In my last post, I exposed a few flaws in the Groupon sys­tem that allow you to reuse Groupons end­lessly until they are expired. After Andrew Mason, founder of Groupon, took the time to com­ment, I now feel oblig­ated to write this follow-up. The prob­lem — how can busi­nesses ver­ify the valid­ity of a Groupon at the time of trans­ac­tion with­out it being a pain for customers?

First, a lit­tle back­ground on their cur­rent process as I under­stand it. When a mer­chant has their Groupon sale, they set the num­ber of Groupons that must be pur­chased in order for the deal to go live. After Groupon has sold all of the coupons, they mail the pro­ceeds minus their fee along with a list of valid Groupon num­bers to the mer­chant. It is then the merchant’s respon­si­bil­ity to accept and val­i­date Groupons that cus­tomers present whether they are printed or dis­played on a device such as through Groupon’s iPhone app.

The prob­lem, as I pointed out in my last post, is that many, if not all, mer­chants don’t ver­ify the Groupon num­ber at the time of sale. If they were pre­sented with a fake Groupon num­ber or a num­ber that has already been used, they won’t know until the trans­ac­tion is com­pleted and the cus­tomer is out of site. Groupon’s stance is that they do not want to bur­den the 99.9% of peo­ple who fol­low the rules just to pro­tect against a few rot­ten apples.

There are two main sides to con­sider when approach­ing this prob­lem. First, it can’t affect the customer’s expe­ri­ence. Wait­ing longer to check­out, jump­ing through more hoops, or cre­at­ing a sit­u­a­tion where the mer­chant is dis­trust­ful towards cus­tomers is not going to work. The other side is the mer­chants. They don’t want to invest in hard­ware or soft­ware, or teach their employ­ees some advanced pro­ce­dure just to ver­ify a Groupon. Keep­ing these restraints in mind, I’ve come up with three ideas for mer­chants to plug Groupon’s loopholes.

1. API

Every­one has an API these days. It’s how things get done on the inter­net. Groupon could develop a sim­ple API that accepts the venue and coupon num­ber and return valid, expired, used. Give this API to devel­op­ers and let them inte­grate it into exist­ing apps or allow them to build their own.

Exist­ing ser­vices such as OpenTable.com could allow peo­ple to indi­cate they plan on using a Groupon and enter their coupon num­ber (hav­ing it val­i­dated in the process) when they make a reser­va­tion. Salons and spas who have online sched­ul­ing tools like Sched­uleThing could accept and ver­ify Groupon num­bers as well. Mer­chants with PCs, smart phones, or tablets could run the code through a sim­ple URL in a browser like http://groupon.com/merchant/validate

2. SMS

Cell phones and text mes­sag­ing are ubiq­ui­tous so an SMS ver­i­fi­ca­tion option would be extremely easy to imple­ment for a mer­chant with a bud­get. You would text the Groupon num­ber to an SMS short­code and receive a ver­i­fi­ca­tion back if the num­ber is valid, expired, or used. Think of My Coke Rewards only simpler.

Scene­rio: wait­ress comes to drop off the bill, you present your Groupon, she whips out her cell phone and texts in your code, she gets a response almost instanstly (it’s going to space give it a minute), and the bill can be adjusted accord­ingly. Sim­ple, easy, almost frictionless.

3. POS

Point of Sale sys­tems are typ­i­cally pro­pri­etary, closed, and expen­sive. They are the last option for inte­gra­tion with sim­plic­ity as a goal. This doesn’t mean they can’t play a part in val­i­dat­ing Groupon numbers.

Per­haps the POS would work with another solu­tion to cre­ate a paper­trail for man­age­ment. When the wait­ress who texted in the code in my ear­lier exam­ple, she has to adjust the bill for a new amount. Her boss needs to know why, and the POS could report this. Track­ing the use of Groupons with a POS would also expose to man­age­ment how many of the Groupons they sold have been used.

With Groupon’s recent $30 mil­lion fund­ing, per­haps they would be able to approach POS ven­dors to include a cus­tom soft­ware piece for val­i­da­tion. It could be built dire­clty into the inter­face so a wait­ress or bar­tender or salon styl­ist or other generic reg­is­ter oper­a­tor wouldn’t need to do any­thing dif­fer­ently than they do to add a milk­shake or bloody mary or boy’s hair­cut or wid­get to the bill.

Those are just some quick but real­is­tic ideas for mak­ing Groupon bet­ter and more secure for mer­chants. Groupon has a great and trust­wor­thy com­mu­nity, but as it grows more peo­ple will test the bound­aries of the sys­tem at the expense of the mer­chant. For a com­pany pro­jected to have $100 mil­lion in rev­enue this year, I would think they’d look into fix­ing some of their secu­rity issues.

Update

For­get $100 mil­lion in rev­enue. Groupon has now been val­ued at $1.35 billion.