PayPal Gets Physical with New Mobile Payments Service . / Credit: PayPal Here card reader image courtesy of PayPal

Move over, MasterCard. Vacate the premises, Visa. Adios, Amex. PayPal, the electronics payments service, has released a new thumb-size card reader and app that turns any iPhone — and soon any Android phone — into a mobile payments solution that will allow small businesses to accept almost any form of payment.

The new service, called PayPal Here, lets small businesses accept payments by swiping debit or credit cards in the card reader, scanning cards and checks using their phone camera or manually entering card information into the app. Merchants can also send an invoice and set payments directly from the app or accept traditional PayPal payments. The card reader is a small blue triangle that plugs into the top of the phone.

All card swipes and PayPal transactions have the same flat 2.7 percent rate with no monthly account or setup fees. Taking checks and issuing invoices are free of charge. In addition, every PayPal merchant will receive a business debit card for same-day access to cash in their PayPal account and 1 percent cash-back on eligible purchases. If merchants use the debit card for purchases, their fees effectively come down to 1.7 percent. The reader and app are free.

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With the launch of PayPal Here, eBay's electronics payment service, PayPal, is invading turf staked out by San Francisco-based startup Square, whose square-shaped card reader has become popular with many merchants. PayPal's transaction fees slightly undercut those of their Bay Area rival.

PayPal, whose roots lie in the online-payments world of Web stores and individuals, is now targeting the offline physical world, where 93 percent of U.S. retail transactions take place, according to Forrester Research.

"Helping small businesses grow and accept payments has been in PayPal’s DNA since its inception 14 years ago," said David Marcus, PayPal’s VP of mobile. "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. I’m thrilled to launch PayPal Here because we’ve been able to bring all of these key features together into a product that’s so simple to use."

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