IP Commerce Inc., a startup backed by Venrock Inc. and Intel Corp. (INTC)’s venture-capital arm, is shutting its key business, which handles credit-card processing for companies including Groupon Inc. (GRPN), citing competition.
The decision to end the processing service, which has also been used by mobile-payment service provider Square Inc., was disclosed to partners in an e-mail earlier this month. IP Commerce, based in Denver, plans to close that part of its business on June 30, according to the memo, which was obtained by Bloomberg News.
IP Commerce’s decision could leave two dozen or more customers seeking other tools needed for processing online and brick-and-mortar transactions. It underscores the challenges of breaking into the low-margin payment-processing business, which is dominated by such existing providers as JPMorgan Chase & Co. (JPM), First Data Corp. and WorldPay Ltd.
“As the commoditization of payment-processing services accelerates, we have determined that it is no longer economically viable for us to provide payment processing services,” Charlie Wilson, an executive at IP Commerce, wrote in the e-mail to customers. “We regret any difficulty this presents for your business.”
IP Commerce plans to now focus on software for retailers, software developers and sales teams, Wilson wrote in the memo.
Chip Kahn, the startup’s co-founder, declined to comment. Aaron Zamost, a spokesman for Square, said the company no longer uses IP Commerce to process payments. Groupon plans to switch to processors it already uses, said Paul Taaffe, a spokesman for Groupon.
Intel, Venrock and other backers have invested more than $50 million in IP Commerce.
In the commerce industry, there’s little room behind the scenes for profit after credit-card companies and banks take their cuts of a transaction. Newer entrants in the field, such as EBay Inc. (EBAY)’s PayPal and Jack Dorsey’s Square, have found success by offering their services directly to consumers.
Vantiv Inc. (VNTV), based in Symmes Township, Ohio, develops part of the technology that powers IP Commerce’s payments processor. The company, whose stock is up 28 percent this year, will take over some of the operations of the processing service. Vantiv shares declined less than 1 percent to $26.11 at the close in New York today.
“Vantiv and IP Commerce have been working together since 2011,” Andrew Ciafardini, a spokesman for Vantiv, wrote in an e-mail. “Working with IP Commerce to bring this platform in-house enables Vantiv to enhance the seamless operation of its single, integrated payments processing platform.”
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