What if PayPal Issues a Swipe Reader?

Multiple outlets are reporting various rumors about whether or not PayPal is gearing up to compete with Square, Intuit GoPayment and others in the swipe reader space. And from having been in contact with the firm’s PR team I can tell you precisely what PayPal is saying to address those rumors, which is that they are currently not willing to comment on the subject.

With that in mind, the following musings are not based on “what is” — they’re based on “what if.” Specifically: what does it mean for the payments industry if PayPal announces later this week that they’re shipping dongles to merchants?

It would mean PayPal is not so quietly becoming the most horizontally integrated player in payments.

Its core competency is its management of the most secure payment network online. And prior to this month, all of its major announcements were in issuing — partnerships with NetSpend and Bancorp to provide reloadable debit cards. Now it’s distributing dongles. Soon, you’ll be swiping your PayPal-issued card through a PayPal-issued reader, all so that PayPal can clear your balances owed with merchants through its new cloud wallet.

They’re basically picking up right where Amex and Discover left off five or so years ago, when those networks gave up control of their acquiring operations to ISOs and agents. Boy, you think Amex wishes it knew it could create its own dongle in 2005? (Related: any bets on who’s next in the dongle space?)

The consequences of that business structure could help PayPal address the issue that most critics are likely to point to first: they’re late. Both Square and Intuit GoPayment have been signing up small businesses since 2009; both appear to have built sustainable businesses with substantial revenue. Will PayPal leverage its other assets to provide swipe reader capabilities that offer much more value to merchants? Indeed, why wouldn’t’ they?

There’s at least one other point of contention where PayPal could have an advantage over an incumbent with its swipe reader. (Which is rumored! And not a certainty! Who knows if they’re even developing one!) It’s something we covered extensively last year, and brought back to the forefront last week in our featured in-depth look on security. A year ago, ROAM Data — Intuit’s dongle partner — was ragging on Square over its security issues, particularly with regard to encryption. As third actor in the space, PayPal has a chance to address those issues in a new product to keep merchants happy.

Forgive me for perhaps reading into these rumors too much; the swipe reader space is already crowded, with two well-entrenched incumbents leading the way to boot. But in PayPal’s best-case scenario, a dongle of its own could be the key to the industry’s most well developed, all-inclusive payments ecosystem.