Groupon has launched an online payment service which is designed to tackle the growing dominance of PayPal in the market, and encourage more merchants to offer its deals.

Initially only being offered in the US, the service lets merchants swipe customers’ credit cards via a device attached to their iPhone or iPod Touch.

Groupon merchants will be charged 1.8 per cent, plus 15 cents for each MasterCard, Visa or Discover transaction, and three per cent plus 15 cents if a customer pays by American Express. The daily deals specialist claims its payment processing charges are the lowest in the market.

The latest service is part of Groupon's ambitions to become the preferred operating system for local commerce, as outlined earlier this year by chief executive Andrew Mason.

Analysts told the Reuters news agency that Groupon was beginning to address some of the scepticism which surrounded the business when it floated on the New York Stock Exchange last year.

"They are making the right moves, but it's a highly competitive market," said Rick Oglesby, an expert in the payments field from consultants Aite Group.