The prominent daily-deals provider Groupon is reportedly branching into payments with a device that competes with Square Inc.

The Chicago-based firm is testing a mobile card reader with a pricing scheme that undercuts Square's transaction fees, according to an article on VentureBeat (see link). Groupon is also offering a free iPod Touch and card reader for certain merchants, the report says.

Even for a big name like Groupon, it takes a lot to stand out in the increasingly cluttered field of mobile card readers.

"Groupon's pricing here is its main differentiator, if there is any at all," Todd Ablowitz, president of Double Diamond Group LLC, tells PaymentsSource. He notes that similar services enabling merchants to accept payments through mobile phones are "rapidly becoming commodities."

The cost for Groupon customers to accept payments through its service is 1.8% of the purchase plus 15 cents per transaction, reports indicate (Groupon did not immediately return an emailed inquiry from PaymentsSource).

For transactions over $16, Groupon's reported pricing beats Square's rate of 2.75% and no fixed fee, Ablowitz says. The lower price, plus other services Groupon may package in, could be alluring, he says.

"Merchants might begin to use more than one of these providers to get the better deal and try to arbitrage the rates," Ablowitz says.

But Groupon faces an uphill struggle to gain market share in a highly competitive field where existing players are aggressively enhancing their offerings.

Intuit Inc. on May 24 announced a new geolocation-based feature for its GoPayment reader. This allows the GoPayment software to automatically calculate sales tax for mobile merchants (see story).

"Groupon has a lot of sales people out there signing up merchants and clearly they see payments as another way to generate revenue while they're at it," Ablowitz says.

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