PayPal launching a dongle to compete with Square?

Retailers may have a new option for mobile alternatives to credit card machines

One of the hottest retail payment services may face some steep competition from its commerce counterpart if PayPal jumps into the physical transaction space this week by launching a new product.

Reports have been coming in that PayPal is ready to take on Square by releasing a dongle to directly compete with the geometrically-inspired company that has been reinventing how retailers can accept payment, according to GigaOm.

I reached out to PayPal to verify the claims but no one was immediately available for comment. 

Square has been taking the retail world by storm since its inception at the end of 2009 while PayPal has been creating secure payment options online since 1998. 

The word from GigaOm is that such a Square alternative could be released by Thursday and will be a triangle rather than a square. For anyone that is a fan of The Office, this shape-shifting possibility is fodder for some great comedy (see the video at the end of the article to enjoy The Office spoof about creating a triangle tablet.)

Recently, PayPal has made moves to create more payment opportunities in the real world with a PayPal Wallet, which lets consumers pay from multiple accounts, use gift cards, and access special deals. The PayPal Wallet is expected out at some point this year and  another PayPal extension is already rolled out in more than 2,000 Home Depot stores -- so consumers can use their PayPal account to home improvement purchases.

Square, on the other hand has been coming out every few months with expansions on its system and boasting extremely impressive growth.

The company young payment service company founded by Twitter's jack Dorsey is now processing $4 billion worth of payments and brought on more than one million small business customer. And word is that Square coming to taxi cabs in the New York City area, in the not so distant future.

I also reported this month that Square is looking to further disrupt the point-of-sale system for even more retail and restaurants around the globe with the launch of its updated iPad app: Register.

The new Square Register was unveiled on just over a week ago to extend the credit features to now accept cash payments, lets merchants create list menu items, and tracks the history of customers' purchases.

Currently, nearly 75% of U.S. merchants are in the market for tablets and tablet apps to incorporate into their business and more than half of retailers are gearing up tp use a mobile POS device within a year to 18 months, compared with a slim 6% now.

The status quo POS systems are often cumbersome in size and pricing -- many cost in the thousands per year to install and maintain, while Square has the attractive price tag of $0 and just charges a percentage fee based on the number of transactions logged into the system.

The original Square card reader, a small white plastic device for accepting payments, has more than 1 million users nationwide and works on Apple and Android devices.

Square has no plans at this time to launch a version of Square Register for Android tablets.

Founded at the tail-end of 2009, Square has veiled exceptional growth year-over-year in the volume of sales transactions. By the close of 2011, the tech startup boasted that it was clocking in $2 billion in sales and now the company says it is processing $4 billion in payments per year.

This growth comes after a busy year of growth for the young company. In 2011, Square clocked in 1 million merchants using the mobile payments platform (which equates to one in eight merchants that accept credit cards in the US). In the fall, Square also announced that it was registering $11 million in payments per day (up from $4 million a day in July) and nabbed Sir Richard Branson, Kleiner Perkins, Visa, and other investors that handed over $100 million. Square also inked retail deals with Apple, Wal-mart, Best Buy, Radio Shack, and Target.

This year, Square also added OfficeMax and select UPS Store locations to its list of big business gets and now is eyeing more companies with those traditional POS systems. 

So just as Square has been chipping away at what the credit card system can be for merchants, it also looks to shake-up the (mostly unchanged) POS system so that smaller merchants and vendors can gain the analytics and convenience without all the upfront and maintenance costs that can dampen any carry-over revenue for small businesses. 

Since PayPal is always looking to create more partnerships in retail and services, the possibility of a Square competitor is exciting for the future of commerce. 

The new system would require integrating the PayPal software into existing point-of-sale terminals so users can pay either by swiping a PayPal pre-paid card or by entering in their phone number and PIN, which connects to their account.

PayPal has more than 100 million account holders and it’s a well known name for online payments, but it may be challenging to spruce up its image to be thought of as a physical store option, where as Square started in that realm.