Groupon’s (NASDAQ:GRPN) stock has been downright erratic for the past year, but the general trend has been on the downside. Naturally, one’s eyes perked up to the sight of GRPN actually flipping out to the upside, to the tune of nearly 12% late Wednesday afternoon.
There are a variety of players in the market, such as Square, eBay’s (NASDAQ:EBAY) PayPal and Intuit (NASDAQ:INTU). But Groupon does have some advantages, like its distribution footprint. For the past two quarters, the company featured more than 100,000 unique merchants, and it’s got roughly 5,500 people in its sales trenches that the company could use to help promote this service.
But perhaps the biggest advantage is that Groupon’s offering is cheap. For MasterCard (NYSE:MA), Visa (NYSE:V) and Discover (NYSE:DFS) transactions, Groupon will charge 1.8% plus 15 cents per swipe. For non-Groupon customers, the fee will be 2.2% plus 15 cents per swipe.
Both compare to flat fees for Square and PayPal of 2.75% and 2.7%, respectively.
But is a payments service enough to turn the boat around at Groupon? Maybe, but not right away. The fact most of the company’s revenues come from daily deals, which have showing signs of a slowdown. Customers are getting tired of receiving a barrage of emails, and merchants are rethinking the value proposition.
Take a look at a recent report from Raymond James analyst Aaron Kessler: Based on a survey of more than 100 Groupon merchants, about a third of them were “unsatisfied” or “very unsatisfied” with the service. Translation: Offering cut-rate pricing wasn’t a good way to get loyal customers!
So while the payments system is a smart move — and should help provide a boost and recurring revenues — it is not a panacea. Groupon still needs to find more aggressive ways to transition its business away from the daily-deals category.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.