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Groupon Inc.’s acquisition of a Web site that lets processors bid for merchant contracts represents a big opportunity for the online rewards giant but also underscores the dependence of such services on the merchant-acquiring business, a researcher who follows acquiring says. In the deal, announced on Friday, Groupon bought FeeFighters, a Chicago-based startup that operates as a sort of eBay for merchants looking for payment-processing services. Terms of the deal were not disclosed.
The acquisition makes sense because it will allow Groupon, which markets deeply discounted offers to consumers on behalf of retail companies in local areas, to tap into the merchant relationships FeeFighters has established, says Adil Moussa, a senior analyst at Aite Group LLC, Boston. Indeed, he says, Groupon might have been well-served to have sought out such a deal much sooner.
At the same time, as merchants increasingly look for ways to deliver discounts, coupons, and other rewards electronically, businesses like Groupon that deliver that service will need to seek out acquirers that already have payment-processing relationships with those retailers, Moussa tells Digital Transactions News via e-mail.
“The cost of reaching merchants is high and Groupon has to hire people to basically beat the pavement and sign up new merchants all the time,” Moussa notes. “By getting involved with [independent sales organizations] and acquirers who are touching merchants every day, Groupon can really focus on consumer acquisition and leave the merchant part to their acquiring partners.”
With mobile-payments ventures, in particular, looking to merchant rewards to help entice consumers, companies like Groupon that can broker such offers will play an increasingly important role in the payments system. But such operations are handicapped by their lack of experience in selling electronic services, especially to hard-to-reach small merchants. “In a sense, because Groupon wasn’t founded with a payment-centric view, a lot of cost has been incurred in getting merchant adoption when approaching merchant acquirers since the beginning would have been a sensible solution,” says Moussa.
Sean Harper, chief executive and co-founder of FeeFighters, refused to comment on the acquisition, deferring to a Groupon spokesperson. Groupon would not comment beyond a statement that “[a]s always, we\'re excited to add a group of savvy technologists and entrepreneurs to our team.”
Harper announced the acquisition March 23 in a blog posting on the FeeFighters site. “Our goals have always been to help small businesses run more efficiently, and by teaming up with Groupon, a pioneer in local e-commerce, we are able to execute on that goal even better than we were as an independent company,” Harper says in the post. He adds that most of his staff is joining him at Groupon, and that no “major changes” in the company’s products are in store. Besides its auction site, FeeFighters also offers a payment gateway called Samurai.
Founded in 2008, FeeFighters was known until September 2010 as Transparent Financial Services LLC, or TransFS. It became a commercially available service in 2009. To help control costs and present directly comparable bids, FeeFighters requires processors to submit interchange-plus pricing and to waive any cancelation fees. With interchange-plus pricing, bids are presented with a clearly stated markup over the percentage-based and fixed fees laid out in the interchange tables established and published by the card networks.
Acquirers pay a percentage to FeeFighters when a deal is clinched.
