Paypal plans daily deal coupons to compete with Groupon

The Daily Telegraph's Selected service is one of the most recent daily coupon sites to launch in the UK

Online payment service Paypal plans to enter the discount coupon market.

The eBay-owned business said it planned to launch the service in the US before April 2012.

Paypal's president, Scott Thompson, told the Bloomberg news agency that his firm would use its knowledge of its 103 million members' past purchases to tailor offers.

The move poses a challenge to the sector's two biggest players, Groupon and Livingsocial.

Daily deal businesses offer their members the chance to buy goods or services - from spa treatments and sushi to cheap flights and theatre tickets - at a steep discount.

Buyers are usually limited to using the coupons within a restricted time span.

The daily dealer business then splits the revenue with the organisation providing the goods. Companies may make a loss on the specific offer, but profit if customers return for repeat business.

Discount deluge

According to the daily deal data aggregator Yipit, four of the biggest players <link> <caption>sold close to $210m (£135m) worth of coupons</caption> <url href="http://blog.yipit.com/" platform="highweb"/> </link> in the US in October. The firms surveyed were Groupon, Livingsocial, Amazonlocal and Google Offers.

Mr Thompson said Paypal's service would be "different" because the firm would only offer unique and relevant offers rather than "bombard" its members.

A spokesman for the company hinted it might launch coupons in the UK soon after the US.

"We don't have any specific plans to bring this to the UK at this stage," said spokesman Rob Skinner.

"But Britain is Paypal's second biggest market after the United States, and the past shows that the big developments in the US tends to travel across the Atlantic to the UK very quickly."

Although analysts forecast growth for the sector, they have repeatedly warned that the firms involved are likely to face increasing competition because the barrier to entry is relatively low.

In the past two years KGB Deals, Time Out, Grabone, the Telegraph newspaper, Discountvouchers, STV and Mightydeals are among those to have started targeting the UK public with discounted coupon offers.

Directed deals

However, while it may be relatively easy to enter the market, some firms are finding it hard to replicate Groupon and Livingsocial's success.

"Daily deals are hard to do - the key to success is flawless execution of the sales process," said Shane Hayes, founder of the deal aggregator service Siftie.

"Groupon has proved it can do this and its barrier to entry is more than 5,000 local sales people knocking around doors of businesses around the world.

"What we will probably see is next is 'Daily deals 2.0' where things like better targeting, using consumer data, will be used to change consumers' experience of the phenomenon. This may give Paypal an opportunity."

In the meantime Groupon intends to maintain its lead by increasing its range of offers.

Earlier this week, the firm made headlines when it offered a pair of business class tickets to fly around the world with up to 10 stopovers. The asking price was $20,000 (£12,900).