Groupon rumored to be developing credit card reader

Sources saying it would charge lower fees than PayPal or Square

PayPal, Square and other companies that supply credit card readers are about to get some extra competition, if the rumors are true.

Groupon is the latest company to develop its own credit card reader, which would be used by merchants, Bloomberg reported Friday.

The testing is in early stages, and has not been officially announced to the public, though merchants in the Bay Area are currently testing the reader, sources told Bloomberg.

With its new device, Groupon joins companies like Square, Paypal, Verifone and, most recently, Eventbrite, which have all debuted their own card readers.

Devices such as credit card readers, which plug into mobile devices, are known as dongles. While the dongles of other companies typically all plug into the mobile device, Groupon’s would wrap around, since it has the potential to break off if plugged in, a source told Reuters.

The Groupon card reader would wrap around the back of the customer’s mobile device, allowing the merchant to swipe the customer’s credit card.

Groupon was unavailable to comment on the veracity of the story, but Paul Taaffe, a spokesman for Groupon, told Bloomberg, “Groupon has a number of trials in markets that are designed to help merchants and small businesses.”

He would not specifically comment on the credit card reader story. 

Potential fees

Sources say that Groupon is planning for fees that would be competitive with services like PayPal and Square.

Groupon is going to market their device to merchants that already accept their coupons, which will allow them to charge lower fees than other similar companies because it can subsidize the difference with the money it makes from the coupon service.

PayPal and Verifone currently charge a 2.7% fee per transaction, while Square charges 2.75%. Neither company charges an addition transaction fee.

While Groupon has no finalized their pricing plan yet, it  may choose to go with a 1.8% fee, along with an extra 15 cent transaction fee, though that number would go up to 2.3% for American Express cards, according to VentureBeat.

Verifone charges 3.7% for AmEx, while PayPal and Square don’t have increased charges.

If the report on Groupon’s fees turns out to be the case, it could wind up putting pressure on the other providers to lower their fees as well.

(Image source: modmyi.com)