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Mobile payments coming to a loyalty/deals app near you

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Groupon (s grpn) is reportedly testing out its own Square rival, a mobile payments system for merchants that will undercut Square and other competitors’ transaction fees, according to a report by Rocky Agrawal at VentureBeat. Agrawal said he’s heard from a business that has been approached by Groupon about the payments system that would work with iOS devices. That system, which is apparently already being tested in the Bay Area, would offer a 1.8 percent transaction fee plus a 15 cent per transaction charge. That would be, in many cases, cheaper than Square, which has a flat 2.75 percent transaction fee and PayPal Here (s ebay) and VeriFone’s SAIL (s pay), which have 2.7 percent transaction fees.

The report is interesting, and we’ll have to see if the tests lead to a widespread product. It could put more pressure on existing payments players and potentially cut into the growth prospects of Square and others if it can find traction. Groupon is reportedly offering merchants a free iPod Touch (s appl), not just a credit card reader, to process transactions.

But it got me thinking that it seems like a number of loyalty and deals apps will start going down this road, adding mobile payments as a way to build out their services. These days, there’s a big land grab going on in local. People are trying to provide merchants with tools for deals and offers, loyalty and payments. Some of the latest payments plays like Google Wallet’s (s goog) and Isis’, two NFC wallets, are trying to tackle all of those services. But we have some other startups who are coming at this from a deals or loyalty angle, and increasingly they are moving to offer the entire package to appeal to merchants.

Paying with LevelUp

LevelUp, for example, started out as a Groupon competitor but then retooled by building its own payments system into its app using help from Braintree. Now consumers can not only take advantage of discounts but also transact right through the app, closing the loop on offer redemptions. That’s a key point, because it means a merchant can understand how effective these programs are because they can see exactly how much money they’re generating.

With more payments tools like Braintree, Stripe, and CardSpring, which allows people to sync their credit card to an app, we are seeing more apps build in payment services. I just wrote about two loyalty services, Cardify and Mirth, that launched this week that use CardSpring as a way to track and reward spending. Groupon itself introduced its own Groupon Rewards loyalty program earlier this month that allows consumers to sync their credit cards to get rewarded for their purchases at certain merchants.

Ultimately I think we’ll see more of this convergence as these apps try to become a one-stop shop for merchants, providing deals for demand generation, loyalty for continued engagement, and payments to close the loop and track spending. It’s going to get really confusing for local businesses, which are going to have to decide who they want to turn to as their local operating system, a term Groupon’s CEO Andrew Mason coined recently.

That also means I wouldn’t be surprised if Foursquare gets into the mobile payments arena. It already provides specials, and with its partnership with American Express (s axp), it allows those cardholders to redeem AmEx deals by just using their credit card. But if it wanted to, Foursquare could easily add a broader payments system or a card-tracking system of its own. That would help it explain to businesses how valuable the Foursquare service is. Right now merchants are rewarding user check-ins, but they don’t have a way to tie rewards to actual spending through Foursquare. This could introduce a new level of complexity for merchants, depending on the solution chosen. But it may be worth it for Groupon, Foursquare and others to look at becoming more of a resource and service for merchants.

2 Responses to “Mobile payments coming to a loyalty/deals app near you”

  1. Rye Campbell

    The free iPod Touch from Groupon sounds awesome. Still 1.8% is nothing compared to mPowa’s .25%. And most importantly, I won’t be able to use this card reader when I move to the UK. I’d stick with mPowa (www.mpowa,com) as my first choice there.

  2. Brian Roemmele

    Ryan, Great posting! Rocky, in his post really found the biggest challenge for all of these players: A price war. In this case this is a war that no one will win.

    All of this comes from not really understanding the merchant and not really understating the consumer. None of the tech companies that have just now (last 2 years) “discovered” retail payments respect or understand history or the wisdom of experience. Thus misunderstanding of true disruption is fed to some of the best people to be found in tech by executives and founders only to wake up with a hangover when reality sets in. The only true disruption in payments is when one replaces Visa, MasterCard and/or the ACH system. No one including PayPal has, thus there is no true disruption.

    This is not and will never be a “winner takes all market”. But some companies are acting like it is. This also is foolhardy.

    The issue is reaching merchants and all the pay per click, glowing retweets, Facebook wall comments and pointless TV advertisements in the world, will not reach the 90% of merchants that these companies need to reach. Currently all of them are fighting over the same 10% of merchants. A large 10% yes, but not nearly the entire market.

    And even if they do reach these notoriously hard merchants to reach, there will have to be considerable understanding from an anthropological and physcological level. This takes time or it take access to people with real direct experience. I know dozens of ways to solve these issues and all are far from obvious. The best picture I can draw at this point is:

    As retail Merchants become the only girl in town when the tech company Navy drops anchor and come ashore. All of the sailors are certain they have something new to offer. However the only girl in town, well, she may have seen this all before.