PayPal Here Turns Phones Into Credit Card Readers

Joanna Stern/ABC News

You're likely familiar with PayPal as an online payment system. The company's logos are frequently found on eBay pages or on other websites. Click it and you can pay big or small retailers online via credit card or checking account.

But the equivalent of those online PayPal buttons are going to start showing up in the world outside of your computer screen. Or at least that's the company's mission.

"The mobile phone has revolutionized the way we shop," PayPal's director of communications Anuj Nayar told ABC News. "If you are making a purchase from your mobile phone in store, what sort of purchase is that? Is it an online purchase? The reality is it is all about multichannel retail."

And multiple options is exactly PayPal's strategy. The company has a number of solutions that allow consumers to use the service to pay away from the computer, but its newest one - PayPal Here - allows small merchants and independent sellers to take credit cards right on their phones.

The entire solution is based around a small triangle-shaped dongle, which plugs into an iPhone. When plugged into the headphone jack, sellers can swipe a customer's credit card right along the top, and then process the payment on the phone using PayPal's backend. The dongle is fully encrypted.

A companion app provides a place for the customer to confirm the transaction and sign. The same app allows the seller to invoice the buyer or record a cash transaction. While PayPal's Internet services paved the way for small sellers to open up shop, the dongle and just an iPhone now let small stores, street merchants and others to create a very mobile, electronic cash register.

If a merchant doesn't have the new dongle they can use the app to just take a picture of the credit card. The little triangle  itself doesn't cost anything, but sellers are required to pay PayPal a flat rate of 2.7 percent on any transaction. PayPal Here will be rolling out soon to select small merchants. It will also be available for Android phones very soon, says Nayar.

But that's not all PayPal has been up to. It recently updated its original PayPal app - not to be confused with the PayPal Here meant for merchants. A new "local" feature lets consumers pay by just tapping the app on their phone if they are in a store that uses the PayPal Here service. Merchants can then accept payment by tapping the shopper's name and picture.

Other companies, like Square, provide similar tools to sellers. However, PayPal isn't deterred. "Shopping is going to fundamentally change more in the next three years than it has in the previous 15," Nayar said. "The last major innovation in retail was the credit card, and we think we are about to start the next revolution in retail."