Sean Harper is director of products at Groupon Payments, the division of the Chicago-based marketing company and emerging payments provider that provides mobile card reader hardware and accompanying analytics capabilities to small-to-medium-sized merchants.

On the heels of launching a version of its smartphone app for Android-powered devices, Harper spoke with PaymentsSource to share his vision of the future of mobile payments and detail why Groupon believes its business model can stand out among both traditional card terminal providers and an ever-increasingly crowded field of mobile payments processors.

The former venture capitalist moved into his current role in March 2012, after selling the Chicago-based startup he cofounded in 2009 to Groupon. The business, called FeeFighters, is a comparison shopping website for credit card processing.

His current role includes working on both iOS and Android versions of the Groupon Merchants app to integrate payments processing capabilities with Groupon’s coupon campaigns, loyalty program and other merchant-facing functions. Harper’s comments appear in the following interview, edited for length and clarity.

PaymentsSource: Why do you think so many companies are developing card readers for mobile devices?

Harper: I like to think of mobile as a rich platform. There’s a world of difference between the type of software that you can put on an Android or iOS device, or even the Web, than what you can put on an old Hypercom terminal.

Our thesis—and we’re not the only ones who think this—is that everyone needs to get paid and every merchant needs to accept credit cards. It’s been that way for a long time. But where you can really add value for the merchant is by providing a bigger, better, richer business process that involves analytics and customer relationship management, but then also includes marketing services. It’s a natural space for Groupon to be in.

The reason why the mobile stuff is taking off is because running payments through a modern platform with modern software provides more value to the merchant than running it through one of those older systems

PaymentsSource: Is there a synergy between the typical merchant that participates in a Groupon custom campaign and the merchants that typically use mobile card readers?

Harper: Groupon’s target market is Main Street merchants, the neighborhood merchants that you visit every day. They’re not chains, they’re not big businesses. One of the bad things for those merchants is they really don’t have much technology. They never have. McDonald’s and Whole Foods have POS systems and analytics in a way that these smaller merchants don’t.

On the other hand, the good thing is that consumer technology is getting so good, the computing power that you have on an iPad or Android phone is amazing now. You buy an iPhone at the Apple store or you use the phone you already have, you download an app and you start going. It’s no harder than what consumers do every single day.

This is perfect for our merchant base because it basically leverages this incredibly powerful consumer technology that’s becoming more and more ubiquitous and applies it to real business problems that these merchants have had, but that they’ve never been able to solve before.

PaymentsSource: Can you explain what Groupon’s mobile payments platform provides in terms of data aggregation and analysis?

Harper: Any transaction that you plug through one of our payments devices shows up on our really modern, slick online payments portal. The merchant can log in, see who’s been shopping there, run sales reports very easily, and compare trends in their business in a similar way that someone that runs a website might use Google Analytics for.

It’s pretty basic and simple stuff, like how’s my business doing? Who’s shopping here? How much did I sell today? How much did I sell last week? It’s kinda funny because a lot of merchants don’t even have those basics.

That’s what we have right now and we have plans to build that out considerably and provide more and more intelligence to these merchants as we go. We’re still pretty new at this; we just first launched payments a few months ago.

PaymentsSource: Does Groupon have access to the merchant data and rights to use it for its own purposes?

Harper: I probably shouldn’t speak to the actual fine print of our contracts, but what I can say is that we’re not using that data—and we won’t use that data—to target deals or get customer lists from merchants and start sending them Groupons.

That’s not our intention and I think anything that we did that started to make merchants wary or ask themselves, “Is Groupon using this data in a way I wouldn’t want them to?” would be really bad for this product, for Groupon and for merchants. The way that we’re using the data is that we’re using it to help merchants have better relationships with their customers. That’s what our focus is.

PaymentsSource: So what are some of the ways that you use the data to enhance what you provide to merchants, and ultimately to consumers?

Harper: One way that we use the data is in a product called Groupon Rewards. It’s a modern version of the frequent-shopper punch card that’s all driven off our payments data. It’s a very obvious value proposition for the merchant: We’ll tell you when a customer has reached a certain spending threshold and then the merchant can give the customer a little something extra. It’s a way to help your good customers feel special by treating them well.

There are other cool things that we could also do with it. One of the questions that merchants have when they’re interested in running a Groupon promotion is how many customers that get the Groupon would have shopped at their store anyways?

Of course, if we have access to their payments data, we can tell the merchant, “No, we know who shops here already and we won’t target those customers. And if one of those customers does end up buying a Groupon, we’ll not charge you for it.”

Another example that’s kinda cool ties into one of the big values that we offer to merchants through their Groupon promotions. When a merchant does a promotion, we’re sending them customers right away and they make money off of those transactions. But even better, they have a shot at making these customers long-term customers. If they have a good experience, they’ll come back. But most merchants have absolutely no way of measuring that because they don’t have any technology.

How do they know if a customer comes back three times or five times or doesn’t come back at all? If we’re your payments company, we can look that up and we can actually tell you, “We sent you this guy on this date and you gave him X amount of a discount, then he came back these four times and you made X amount of money off of him.” That intersection of using the purchase data and the marketing services that we provide to merchants could be very powerful because it helps them make better decisions.

PaymentsSource: There are a number of competitors emerging in this sector of technology to use mobile devices as card readers. Square’s had a big impact and others have employed differing strategies. So what’s the end game? Is there enough room for multiple participants? Will they push the traditional card terminal vendors out of the small-to-medium-sized merchant sector?

Harper: This is certainly raising merchants’ expectations about what types of technology they can get and at what price they can get it. I don’t know how it impacts other players in the industry because I don’t know their product development plans. But I’m sure that for the legacy terminal and POS manufacturers, this has got to be having an impact on them and I imagine it will have an even greater impact on them over time.

With us and this whole breed of competitors that have similar products, it’s a more functional product, it comes at a cheaper price point, it’s much easier to sign up for and merchants are adopting it very quickly. So it’s going to have a big impact on this industry.

PaymentsSource: Do you feel you’ve created a differentiator among the other mobile card reader vendors by positioning Groupon’s payments business as complementary to its core marketing business?

Harper: We consider this an enormous leg up. We have thousands of sales people and they’re talking to merchants every single day. The number of merchants that we talk to every day, relative to the other guys, is much, much greater.

Being the company that is the clear leader in performance-based marketing for small business and also being the payments, analytics and CRM provider to those businesses creates a clear synergy there that’s a really powerful combination. I think we’re really the only people out there that are in a position to do that.

PaymentsSource: How does bypassing independent sales organizations by distributing the payments products with your own sales staff help further those objectives?

Harper: It helps us on pricing in two ways. First is that there’s one less middleman that needs to get paid, which allows us to provide greater savings to the merchant. And second, one of the big problems in the ISO channel is that that product manufacturer has very little control over how the product is presented to the end user. By taking the ISO out of the equation and controlling your own distribution, we can not only provide a cheaper product to the customer, but also provide one that’s simpler.

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