Paypal buys the Cardio credit card scanning service

Payment processor Paypal has bought the creator of a product that triggers cash transfers when a user flashes a credit card in front of their phone.

The firm had previously paid a fee to use Cardio's innovation.

The acquisition follows Paypal's purchase of another smartphone-based payment service, Zong, last year.

The moves may help it tackle the challenge posed by the introduction of near field communication (NFC) payment technology to smartphones.

"We first met with the team at Cardio when we were working on integrating their technology into the Paypal Here mobile app," said Hill Ferguson, Paypal's vice president of global product, on the firm's blog.

"[They will] help us create new experiences to make it even easier for consumers and merchants to use the Paypal digital wallet. The current Cardio technology will remain available to developers for use in their own applications."

Cardio allows users to make payments by "scanning" the front of their credit card using the camera on an Android or Apple iOS device.

The software saves the time involved in typing in the details.

The San Francisco-based business offered its service to consumers for 15 cents (10p) a scan, and charged other companies a fee to integrate the function into their apps.

NFC alternatives

Paypal started using the service in March when it launched Here - a product allowing businesses to accept customers' credit-card payments via smartphones as an alternative to installing a cash-register system.

The effort was designed to compete with an existing service from Square.

But PayPal faces a wider challenge from the introduction of NFC chips into recent smartphones. The technology allows the devices to be used as an alternative to credit cards or cash - payments are prompted by the user placing their mobile in front of a reader.

The research agency Forrester says NFC has only had a limited impact to date as retailers have been put off by the cost of the equipment and the prospect of having to pay a new fee to banks and credit card companies that handle the transactions.

"Paypal has realised that you don't have to have contactless NFC technology to make a mobile payment in a store," Forrester's research director Benjamin Ensor told the BBC.

PayPal to Announce Square Competitor Thursday [REPORT]

PayPal will take on Square with a mobile payment dongle that will let business owners process credit card payments via their smartphones, according to a news report.

GigaOm claims that PayPal will announce the solution on Thursday. The report, which cites “sources we’ve talked to who are familiar with PayPal’s plans,” says the dongle will be shaped like a triangle and vie not just with Square, but with Intuit’s GoPayment and Verifone’s PAYware as well.Reps from PayPal could not be reached for comment on the report.Such a move is plausible in light of PayPal’s recent forays into offline payment systems. In November, the eBay-owned company announced PayPal Wallet, a card that lets consumers pay from multiple accounts, store and use gift cards, access special offers and store receipts. That product is expected to roll out some time this year. PayPal has also rolled out a program that lets shoppers use its service in more than 2,000 Home Depot stores. The company plans to enlist more than 20 retailers to that program by year’s end.

Meanwhile, Square, which is run by Twitter co-founder Jack Dorsey, has demonstrated how fertile the market is for small business-based mobile payment solutions. The company is now processing $4 billion worth of payments and added its 1 millionth small business customer in December. In addition, Square is colonizing new areas of commerce, including New York taxis. The company also introduced an iPad app this month that aims to supplant traditional cash registers.