PayPal Announces a Merchant-Acceptance App That Goes Beyond Cards

The news leaked earlier this week, but PayPal confirmed on Thursday it has created a mobile-acceptance product to compete with the myriad such services already on the market from hardware and software companies, as well as merchant processors.

Still, PayPal’s product, called PayPal Here, may stand out from the crowd by allowing merchants to accept a wide range of payment types, including not just cards but also cash and checks. And while the service offers a triangle-shaped dongle for card swipes, it also allows users to enter card data by capturing images of cards using a smart-phone camera. The card-imaging technology comes courtesy of San Francisco startup card.io. “We offer the most ways for a small business to get paid,” Hill Ferguson, senior director of PayPal Mobile, tells Digital Transactions News.

Ferguson says PayPal has “several thousand” small-merchant clients using the app so far, and will start offering it commercially next month. A PayPal Here Web site is taking applications from interested merchants.

The app, which works with devices running Google Inc.’s Android and Apple Inc.’s iOS operating systems, also features sales-management functions that allow users to track transactions and generate reports. Swiped card transactions are priced at a flat 2.7%, while manually entered and imaged card transactions run 3.5% plus 15 cents. Ferguson says the card networks won’t allow the more favorable card-present interchange pricing on transactions that rely on imaged cards, so these sales carry the higher rate.

Checks can be imaged and processed at no charge using a remote deposit capture feature PayPal introduced two years ago. Transactions on consumers’ PayPal accounts also bear the single 2.7% rate rather than the sliding scale of volume-dependant rates PayPal has advertised for years. “We felt it was important to really simplify [pricing],” Ferguson says. The product comes with a MasterCard-branded debit card merchants can use to access their funds at any ATM. Transactions on the card earn 1% cash-back.

Merchants seeking support can shake their phone to bring up a pair of buttons that will connect them to a help desk, one with a toll-free phone call and the other via a Web form.

The move by PayPal to sign up food-truck operators, delivery men, plumbers, photographers, and other micro-merchants follows a chainwide rollout by The Home Depot Inc. of PayPal’s in-store payment solution, which allows customers to pay with a PIN-protected PayPal card or with a mobile-phone number and PIN. Another 20 retail chains are set to introduce this service this year, PayPal says. “We have a comprehensive strategy to make PayPal available wherever the consumer wants to shop,” says Ferguson.

That means that “pretty soon, they’ll go after the medium-size segment [of merchants],” says Rick Oglesby, a senior analyst at Boston-based Aite Group LLC who follows mobile payments.

With partial news of PayPal Here having leaked out earlier this week when GigaOm, a Silicon Valley tech news service, reported that PayPal would this week announce a card swiper for smart phones, many industry observers concluded the new product would be aimed at the startup Square Inc., whose swiper also attaches to handsets via the devices’ audio jack. Having launched only in 2010, San Francisco-based Square has recruited an estimated 1.3 million merchants and says it is processing an annualized $4 billion in volume. PayPal Here’s swipe rate, indeed, undercuts Square’s by 5 basis points, though the two apps’ card-not-present pricing is the same. Contacted by Digital Transactions News, Square had no comment on PayPal Here.

Some observers, though, doubt PayPal Here will have much impact on Square, at least in the early going. “With a million Square users, it’s hard to be a Square killer no matter who you are,” notes Todd Ablowitz, president of Double Diamond Group LLC, Centennial, Colo. PayPal Here’s pricing advantage, agrees Oglesby, is “a very small rounding factor” even for small merchants.

For his part, Ferguson says PayPal Here seeks to set itself apart from all of the mobile-acceptance apps announced so far, not just Square. These include products from VeriFone Systems Inc., Intuit Inc., MagTek Inc., and a number of merchant processors, including eProcessing Network LLC, North American Bancard, and Heartland Payment Systems. Ferguson says what PayPal Here has going for it is international capability, including the potential to reach merchants in the 190 countries PayPal’s platform serves. “We’ll scale [PayPal Here] across every one of those countries,” he says. “That’s something those other guys will have a hard time doing.” PayPal Here will initially be available in Canada, Australia, and Hong Kong, as well as domestically.