The service, dubbed PayPal Here, puts the company in competition with Square, the mobile payments ecosystem launched by Twitter founder Jack Dorsey.
Square posted revenues of $4bn last year and is installed in New York taxi cabs.
PayPal Here allows merchants, from retailers to builders, to accept payments wherever they are by swiping credit cards on an attachment that plugs into a smartphone’s headphone jack. It means they do not need to install costly terminals to accept payments other than cash.
The company will take 2.7% per transaction, slightly less than Square’s 2.75% charge.
PayPal Here will initially launch for Apple and Android smartphones in the US, Canada, Hong Kong and Australia next month and will then roll out to the rest of the world.
The company claims PayPal Here is superior to other mobile payment solutions such as NFC terminals and app payment systems because it includes “world-class” fraud management capabilities and 24-hour customer support. Consumers have raised concerns about the security levels of other payment ecosytems.
David Marcus, PayPal’s vice president of mobile, says: “Helping small businesses grow and accept payments has been in PayPal’s DNA since its inception 14 years ago. We’ve heard small businesses loud and clear. They don’t want to miss sales opportunities because they can’t accept the payment type that their customers want to use. They want quick access to their money, a reliable card reader, and one transparent, low fee to process these payments.”
PayPal revenues accounted for nearly 37% of owner company eBay’s revenues in the last quarter of 2011. Revenue grew 28% year on year to $1.2bn.