PayPal Here Goes Head-to-Head with Square for Mobile Payment Processing

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Early in March, PayPal announced a new mobile credit card processing system called PayPal Here, which combines a smartphone app with a triangular reader that plugs into the phone’s microphone jack. Currently available for the iPhone and scheduled for Android availability, the PayPal Here announcement garnered a rush of sign-ups in the first 24 hours — about one thousand per hour.

Basic Features of PayPal Here

The reader and the app work together to create a mobile card terminal for small business owners to reduce sales friction and to allow payments to be processed in virtually any setting. There is also an option to scan the card with the phone’s camera, which does not require the dongle to be present for operation.

The app allows payment via debit and credit cards, checks, and PayPal accounts. Users can track cash payments, and email invoices to customers. When a transaction is complete, the funds are immediately available in the linked PayPal account and can be withdrawn with the merchant’s PayPal debit card with a 1% cash back. There is no fee for either the app or the reader, and the fee on card swipes and PayPal payments is a flat 2.7%.

What the Square Competition Offers

PayPal here is in direct competition to the Square card reader developed by Twitter founder Jack Dorsey, which works on the same dongle / smartphone / app model. Square has no activation fees, and does not charge for monthly usage, its gateway, downgrades or even early termination. The flat fee for merchants is 2.75% on swiped transaction and 3.5% on typed transaction plus a 0.15 cent transaction fee.

In practical application, Square has proven to have some “hidden” issues. For instance, although there are no monthly transaction limits, there is a “limit” if more than $1000 is accepted in any rolling seven-day period. This results in a 30-day hold on the money. There are ways to get around the problem, but they’re cumbersome and most users haven’t discovered the issue until it’s already happened and they’ve been denied access to their funds.

Additionally, the Square reader doesn’t encrypt the credit card information before sending it to the attached smartphone, which means the data could be skimmed. There are also questions about how the Square app stores customer information and whether or not an unscrupulous employee (or anyone else who gets their hands on the phone) could access and use that data.

It remains to be seen how PayPal Here will perform in the “real world,” but already it’s undercutting Square on the flat rate, and offering the camera scanning option that will appeal to many users. Currently PayPal here is only available to select merchants in the U.S., Canada, Australia, and Hong Kong, but will open up to all merchants in those countries in April.

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