Groupon Taking on Square? Don't Make Me Laugh

By Sarah Lacy , written on September 20, 2012

From The News Desk

Yesterday Groupon wrote on its blog that the company was launching its own Square-like credit card reader for merchants, promising overnight fund transfers and a lower rate than Square. Some blogs have -- in all seriousness -- intimated this is could be a Square killer.

Let's be clear: This is no Square killer.

Why? Payments is one of the most insanely hard spaces in which to build a business. Square has traction and a huge trove of cash, yes. But even Square's success is hardly assured. Listen to Reid Hoffman's remembrances of all the PayPal near death experiences -- and PayPal was building a payments solution in a far less crowded market. Square is one of the only startups in the Valley that big name VCs keep passing on and then calling it their biggest regret as they pass again. Why? Because the company has made astounding traction, but the space is still so damn hard and expensive to really dominate.

In short, the payments space requires near flawless execution. And Groupon's management team is known for pretty much the exact opposite of that. This move comes across like a ham-fisted attempt to lock merchants into using the increasingly unappealing Groupon to offer discounts.

Even the service's apparent selling points don't entirely add up. Mihir Shah, vice president of mobile and merchant products, told AllThingsD that "merchants often don’t even know what they are paying because of complicated rate structures and monthly fees that make it hard to figure out." But, if anything, the new service is more complex than existing options. From that same ATD piece...

Groupon is offering three main rate structures:
  • Swiped transactions — MasterCard, Visa and Discover (1.8 percent plus 15 cents) and American Express (3 percent plus 15 cents)
  • Keyed-in transactions — MasterCard, Visa and Discover (2.3 percent plus 15 cents) and American Express (3.5 percent plus 15 cents)
  • Non-Groupon merchants can also sign up for the service, however, they will be charged slightly more (2.2 percent plus 15 cents for MasterCard, Visa and Discover)
Yeah, that's way clearer.

The execution gap will become even more apparent over the next year as Square makes a big international push. I have no clue as to how well it will do at that -- as I wrote yesterday, it'll be insanely hard for all of the payment vendors to succeed outside the US. But it'd be hard to do international worse than Groupon (lead by the shameless, bait-and-switch artist Oliver Samwer).