eBay's Pay Pal to Launch Mobile Payment Tool

NEW YORK (Trefis) -- Square, the innovative payment tool for small businesses, is processing over $4 billion in payments per year.

That is exactly the same as PayPal's own $4 billion in mobile payment volume in 2011, and eBay(EBAY) seems to be fast realizing that it needs a similar product that serves not just large stores but smaller merchants as well.

It's no surprise then that the company may be preparing to launch its own payment called "dongle" to steal market share from the incumbent Square in the mobile payment segment. eBay competes in the e-commerce space with companies like Amazon(AMZN) and Alibaba.

See our complete analysis for eBay here.

With a simple app and a simpler payment mechanism, Square has quite struck a chord with small businesses that also want to install credit card payment mechanisms. While PayPal has been aggressively pushing for in-store payments with partners like Home Depot(HD) , wooing small businesses may be a different task altogether.

What PayPal can focus on, however, is price penetration. Square charges a 2.75% commission for every credit card swipe, and PayPal might possibly try and undercut this price point to make inroads into this segment.

Given that PayPal processed around $119 billion in payment volume for 2011, the company may be able to afford such reduction, although it is bound to bring down its overall take rates per transaction in the long run.

We currently have a price estimate of around $41 for eBay's stock, about 15% above the current market price.

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