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Groupon relies on Chicago startup technology to launch payment services

Groupimage new ipad/iphone payment service it launched for businesses Wednesday September 19 2012

Groupon image of the new ipad/iphone payment service it launched for businesses, Wednesday, September 19, 2012

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Updated: October 21, 2012 2:39PM

Groupon on Wednesday jumped into a crowded field of competitors offering small merchants lower fees when the retailers swipe credit cards.

Groupon is using technology it acquired earlier this year from Chicago-based startup FeeFighters.

The service, called Groupon Payments, lets Groupon’s merchant partners download a free app or update their existing Groupon Merchant app to get what Groupon touts as the lowest-cost, fastest-reimbursement option in paying “swipe fees” that credit cards charge. Groupon is charging MasterCard, Visa and Discover swipes at a 1.8 percent rate plus 15 cents for each transaction done by a Groupon merchant. American Express will be 3 percent plus 15 cents.

Groupon will charge a higher rate of 2.2 percent plus the 15 percent fee in a pilot program for merchants who don’t run Groupon deals.

In comparison, Square charges 2.75 percent per swipe, or $275 per month. PayPal charges 2.7 percent.

Groupon’s stock price soared on the news, jumping 13.86 percent, or 65 cents, to close Wednesday at $5.34 a share.

Groupon Payments is the latest of the daily deals company’s efforts to offer its merchant partners a platform of services such as calendar scheduling and Groupon-deals and return-on-investment tracking.

Groupon says merchants can use its payments service to add tips and taxes and to email customer receipts.

Groupon is able to negotiate the lower swipe-fee rates because of its size and its ability to offer the service to existing merchant partners rather than pay extra sales and marketing expenses to attract the merchants’ business, said Sean Harper, 32, who started FeeFighters two years ago after he got frustrated with his own credit-card processor.

Harper is now Groupon’s director of product management-payments.

“It’s tough for a small merchant to deal with banks and credit-card companies because their fees are expensive, complicated and sometimes hidden; the customer service isn’t good, and it’s very difficult to switch to a different processor,” said Harper, who struggled with the fees when he ran his first company, TSS Radio, an online satellite-radio parts seller in the West Loop.

He said Groupon Payments will ensure that merchants reach customer service if they need help.

Three of the largest payment processing companies did not respond to a request for comment.

Groupon sends merchants either a free credit-card reader that attaches to an iPhone and to an iPod Touch, or a $100 reader built into an iPhone case.

Sameet Sinha, senior analyst at B. Riley & Co., said the new offer is “closing the loop” on Groupon’s daily deals by sending back to Groupon valuable customer data, which can be used to gain insights for future promotions and tailoring customers’ deals.

The customer paying with his or her credit or debit card signs his name on the mobile-device screen with his or her finger.

Groupon is evolving into new businesses as analysts question the company’s ability to keep growing in a maturing, competitive industry with high marketing costs. Groupon’s stock is trading at 73.3 percent below its public-offering price.

— Contributing: AP

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