Bloomberg News

PayPal’s New Reader Device to Accept All Major Credit Cards

March 15, 2012

EBay Inc. (EBAY)’s PayPal division, aiming to get cab drivers and small merchants to use its payment system, unveiled a new card-swiping device that scans checks and works with all four major credit-card networks.

The reader, which plugs into a smartphone, can accept payments from Visa Inc. (V), MasterCard Inc., Discover Financial Services (DFS) and American Express Co. cards, PayPal said today at an event in San Francisco. The device also can let retailers get delayed payments by sending out invoices, and it encrypts account information so credit-card data isn’t stored on phones.

The product helps PayPal extend its foothold in e-commerce transactions into the brick-and-mortar world by making it easier for merchants to use its technology. The company will give away the thumb-sized card reader, called PayPal Here, and provide the accompanying smartphone app for free. EBay then makes money by charging a rate of 2.7 percent on transactions.

“We are one of if not the lowest-cost provider,” John Donahoe, chief executive officer of EBay and interim president of PayPal, said in an interview. “We try to see where the world is going and create products to fit that.”

The company has been investing in data centers, software and talent to handle an increased volume of payments -- expected to reach $7 billion on mobile devices this year, Donahoe said. He doesn’t plan to change the pace of takeovers -- more than 10 in the past year -- and is keeping an eye out for ways to bridge the company’s online and offline products.

Competing With Square

EBay shares fell 2.1 percent to $36.83 at the close in New York. The stock has climbed 21 percent this year.

PayPal Here will compete with a product from Square Inc., a San Francisco startup begun by Twitter Inc. co-founder Jack Dorsey. Square’s reader, which also accepts all major credit cards, charges a slightly higher rate -- 2.75 percent. Still, its product was introduced in 2010, and reached 100 million users in December.

PayPal first gained popularity as a way for small e- commerce sites to accept payment without the expense or hassle of processing credit cards. The new device will help PayPal compete in the market for mobile payments, which may top $170 billion in transactions by 2015, up from about $60 billion last year, according to Juniper Research.

‘Ubiquitous Acceptance’

In addition to Square, Intuit Inc. (INTU) and VeriFone Systems Inc. also offer devices that let consumers pay with credit cards over their mobile phones.

“This is about getting ubiquitous acceptance of PayPal and bringing small retailers into the fold,” Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles, said yesterday.

To create the card reader, PayPal worked with Fuseproject, a San Francisco-based design firm founded by Yves Behar, people familiar with the situation said. Fuseproject also designed the Jawbone line of Bluetooth headsets and low-cost computers for One Laptop per Child.

PayPal is going after a larger network of companies, big and small. That includes rolling out its payment service to in- store terminals at U.S. Home Depot Inc. (HD) locations.

The company is talking to the top 200 U.S. retailers and has persuaded a “significant” number in that group to sign contracts to accept PayPal in their stores, former President Scott Thompson said in December -- before he left to become chief executive officer of Yahoo Inc.

PayPal’s Growth

PayPal, EBay’s fastest-growing unit, has helped fuel a comeback at the San Jose, California-based parent company, where sales increased 27 percent last year to $11.7 billion. Still, revenue growth at the payments division slowed last quarter, to 28 percent from 32 percent in the previous period.

PayPal is working to boost sales through multiple channels, not just through mobile phones, Donahoe said. The company is betting that accepting all payment types and card providers will get consumers in the door and eventually let it gain market share.

“I don’t see this as zero sum with Visa or Mastercard,” Donahoe said.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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