Groupon Promising Merchants “Lowest Cost” Payments Service (And It's Using an iPhone)
Groupon is rolling out a new payments service today, which it hopes will create new reasons for merchants to continue using the Chicago daily deal provider. — In an interview, Mihir Shah …
Context & Ripple Effects
This launch has been telegraphed since May 2012, when VentureBeat reported Groupon was testing a payments offering aimed at Square and PayPal; today it ships as Groupon Payments, running on an iPhone with Mihir Shah pitching merchants the 'simplest and lowest-cost' way to take credit cards. It is the latest step in a deliberate build-out: the Groupon Scheduler beta in March 2012 and the 2011 loyalty-rewards push to close the redemption loop both pointed at turning one-off deal redemptions into standing merchant relationships.
First-order effects
- Merchants running Groupon deals gain an in-house card-acceptance tool pitched as cheaper than alternatives, removing the need to sign separately with Square or PayPal to capture deal-driven foot traffic.
- Square and PayPal now face a competitor whose pitch is not hardware or software but distribution — Groupon can bundle payments into the deal relationship it already has with local businesses.
Second-order effects
- Pricing pressure lands directly on Square's nascent dongle-based model: if Groupon undercuts on cost, the mobile-payments newcomers must defend their rate structure rather than just sign-up volume.
- For Groupon itself, payments revenue offers a counterweight to investor anxiety after its August 2012 second-quarter miss and the 20% after-hours stock drop — a way to show a business beyond discounted vouchers.
Third-order effects
- If the pattern holds, daily-deal providers consolidate into local-commerce platforms where deals are the acquisition hook and payments, scheduling, and loyalty are the retention layer — shifting the industry from selling discounts to owning the merchant's transaction flow.
- Widespread pickup of this story across eight outlets signals that payments is being treated as the standard next move for consumer-internet brands with merchant networks, raising the bar for any deals company without a transaction product.
The trend: Daily-deal companies are layering payments and merchant software onto their deal networks to convert episodic promotions into durable local-commerce platforms.