PayPal's decision to buy its mobile-pay tech partner sheds light on how the smaller company's technology is shaping the world of mobile payments., which also works with younger mobile wallet providers like Lemon and SCVNGR's LevelUp, allows companies to accept card payments by scanning cards with a phone's camera. PayPal uses as part of its Here mobile card acceptance system.

But the acquisition, rather than showing a commitment to one particular method of payment acceptance, instead underscores how fluid the mobile payment field has become.

The expertise PayPal gets from the team will prepare it for those fast-paced changes in mobile technology.

"Very often in high-tech mergers, talent is the key component in what is being bought, and PayPal knows the talent at," says Richard Oglesby, senior analyst and mobile pay expert with Boston-based Aite Group.

On the PayPal blog, Hill Ferguson, vice president of global product for PayPal, notes that the technology team will join the PayPal global product team in San Jose to "help us create new experiences to make it even easier for consumers and merchants to use the PayPal digital wallet."

PayPal's mobile payments strategy is extraordinarily broad, Oglesby says.

As such, the company finds itself competing with Square Inc. and others that offer readers attached to phones (PayPal Here also uses an add-on reader as another way to accept card payments). In addition, PayPal competes with traditional merchant acquirers and mobile payment or point-of-sale providers, Oglesby says.

"The camera-based technology represents just an additional option for PayPal, and it makes sense for them to own that technology," Oglesby says.

Some merchants may prefer a physical reader, whereas others might find it obtrusive, Oglesby adds. "If you like listening to music on your phone, you would want to get rid of that dongle that goes in the same jack."

Neither PayPal nor executives responded to PaymentsSource inquiries by deadline.

As PayPal continues to make its name in mobile payments, Oglesby expects to see the company invest more in hardware.

PayPal's approach with Here already shows that it is open to using multiple approaches to mobile payments.

PayPal's acquisition of and further development of its camera-based technology are a solid business move, says Deborah Baxley, principal at Capgemini Financial Services.

"Cameras are ubiquitous to phones, so in the short term, it makes sense to make it part of your mobile payment strategy," she says. However, cameras are still "an interim technology, not one that is going to have the staying power of Near Field Communication or cloud-based payments," she says.

Eventually, PayPal will have to "build out something like NFC that works in the long term," Baxley contends.

Just last week, PayPal announced its updated mobile pay application for iPhones would include more emphasis on the use of the phone's camera.

However, even if the camera is easier for merchants, it raises issues for consumers, says David Kaminsky, analyst for emerging payments with Mercator Advisory Group.

"Enough consumers have shown concern over swiping their cards through a dongle connected to a smartphone, so I don't imagine a camera would feel any more secure," Kaminsky says.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry