Groupon has begun testing a mobile credit card reader, encroaching on a domain innovated by Square that PayPal has also recently entered.

The Groupon payment platform will charge a 1.8% transaction fee along with a 15-cent transaction charge. At that rate, the fee is less than Square's 2.75% or the 2.7% charged by PayPal Here and Verifone SAIL, another player in the market. However, Groupon's competitors don't have a transaction fee.

Groupon is giving the card readers away free to merchants along with an iPod Touch, according to VentureBeat That's more than Groupon's competitors, which just hand out readers.

The reader itself is a case that wraps around the phone, unlike the readers used by Groupon's rivals, which connect to mobile devices only through their headphone jacks, according to a Reuters report.