In less than three short years, mobile-payment processor Square has taken the world by storm. Co-founded by Twitter's Jack Dorsey, the small startup company says it's running $4 billion in payments volume annually -- double its $2 billion annual volume estimate made just six months ago.

For anyone not familiar with the service, a quick rundown is in order. The company is geared towards small businesses and proprietors, and enables them to easily accept credit card payments on the go. Square attaches to smartphones' headphone jacks small credit card readers that are shaped like, well, a square. Customers simply sign with their fingers on the now-ubiquitous capacitive touchscreens that all mobile devices feature.

anImage

Source: squareup.com.

The company takes a 2.75% cut and makes next-day deposits to merchants' bank accounts. The service has taken off in popularity among local merchants, and you can be assured that's grabbed the attention of heavyweight incumbents, particularly eBay's (NAS: EBAY) PayPal.

PayPal has just announced a rival service to compete directly with Square, called "PayPal Here." It doesn't hide the fact that it's taking a direct shot at Square's success. The new app comes complete with a free small credit card reader that attaches to smartphones' headphone jacks and is shaped like, well, a triangle.

anImage

Source: PayPal.com.

Luckily, when PayPal was brainstorming this competing service, it apparently decided to reduce the number of sides on its widget instead of increasing them. Quite frankly, a pentagon-shaped card reader would have looked a bit ridiculous.

PayPal is undercutting its small rival by a modest 5 basis points and is charging 2.7% for processing. Beyond that, it will try to offer other services like remote processing of checks and offering cash back through its debit card.

The processor has been aggressively trying to get physical in the real world, as mobile-payment systems like Google (NAS: GOOG) Wallet are still in their infancy. Many upcoming mobile solutions are still likely to use near-field communications, or NFC, which should eventually benefit NXP Semiconductors (NAS: NXPI) if it can defend its NFC-chip advantage from assailants. Wireless carriers AT&T (NYS: T) , Verizon (NYS: VZ) , and T-Mobile are pushing their own NFC-based ISIS payment system, as recently demoed at SXSW in Austin.

PayPal added NFC to its Android app a while back, but still thinks the technology is a step in the wrong direction. PayPal is a big rival to have breathing down your neck, but small merchants will determine if PayPal's triangle is enough to take down Square.

Mobile payments are just one facet of the huge mobile revolution. There's another way to play "The Next Trillion-Dollar Revolution," and it involves a chipmaker at the heart of many devices that also has exposure to China's explosive growth. Get the free report now.

At the time this article was published Fool contributor Evan Niu owns shares of Verizon Communications and AT&T, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google, NXP Semiconductors, and eBay; and writing puts on eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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4 Comments

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Mimi

I use PayAnywhere’s app and i’ve never had a problem with them. They have low rates and the features are easy to use. I considered Square before, but i really like PayAnywhere’s service. It’s perfect for small business owners. Here’s a link to their site: http://www.payanywhere.com/home

March 20 2012 at 10:51 AM Report abuse rate up rate down Reply
bps163

I have seen the NFC ticker ( NXPI ) and it put's all others to shame.

March 18 2012 at 10:24 AM Report abuse rate up rate down Reply
Philip Cohen

“Anuj [Nayer], who is PayPal's Global Director of Communications, said payments processed through PayPal Here would be protected the same as any other PayPal payment method - which explains why the Terms of Sale for Here includes a mention of rolling reserves. Yes, merchants who use the new card reader will be subject to the regular PayPal reserves and holds (rare occurrences for sellers in most categories, said Anuj), and PayPal is extending buyer protection to shoppers who transact with PayPal Here merchants.”

http://blog.ecommercebytes.com/cgi-bin/blog/blog.pl?/comments/2012/3/1331862035.html/1/0#1331873673

Well, many merchants already know what PayPal “protection” is like; many merchants already know what PayPal “rolling reserves” and “holds” are about; and many merchants already know what PayPal “buyer protection” is about—it has a hard wired bias towards the buyer: effectively there is no transaction mediation process as any reasonable person would understand it. And PayPal’s Nayer gives a different meaning to the word “rare” to what the rest of us understand it to mean … And for all this, PreyPal’s fee is only 0.05% cheaper than Square’s? Are they serious?

Am I missing something here or is this initial launch information not sufficient to cause this product to be literally “dead on arrival”? To me it sounds like another Donahoe foray with Alice down the rabbit hole.

And, just for a laugh, a comment on “The New Way To Pay In-Store” via eBay's clunky faux "bank" PreyPal, and some other matters.

http://forums.auctionbytes.com/vbulletin/showthread.php?t=24611

eBay / PayPal / Donahoe: Dead Men Walking

March 17 2012 at 6:29 PM Report abuse rate up rate down Reply
Philip Cohen

“Anuj [Nayer], who is PayPal's Global Director of Communications, said payments processed through PayPal Here would be protected the same as any other PayPal payment method - which explains why the Terms of Sale for Here includes a mention of rolling reserves. Yes, merchants who use the new card reader will be subject to the regular PayPal reserves and holds (rare occurrences for sellers in most categories, said Anuj), and PayPal is extending buyer protection to shoppers who transact with PayPal Here merchants.”

http://blog.ecommercebytes.com/cgi-bin/blog/blog.pl?/comments/2012/3/1331862035.html/1/0#1331873673

Well, many merchants already know what PayPal “protection” is like; many merchants already know what PayPal “rolling reserves” and “holds” are about; and many merchants already know what PayPal “buyer protection” is about—it has a hard wired bias towards the buyer: effectively there is no transaction mediation process as any reasonable person would understand it. And PayPal’s Nayer gives a different meaning to the word “rare” to what the rest of us understand it to mean … And for all this, PreyPal’s fee is only 0.05% cheaper than Square’s? Are they serious?

Am I missing something here or is this initial launch information not sufficient to cause this product to be literally “dead on arrival”? To me it sounds like another Donahoe foray with Alice down the rabbit hole.

And, just for a laugh, a comment on “The New Way To Pay In-Store” via eBay's clunky faux "bank" PreyPal, and some other matters.

http://forums.auctionbytes.com/vbulletin/showthread.php?t=24611

eBay / PayPal / Donahoe: Dead Men Walking

March 17 2012 at 5:58 PM Report abuse rate up rate down Reply