PayPal Launches Smartphone Credit Card Reader

Dennis Faas's picture

PayPal has unwrapped a new device that allows anyone with a smartphone to accept credit card payments. Unlike some other systems, "PayPal Here" doesn't require any special chips be installed in the phone itself.

The idea is to tackle two existing problems for merchants who want to take credit and debit card payments:

First, card payments usually require the merchant to have a device with telephone connectivity, to allow instant bank verification of the customer's identity and account.

Second, taking such payments often entails hefty fees from the card-issuing bank, the merchant's bank, or both. In some cases, the fees make it too expensive for merchants to bother accepting card payments for low-priced items.

Gadget Connects Smartphone to PayPal

PayPal's solution is a gadget about the width of a cellphone and an inch high, designed by the organization that engineered cheap but sturdy laptops for schoolchildren in developing countries, under the "One Laptop Per Child" banner. (Source:

The PayPal gadget simply plugs into a smartphone's earphone jack, and uses a software application ("app") to connect to PayPal. The app accepts the full range of credit cards, debit cards, and PayPal payments.

The customer's card can be swiped through the gadget, which functions as a charge-card reader, and the customer can sign with a fingertip on the smartphone screen.

App Creates Invoices, Deposits Checks

The associated smartphone app provides additional functions for merchants, including creation of an invoice and emailing a receipt to the customer.

The gadget and app also make it possible to take immediate payment by check. The merchant simply takes a picture of the check with a smartphone camera; the app then scans the image to identify bank numbers and other details so it can process the transaction.

There are several other mobile payment systems on the market, but it appears PayPal is going after one rival in particular: a similar system named Square that was created by a co-founder of Twitter.

PayPal is not only undercutting the transaction fee imposed by Square (2.7 versus 2.75 per cent), but is also offering merchants a debit card that lets them immediately spend their revenues and also get one percent cash back. (Source:

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