Groupon's new payments system is a small step toward a dramatic change in merchant acquiring, one that leaves ownership of consumer data up for grabs.
Groupon, the latest potential disruptor in payments and merchant acquiring, revealed its new mobile card reader last week, proclaiming it the foundation of a long-term payments strategy. The Chicago-based daily deals provider says it intends to open more payment acceptance options in the future, though it did not provide details.
Groupon could easily follow the example of Square and PayPal, which enroll consumers in a digital wallet by first getting them to use a card to pay merchants that use their mobile readers. And as more third parties involve themselves in these payments, the traditional players – banks, retailers and independent sales organizations – may start asking who gets to control the gold mine that is consumer transaction data.
Consumer data is inherently valuable to all interested parties, says merchant acquirer consultant and industry researcher Paul Martaus, of Mountain Home, Ark.-based Martaus & Associates.
"This is not meant to be a knock against anyone, but the payments industry is imbued with traditionalists who are not necessarily over-endowed with imagination," Martaus says. "But you have to sit down and think about what all of this means when third parties get involved."
Many issuers, acquirers, processors and gateway providers have never had to consider changes to a payments systems operation, until "disrupters" like Square, PayPal and now Groupon came along with a different way of viewing the process, Martaus says.
"The traditional players have pretty much viewed it as taking a transaction from 'here to there' and scraping money from it as it goes by," he says.
Many acquirers understand that mobile payment advancement poses risks for their current way of doing business, according to recent research.
Banks and retailers must consider what is at stake if more merchants turn to a third party, says Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.
When negotiating a contract with third-party providers, banks and retailers may find it vital to include provisions that keep transaction data under their control, Crone says.
"If a bank were to put together a promotional effort to bring in new consumer accounts, it would probably cost between $150 and $350 to acquire a new account," Crone says.
On the other hand, when a Square or Groupon swipes a consumer card and gets a receipt attached to a mobile phone or e-mail account, "they have acquired that account and they know who the customer is," Crone says.
In effect, the merchant has "donated" that customer data to someone else's mobile wallet, Crone says.
"A retailer could use the same approach to spawn their own mobile wallet, and it adds up to an earth-shattering change for the merchant acquiring business," Crone says.
Groupon did not make an executive available for an interview by deadline.
The larger retailers that initiated the creation of the Merchant Customer Exchange, or MCX, mobile payment system likely had ownership of consumer data in mind.
MCX has been fairly secretive about details regarding the progress of its wallet concept, but it has revealed enough to allow observers to speculate that the most significant aspect of the project is allowing consumers to use the same mobile wallet application regardless of which store they are in. The joint venture likely does not involve sharing of customer data, but more likely the assurance that each retailer would control the transaction data and purchasing behavior analytics relative to their store.
For its part, Groupon is luring merchant interest with a pledge to match the lowest cost options to accept credit cards and deliver overnight credit card deposits. In addition, the company offers a data analytics service for merchants to better track the success of their Groupon daily coupon offerings.
Regardless of what unfolds in the near future, banks remain in the best position to provide "meaningful and robust consumer data" to their merchants, Martaus says.
"Groupon, Square and PayPal can only provide data about what flows through their readers and mobile wallets, presuming they pick up a transaction first," Martaus says. "Banks have the critical mass; they just haven't had the imagination to understand the underlying value associated with consumer behavior data."