PayPal Is Said to Undercut Square With Card-Swiping Device

Photographer: Michael Nagle/Bloomberg

PayPal Inc.'s iPhone mobile application is used to scan a check. Close

PayPal Inc.'s iPhone mobile application is used to scan a check.

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Photographer: Michael Nagle/Bloomberg

PayPal Inc.'s iPhone mobile application is used to scan a check.

PayPal Inc., trying to coax cab drivers and small merchants to use its payment system, will offer a mobile credit-card-swiping device that’s slightly cheaper than Square Inc.’s product, according to two people with knowledge of the matter.

The company plans to unveil a card reader tomorrow that charges merchants 2.7 percent on transactions, less than Square’s 2.75 percent, the people said. The device is a blue triangle and plugs into the headphone jack of a smartphone, said the people, who asked not to be named because the information hasn’t been made public.

PayPal, now a division of EBay Inc., first gained popularity as a way for small e-commerce sites to accept payment without the expense or hassle of processing credit cards. The new device will help PayPal compete in the market for mobile payments, which may top $170 billion in transactions by 2015, up from about $60 billion last year, according to Juniper Research.

“This is about getting ubiquitous acceptance of PayPal and bringing small retailers into the fold,” said Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles.

Jennifer Hakes, a spokeswoman for PayPal, declined to discuss the product, saying the company would hold an event in San Francisco tomorrow on “the future of commerce for small businesses.”

Photographer: Michael Nagle/Bloomberg

PayPal Inc. digital wallet payment options demonstrated in New York. Close

PayPal Inc. digital wallet payment options demonstrated in New York.

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Photographer: Michael Nagle/Bloomberg

PayPal Inc. digital wallet payment options demonstrated in New York.

Square’s Reader

Square’s product, introduced by Twitter Inc. co-founder Jack Dorsey in 2010, is a square-shaped credit-card reader that lets U.S. businesses handle payments via Apple Inc.’s iPhone and iPad, as well as devices running on Google Inc.’s Android software. Aaron Zamost, a spokesman for San Francisco-based Square, declined to comment.

PayPal has more competitors than just Square, which accepts cards from MasterCard Inc., Visa Inc., Discover Financial Services and American Express Co. Both Intuit Inc. and VeriFone Systems Inc. offer devices that let consumers pay with credit cards over their mobile phones. It’s unclear what cards the PayPal product will support, Luria said.

To create the card reader, PayPal worked with Fuseproject, a San Francisco-based design firm founded by Yves Behar, said the people familiar with the situation. Fuseproject also designed the Jawbone line of Bluetooth headsets and low-cost computers for One Laptop per Child.

Home Depot Stores

PayPal is going after a larger network of companies, big and small. That includes rolling out its payment service to in- store terminals at U.S. Home Depot Inc. stores.

The company is talking to the top 200 U.S. retailers and has persuaded a “significant” number in that group to sign contracts to accept PayPal in their stores, former President Scott Thompson said in December -- before he left to become chief executive officer of Yahoo Inc.

PayPal, EBay’s fastest-growing unit, has helped fuel a comeback at the San Jose, California-based parent company, where sales increased 27 percent last year to $11.7 billion. Still, revenue growth at the payments division slowed last quarter, to 28 percent from 32 percent in the previous period.

PayPal is working to boost sales through multiple channels, not just through mobile phones, said Sam Shrauger, vice president of product and experience at the division.

“Everybody is thinking that everyone is going to pay for everything with their mobile phone,” he said in a televised interview this week on “Bloomberg West.” “We don’t actually believe that that has to be the case. We think consumers are going to decide how they want to pay. And what’s important is that they have a wallet -- a digital wallet.”

EBay shares rose less than 1 percent to $37.62 today at the close in New York. The stock has climbed 24 percent this year.

The technology blog GigaOm reported earlier this week that PayPal plans to release a mobile card reader.

To contact the reporters on this story: Douglas MacMillan in New York at dmacmillan3@bloomberg.net; Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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