PayPal declined to comment on the report. "PayPal clearly has ambitions of moving their dominant online-payment business to offline," says Forrester analyst Denée Carrington. "What will be interesting is what they will do to entice merchants, beyond just undercutting slightly on price."
PayPal's move is significant because Square, the brainchild of Twitter co-founder Jack Dorsey, has shown promise in its ability to disrupt the traditional point-of-sale devices and services business.
Square, to date, has helped merchants process sales for $4 billion worth of goods — double what it announced late last year. And the overall mobile payments market for goods is surging, forecast to grow from $60 billion in 2011 to more than $170 billion in 2015, according to Juniper Research.
Square's popular little device plugs into iPads, iPhones and Android devices. It's been nothing short of a sensation among the likes of upstart restaurants, street vendors and limo services. The device has been available in Apple Stores for the past few years. "Square works for small businesses because it is simple to use, with a laser-sharp focus on hardware design and software elegance," says Rocky Agrawal, principal analyst at reDesign Mobile.
PayPal became the de facto standard for processing payments online and was acquired by eBay in 2002 for $1.5 billion.
On Wednesday, PayPal demonstrated a digital wallet that competes with Google Wallet and other digital-payment platforms at the South by Southwest Interactive festival in Austin. It is due out in May, PayPal says.
"If PayPal were to do hardware, it would probably be complementary with the wallet," says Brian Riley, an analyst at CEB TowerGroup.