Groupon's new Breadcrumb POS, a free app enabling merchants to use iPads as point of sale systems, is the latest part of the company's strategy to build a payments business for the small-merchant community it also serves through its daily-deals business.

 "The vision we're trying to accomplish here is that we care deeply about the small businesses that are the anchor of our neighborhoods and we're trying to make their lives easier," says Sean Harper, director of product management for Groupon payments and POS.

Groupon bought Breadcrumb last year. An earlier version of the app, called Breadcrumb Pro, is more for high-end fine dining restaurants, Harper says. The new app is more for the masses, he says.

"It does show that Groupon is dedicated to mobile point of sale in the future," says Dave Kaminsky, a senior analyst at Mercator Advisory Group. "Merchants are interested in mobile POS and merchants are interested in daily deals so this makes a lot of sense."

Groupon's strategy addresses two specific concerns of small merchants. Its daily-deals system attracts new customers to stores, and its Breadcrumb and Groupon Payments products facilitate sales, Harper says. Groupon Payments, unveiled last year, is a portable card reader that attaches to smartphones and works through the Groupon Merchants app.

"Groupon with its daily deals built up a large merchant base, a lot who developed some type of loyalty," Kaminsky says. The company wants to "use the relationships they have with those merchants to build up a parallel business in mobile point of sale."

Users of the Breadcrumb app won't have to sign up with Groupon, but Harper says there are many interesting things the company can do by tying mobile point of sale and daily deals together.

For example, if merchants use both Groupon's daily deals and the Breadcrumb POS, Groupon could leverage the transaction data to provide targeted marketing, Harper says. "This combination is super powerful," he says.

Plus the ability to control the point of sale decreases friction with the merchant, says Kaminsky.

Originally consumers had to purchase and then print the merchant coupon to bring to the store, and the merchant would then have to input the coupon details into its system. This process can be streamlined through Groupon's  use of online and mobile technology, Kaminksy says.

Besides Groupon, other companies offer tablet apps and hardware to merchants that want something more functional than legacy systems and less expensive than PC-based systems.

"Tablets are perfect for this; it's a really powerful computer with a super intuitive interface," Harper says. iPads are also relatively inexpensive, especially since new updates are easily downloaded onto the tablet without maintenance, he says.

Groupon accidentally launched a pre-production version of the Breadcrumb POS app on iTunes on May 13, but it quickly pulled the app.

Groupon charges 1.8% plus 15 cents for swiped Visa, MasterCard and Discover transactions; keyed-in transactions cost 2.3% plus 15 cents. Rates for Amex cards vary by business type and 2.3% to 3.5% plus a fee of zero to 15 cents.

To encourage merchants to sign on to Groupon's payment system, the company is running a promotion, giving away the first $5,000 worth of payment processing to users of the new Breadcrumb POS system.

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