Payments Views

Card Acceptance

PayPal Takes on Square and the Square Wannabes

As anticipated, and widely leaked, PayPal today announced PayPal Here, its mobile payments acceptance solution, at a private event in San Francisco. At a high-level it matches – and in some cases, exceeds – the features offered by Square and the other mobile POS vendors.

In context, this has been a big week for PayPal, which just days earlier revealed the specifics on its new digital wallet at the SWSX conference in Austin. We’ve previously written about PayPal’s Wallet Stratgy and how it relates to the POS, but it was nice to see things shift from mockup screens to real screens. While today’s announcement was largely directed towards merchants, I was surprised to see the linkages between PayPal Here and the new PayPal Digital Wallet. Maybe PayPal really does believe in this O2O phenomenon!

Here are the key points from today’s announcement that caught my eye followed by Glenbrook’s perspective.

Pricing and Funds Availability: The story here is simplicity. The merchant fee for PayPal Here transactions is 2.7%. Slightly lower than Square, and about the same as Intuit GoPayments. The big differences is access to funds. Just like online merchants, offline merchants are credited sales into their PayPal account in real-time as purchases complete. When a U.S. merchant signs up for PayPal Here they also get a PayPal debit card and can spend against balance right away (or go to an ATM for cash). PayPal is offering sellers a 1% rebate on these debit transactions, making the PayPal Here 2.7% fee effectively 1.7%.

Device: The PayPal Here dongle is shaped like a triangle, and has a “wing” that tilts down to slightly cover the front of the phone and stabilize the reader so that it doesn’t spin (picture below). The triangle shape also allows for a slight longer magstripe reader than the competing Square dongle, about the same as Intuit’s GoPayment device. They made such a fuss over the design – showcasing their designer, Yves Behar’s Fuseproject, and playing a video on the dongle design process –  that I couldn’t help thinking of Steve Jobs.

If the merchant forgets their triangle shaped dongle, he or she can use their phone to take a picture of the consumer’s credit card or key in the card number. The merchant will have to enter the CVV2 and zip code associated with the card (as it is now a card not present transaction).

Global Scale: At launch (“in about a month”) PayPal Here will be available in the U.S., Canada, Hong Kong, and Australia with other geographies – they mentioned UK and other unspecified European markets – to follow “very quickly.” As of today a select number of beta merchants (“a thousand or so”) are using it. PayPal emphasized its global reach and that it will be “aggressively” promoting PayPal Here and its localization features to its 100+ million active consumers worldwide (of which 17 million have downloaded the PayPal iPhone app).

More on PayPal Here in other geographies:

Payment Methods: PayPal emphasized that PayPal Here accepts all forms of payment: credit and debit cards (Visa, MasterCard, AmEx, Discover), PayPal, and checks. Checks are only supported in the U.S. (we’re so archaic) by taking a picture with your phone a la remote deposit; there is no fee to merchants to accept checks, but they may take up to 6 days to clear. The PayPal Here app will also allow the merchant to track cash payments, so that they have a comprehensive record of all their incoming revenue. For those that need the help, it will calculate the change due when paid via cash, just like a standard register solution.

Invoicing: Rather than accept payment on the spot, merchants can elect to create an invoice for goods or services delivered today but paid for later. The invoicing features are very similar to the online invoicing capabilities that PayPal already offers. At the demonstration PayPal’s Mobile VP David Marcus pretended to be Joe the Plumber and created a service invoice to install a dishwasher and fix a leaky pipe. He could elect to have the invoice due now, or in 5, 10, 20, or 30 days. Given all the work I do with large merchants on B2B transactions, I was particularly interested in the opportunity to use PayPal Here in a delivery context or for sales agents. To do so, the invoicing solution should be smart enough to support multiple agents at once, avoiding duplicate invoice numbers and synchronizing pricing and promotion data across sales reps.

Interface: The software (powered in part by is intuitive. As announced earlier this week, for the first time in fourteen years PayPal is revamping its entire user interface (online and on your phone). The screens look very clean and intuitive. PayPal is featured prominently, as are cards and cash. By swiping with a finger, the merchant can select from what are anticipated to be less frequently used options for checks and invoicing. (The PayPal Here website appears to features older screen designs than were demo’d today. The ones we saw this morning look like the ones in this merchant video.)

Use cases: PayPal described a number of different use cases.

  • In flea market, farmers market, craft fair, etc.  — all the places that we’ve come to expect micro merchants who up until recently haven’t accepted cards.
  • At a retail POS using either an iPhone or Android handset. An iPad app will follow shortly, the folks at PayPal assured me.
  • On site sales when plumbers, contractors, repair, sales agents, merchandisers, etc. visit consumer or business customer locations
  • As an extension of online sales – when retailers that typically sell via the Internet have special promotions or events and want to sell in person

Reporting: All of the reporting capabilities inherent in an online PayPal merchant account are available to PayPal Here merchants. In fact, one of the key differentiators  that PayPal offers is that a merchant can use one solution, regardless of whether they are selling online or off, or both. The same reporting, the same list of available items to sell (whether goods or services), and the same pricing tables.

Localization: The PayPal Here merchant service is tied to the localization features in PayPal’s enhanced mobile app (just  made available today via iTunes) that allows consumers to find nearby merchants that accept PayPal and are offering promotions. The ability for small merchants to offer promotions was not emphasized today, but the ability to accept them is featured in the consumer facing promotion of the enhanced PayPal Wallet.

Not Just Mobile. The solution facilitates remote card acceptance, but what sets it apart is the ability to pay via your PayPal Wallet. So you can leave both your wallet and your mobile phone at home. To do this, the consumer has to make the merchant aware that they have entered the store by “checking in”– this is very similar to Square’s Card Case feature – and then they can pay without taking their phone out of their pocket or handbag. The sales clerk sees the consumer’s picture to aid in identification when there is more than one customer checked in at a time. The consumer can elect to automatically “check in” to up to ten merchants that they frequent regularly; that’s particularly nice for your morning coffee at the corner café and go-to burrito spot.

I confirmed that all of the recently announced PayPal Wallet features, like installment payments and the ability to switch from one funding source to another, will be available when the consumer elects to pay for a PayPal Here purchase with their PayPal account. This may not be relevant for payments to incidental transactions but could be relevant for larger service purchases (e.g. contractors, plumbers, etc.).

Feature comparison: During the presentation today they sized up PayPal vs. all the others mobile card acceptance solutions. The picture is pretty fuzzy, so here’s a chart:

Security: In addition to being PCI compliant, the PayPal Here solution brings PayPal’s considerable risk management capabilities to bear, protecting both merchants and consumers. There was heavy emphasis at the event on the familiarity and trust inherent in the PayPal brand.

Support: The app has a “shake for support” feature, connecting merchants to live customer service agents 24/7.

Merchant Reaction: They were doing demos at a cupcake shop next to the venue, Kara’s Cupcakes, and I had a chance to talk to the owner, Kara (she wasn’t officially available for interviews, but we got to chatting). She observed that the PayPal Here offering “is the first that makes sense.” When I probed, asking what she means when she says it makes sense, she said that the PayPal brand offers security and is well known for online transactions, so that using PayPal for mobile is the “logical next step” and therefore makes sense for consumers. She also emphasized the simplicity, security, and speed of the transactions. She is particularly keen to use PayPal Here for her fleet of mobile cupcake trucks and for curbside sales (today her sales clerks run back and forth from the store to the street for drive up customers that need an immediate sugar fix).

How to sign up?

Merchants: PayPal Here is live as of today with a limited number of beta merchants. Those that are interested in participating once the solution is available in general release can sign up here.

Consumers: Consumers that want to pay a participating beta merchant can do so now, using the newly refreshed PayPal iPhone app (available via iTunes as of today).

Glenbrook’s Take

One of PayPal’s true strengths is its global reach. But if you are a local merchant, PayPal’s International scale is irrelevant. You are more interested in streamlining your day to day processes, saving time, and earning more. But from a competitive stand point, it is a huge advantage over start ups like Square and it’s various mimics around the world who are building users and merchants on a market by market basis. Every payments start up claims that they are going to be the next PayPal. PayPal is already PayPal and the healthy revenue from PayPal’s existing business enables it to invest heavily in new initiatives and pay for a global support infrastructure.

Today PayPal announced that there have been 17 million downloads of its mobile app (double the number last summer). But the PayPal Wallet is not just a mobile feature, it’s an electronic wallet, for use online and off. There are 100+ million active PayPal consumer users. And I imagine that there will be a number of new users given the press they got this week on the new Wallet features. That’s significant scale – for comparison, last month TechCrunch reported that of the 1 million Square merchants, 40,000 accept Card Case (granted, that’s twice the number from November, just four months ago).

For occasional merchants PayPal’s ability to accept all forms of payment (card, checks, PayPal), the means to track cash, and generate invoices, too, means that you could feasibly use just PayPal to run your microbusiness. I think that this is a real advantage. Not having played around with the merchant reporting capabilities I can’t compare them against the slick Square analytics, or the ease of use that Freshbooks delivers. But given its recent emphasis on retooling its user interface, I trust PayPal is at least heading in the right direction. Now if PayPal allows the entrepreneur to export that data into a simple accounting tool for tax purposes then we’d really be in business (pardon the pun).

There was no mention today of PayPal X and whether developers will have access to the PayPal Here features in their own apps. It’s hard to imagine the clever and arcane use cases they might come up with. I would think that over time PayPal would want to allow their developer ecosystem to access PayPal Here features via API.

Today PayPal hinted at leaving your wallet and your phone behind. The pay without even your phone concept intrigues me. It intrigues me a lot more than waving or tapping my phone. I would love to stop at the market en route home from a jog and grab a couple things. But do I have to have my phone with me to “automatically” check in or does the limit to 10 regular locations where I am autochecking in mean that somehow my PayPal Digital wallet (as opposed to one on my phone) is linked to my favorite merchant(s) PayPal Here account? [I’m reaching out to find out.] Meanwhile, my beloved neighborhood grocer has a nice low grocery-specific Interchange from the networks, why would they want to pay 2.7% to PayPal? Or would it be 3.5% as a CNP transaction – even worse!

There is already a huge base of PayPal merchants, and it appears easy to link an existing PayPal merchant account to the PayPal Here dongle. No doubt PayPal will be promoting it heavily to its existing customer base as part of its online to offline strategy. But the dongle isn’t instantly available – PayPal mails it to merchants. Meanwhile, the Square dongle is can be picked up at retail (Target, Wal-Mart, Apple stores). There was no indication today whether PayPal is even considering a retail distribution model.

PayPal is running on all cylinders, announcing impressive stats and new features at a fast clip, despite the unexpected departure of its President back in January. The company is serious about its offline expansion and focused on exploiting the increasingly fuzzy distinction between shopping online and off. It feels like they’ve got some momentum and are executing against their vision. If I were Square I’d be feeling nervous. And if I were one of the ever increasing number of mobile wallet competitors I’d be feeling very, very nervous.

Learn more:

PayPal Here website
PayPal Here “How it works” video
PayPal Here merchant video
PayPal Here FAQ
Announcement on PayPal Blog

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Jon MatonisTy ManWalt ConwayAshok Misra, CISSPErin McCune Recent comment authors
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Rodman Reef
Rodman Reef

Was there any mention of EMV/chip compatibility? If PayPal Here is to be used globally, it will need to EMV compatible or risk being an easy source for fraudulent transactions.

Walt Conway
Walt Conway

What is the basis of the claim to be a PCI compliant solution? I thought the PCI SSC was not validating any mobile apps, and I don’t think either the mag stripe reader (which is very cleverly designed, as you point out) or the phone/iPad/whatever are PTS approved devices. What am I missing?

Ashok Misra, CISSP
Ashok Misra, CISSP

Walt, I think they ( cleverly ) mean is that their Server backend apps are PCI complaint. The front end h/w appliance & handheld app is a different story. As far as I understand, they are not PCI certified apps. The platforms they are hosted on cannot be compliant on account of the fundamental insecurity of iOS. As you point out the dongle is a device that is not PCI Co. approved. If it were, it would bring up a host of questions i.e. key management, encryption, etc, for which there would not be easy answers. -Ashok ( )

Walt Conway
Walt Conway

I tend to agree with you. It is a shame that the term “PCI Compliant” is tossed about with such abandon and lack of justification. It’s probably more of a shame that some merchants are going to believe it.


Ty Man
Ty Man

I beleive the data scanned through the reader is encrypted and that’s why they are able to claim PCI compliance. I don’t believe anything that’s temporarily stored on the device during transaction time contains any human readable card data.

Jon Matonis

Bitcoin is not nervous. See “Bitcoin Doesn’t Need a Dongle”