15 for that transaction (1.8 percent of 1000 plus 15 cents) as opposed to Square’s $27.50 (2.75 percent of $1000).
Square is backed by Twitter co-founder Jack Dorsey and lets small businesses swipe credit cards through a tiny device that attaches to a phone.
EBay-owned PayPal charges 2.7 percent per swipe.
Several companies including Square, which has raised more than $200 million in funding and is valued at more than $3.2 billion, are trying to dominate the fast-growing mobile payments space. Google (GOOG, Fortune 500), is also pushing its Wallet service, and financial services companies like VeriFone and NCR that both have similar offerings.