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Report: Groupon is testing a payment service that undercuts Square, PayPal

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Groupon is reportedly testing a remote payment service in San Francisco that processes payments using a terminal and an iPod Touch. According to Venture Beat, which cites an email and unidentified sources at Groupon, the company is offering merchants a free iPod Touch and a payment reader in return for testing the service.

Groupon is charging a 1.8 percent transaction fee and a 15 cent per-transaction charge for payments that are processed through the terminal, which is significantly less than Square, which charges 2.75 percent and no per transaction fee. Likewise, Verifone Sail and PayPay Here charge 2.7 percent and no per transaction fee. For transactions using American Express, Groupon raises its transaction fee to 2.7 percent.

At deadline, a Groupon spokesman had not replied to inquiries about the service.  

Groupon's offering has the potential to put pressure on other remote payment providers. However, the company will have to move quickly to get traction in the market to make up for early gains by the other players.  Square reports that more than 1 million merchants are now using the company's terminal to accept card transactions. The company processes mobile transactions at an annualized rate of $5 billion.

In addition, last month eBay CEO John Donahoe said more than 200,000 merchants have signed up for PayPal Here since the platform launched in March 2012.

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