Groupon plans to dive into the small-business credit card processing business with a mobile reader similar to those from Square and PayPal, according to news reports. Bloomberg's Douglas MacMillan reports that a company known for producing credit card readers for Apple's iPhone and iPod touch has been testing Groupon's prototype device at independent retailers in the San Francisco Bay Area.

Groupon has responded to critics of its "daily deals" business model by launching a suite of small business and promotional tools. Groupon's latest mobile app includes a live map that updates users with currently available, local promotions. The company also launched an online calendar that lets service providers schedule their voucher redemptions and other services at no charge. A Groupon credit card processing service would enable participating merchants to merge their voucher transactions with other payments, reducing accounting and terminal costs.

New competition for Square and PayPal

Though details of Groupon's service remain sketchy, Bloomberg's source suggests that the company plans to compete against entry-level merchant processing services that charge a fixed percentage for debit and credit card transactions. Square has expanded its credit card processing service to include free point-of-sale software, while PayPal now supplements its online payment system with a free magnetic card reader. Both services charge up to 2.75 percent of each sale, with access to funds as soon as the next business morning.

Researchers from the Yankee Group, a research and advisory firm in Boston, estimate that mobile credit card transactions will grow to a $1 trillion market by 2015, especially as many traditional merchants transition from fixed point-of-sale systems to mobile devices. Like similar devices from Square and PayPal, Groupon's rumored credit card reader will use existing smartphones and tablets running operating systems from Apple and Google.

Despite charging higher percentage fees for many swiped transactions than for many traditional merchant accounts, mobile credit card payment services eliminate costly equipment leases and monthly service fees imposed by most processors. In addition, many small merchants typically spend less to process American Express cards through Square or Paypal than through standard merchant accounts, overcoming objections that the travel services company's interchange fees have become too high for some companies to justify.

The original article can be found at CardRatings.com:
Groupon testing small-business credit card processing service