Groupon (GRPN) is evolving from a deal site into a transaction processor.
At the heart of Groupon's Groupon Payments offering is a lower discount rate, as low as 1.8% on Visa and MasterCard, notes Digital Trends. This is in contrast to the 2.5% usually charged merchants, and the 2.75% charged by Square.
Groupon is also taking a direct approach to the market, rather than using the re-seller networks tied to banks that its "rivals" in transaction processing use. This may help justify the lower discount, but it should be added here that Groupon is taking on some risk here. The discount rate is meant to compensate processors and banks for possible fraud by either merchants or customers. Groupon is betting that companies which have used its social services will be better-than-average risks.
For companies that haven't used Groupon before, the discount is higher, but still just 2.2%, plus a 15 cent per transaction "swipe fee." It's currently available only through the iPhone, under iOS6, but the rectangular "dongle," which plugs into the audio jack, is free.
The other, more important benefit for merchants is access to their own data. They can instantly see how their offers have done, and get Groupon's help in tweaking them. This gives the company a big leg-up over the other deal site providers.
Groupon's base business has been getting hammered lately by commentators like Bill Bice. But this is a potentially a much better business than that. Crain's Chicago Business notes that the offering came through the acquisition of a payment startup called Fee Fighters that actually began as a price comparison service.
And this should be seen as the company's major risk here. It's not easy to get into payments. There are huge security risks, which can result in losing access to Visa (V) and MasterCard (MA) from a single incident. But those risks are smaller (if deeper) when a company is small, and unscaled. So there is an opportunity here for Groupon to completely transform itself.
Those who bet on Groupon at its launch as a social service had better take another look at the stock. That's not what it is any more.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.