PayPal’s pitch to small businesses is more than just a card reader

Paypal's VP of mobile, David Marcus

Paypal's VP of mobile, David Marcus

Today was PayPal’s chance to share with the world that it could provide some serious competition to the startup payment processor Square, with its own mobile-centric dongle for accepting credit card payments on the go.

We already knew the rough details of what it was announcing: that PayPal would come to market with a portable card reader for accepting credit card payments on the go. Today’s press conference was all about showing how PayPal, late to the game in some respects, would beat Square, the smaller but more nimble startup in the mobile payments space.

Did it succeed?

A lot of PayPal’s messaging was about its existing dominance in the merchant services business and in mobile payments. Prior to the start of the press conference, the company replayed an impressive array of stats over and over before the media audience. For instance:

  • PayPal hit $4 billion in payments on mobile devices in 2011
  • PayPal is expected to beat $7 billion in mobile payments in 2012.
  • PayPal had more than 17 million active mobile users, compared to 8 million in June.
  • Merchant services total payment volume was $22 billion in the fourth quarter 2011, up 29 percent year-over-year
  • Its merchant services accounted for 66 percent of PayPal’s total payment volume, with $77 billion precessed in 2011. That’s up 36 percent year-over-year.
  • PayPal adds more than 1 million consumers a month, with more than 100 million accounts worldwide.

But move past the numbers and the highlight of the presentation was the card reader and availability of mobile apps — one for businesses and one for consumers — that are designed to allow PayPal merchants to get payment for objects and service online and offline.

The card reader itself is about what you’d expect: It has a triangle shape (in contrast to the Square reader), and allows merchants to swipe and get payments immediately. But where PayPal’s pitch shines is in its ability to allow PayPal Here merchants to accept payments for goods whether the sale happens in person or from online inventory. Frankly, that gives a lot of flexibility that Square can’t offer today.

The PayPal Here app also looks pretty slick, and allows for transactions beyond just swiping a credit card. It also allows them to take a picture and scan a credit card when the reader isn’t available thanks to, or scan a check and receive instant credit. And finally, merchants can also keep track of cash transactions. They can charge instantly using the “Simple” interface, or can create an inventory of products and services to add to a transaction, and even send an invoice to customers.

Merchants will be charged a flat 2.7 percent fee for all transactions, which is slightly lower than Square’s 2.75 percent. But it’s trying to sweeten the deal for merchants by offering instant access to all funds and a debit card that will enable merchants to take cash out. Also, that debit card will offer 1 percent cash back on all purchases, which PayPal says can bring the effective rate to 1.7 percent for those who use PayPal’s merchant service and debit card.

Finally, PayPal is releasing an updated consumer app that will allow users to know where local PayPal merchants using the app and card reader are available. Through the app, users will be able to notify merchants that they’re on their way.

But will this all resonate with its merchants, and with users? PayPal is hoping to draw on the more than 100 million users worldwide it has registered, and said it will be aggressively pushing updates to the consumer app, as well as making thousands of PayPal Here readers available to merchants. The service starts today with select merchants in theĀ US, Hong Kong, Canada and Australia and will expand soon to other countries.

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