PayPal will offer free payment processing through the end of 2013 to merchants that “trade in” their cash registers and adopt mobile point of sale technologies, in a move to entice small merchants to adopt digital payments.

The "Cash for Registers" program will begin in June and offers free credit, debit card, check and PayPal processing through the end of the year to merchants that adopt the PayPal Here mobile card reader or a product from "pre-integrated partners" that include Erply, Leaf, Leapset, NCR Silver, ShopKeep POS and Vend.

In waiving payment acceptance fees, PayPal joins companies such as SCVNGR's LevelUp, which offers free processing as a companion to an incentive program, and Koupah, which offsets card acceptance fees with advertising.

"[M]erchants need to let go of their old cash register for innovative technology that will enable them to serve their customers better, and grow their businesses," PayPal president David Marcus said in a blog post today. PayPal did not make an executive available for an interview.

The promotion has the potential to bolster PayPal's reach with both small merchants and point of sale technology providers, especially if the free card and check transactions are processed on the same network as payments made from a PayPal account, says Michelle Evans, a Chicago-based consumer finance analyst at Euromonitor International.

"They've been making a big play in recent years to try to move from online to offline payments, so this seems like the next step for them," Evans says.

"It's an interesting proposition for retailers that were thinking about mobile point of sale if they were already making the business case for them," she adds.

Merchants that participate in the promotion will also have their businesses marketed to PayPal account holders, which number more than 55 million consumers in the U.S. and 128 million worldwide. Marcus wrote the marketing efforts will "drive meaningful incremental business to them, stimulating the vibrant small business community in America."

PayPal has developed several strategic partnerships to bolster its move into payments acceptance in the physical world, including alliances with mobile POS technology providers, numerous retail merchants, including The Home Depot and smoothie maker Jamba Juice, as well as traditional payments industry players like Discover Financial Services.

"I think it's neat that retailers will have the option to choose the platform that might work best for them," Evans says. "A lot of times, we've seen these mobile efforts fail because someone tried to do it alone and they don't bring in enough partnerships or relationships to see where their weaknesses are."

But noticeably absent from the mobile payments vendors participating in the initiative is Square Inc., whose mobile card reader created the niche market for providing small merchants with card acceptance capabilities. PayPal's announcement came on the same day that Square announced a new product called Stand that's designed to hold an iPad, connect to point of sale accessories and includes a built-in card reader.

In addition, Groupon launched a new Breadcrumb app iPad today that expands beyond its core audience of restaurants to include all merchant segments.

San Jose, Calif.-based PayPal, a unit of eBay, recently expanded its mobile POS offering with an iPad app, which includes features that compete head-to-head with the Square Register system. The enhancements are part of PayPal's ongoing mobile payments development, which include this week's release of a software development kit for Google's Android mobile operating system, (a similar toolbox for Apple's iOS platform was released in March), the acquisition of mobile app developer Duff Research, and plans in the U.K. to distribute PayPal Here readers that can accept EMV-chip cards.

Still, Marcus wrote that mobile card acceptance technologies are not one-size-fits-all. Systems designed for the food service industry have different strengths than platforms for retailers that require more robust inventory management. The six vendors in the promotion are specialized for different merchant types, including large and small retail, professional services, as well as small and large restaurants.

"These partners offer cutting edge solutions for different market verticals. At PayPal we've spent a long time listening to small businesses, and retailers of all sizes, and we came to the conclusion that no one company can cater to the needs of all industries," Marcus wrote. "That's why we have handpicked select partners that are each best-in-class in their respective categories."

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