Report: PayPal plots to dethrone Square by undercutting merchant fees

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PayPal, which is expected to introduce a mobile payment dongle device today, will lure merchants with more favorable transaction terms than market-leading rival Square, according to sources with knowledge of the matter.

The PayPal dongle, first reported earlier this week by GigaOM, will enable small businesses and other users to swipe credit and debit card transactions via mobile device, enabling PayPal to extend its services to food trucks, craft fair vendors and other startups without a fixed location. Sources tell Bloomberg that eBay-owned PayPal will charge 2.7 percent on each transaction, compared to the 2.75 percent transaction fee levied by Square.

"This is about getting ubiquitous acceptance of PayPal and bringing small retailers into the fold," Gil Luria, an analyst at Wedbush Securities, told Bloomberg.

The PayPal dongle, which is shaped like a triangle, will plug into the audio jack of the user's smartphone or tablet. Bloomberg states PayPal developed the product in association with FuseProject, the designer behind the Jawbone line of Bluetooth headsets and low-cost computers distributed through the One Laptop per Child program. PayPal has declined to comment on the dongle, but a spokesperson said "We're unveiling what we believe will be the future of commerce for small businesses."

PayPal is currently trialing mobile wallet services across more than 2,000 Home Depot stores across the U.S., enabling consumers to pay for items at checkout via mobile device or a special PayPal card. PayPal first revealed its brick-and-mortar payment plans in September 2011, promising to introduce digital commerce solutions optimized across all devices, not just mobile phones, and encompassing funding options including cash, credit and installments. In addition to mobile and point-of-sale payments, PayPal will launch geo-targeted mobile advertising campaigns, barcode scanning tools and real-time inventory data.

PayPal boasts more than 104 million active users in 190 countries, with more than 8 million merchant partners. PayPal handled more than $4 billion in mobile payments in 2011--the company is expected to top $7 billion in mobile payment volume this year, according to eBay CEO John Donahoe.

More than a million merchants nationwide now accept credit and debit cards via Square, which is led by Twitter founder Jack Dorsey. The company now processes more than $4 billion in payments each year. The Square reader is sold across more than 9,000 Apple, Best Buy, RadioShack, Target and Walmart retail locations nationwide.

For more:
- read this Bloomberg article

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