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The Digital Wallet's Future Is Now

Square, led by CEO Jack Dorsey, is the 800-pound gorilla in mobile payments, thanks to its sleek Square card reader, and its partnership with Apple (The iPhone maker sells Square readers in its Apple Stores).

Square is thought to be doing roughly $5 billion in payments per year, as more merchants adopt the readers to cut down on credit card costs. The San Francisco-based company charges 2.75% per swipe for Visa, MasterCard, Discover and American Express (AXP), lower than the fees the credit card companies charge to process payments.
Square's reader

Square recently launched a loyalty rewards program for business owners to create rewards programs to keep existing customers and attract new ones.

Many consumers, though, will be more familiar with PayPal, thanks to the e-commerce boom.

It's been almost a decade since eBay( EBAY ) bought PayPal. In that time PayPal has transformed itself from just another online payment system into something that's at the forefront of the mobile wallet revolution, helping propel shares of eBay higher in the process.

"What's changing for us is that opportunity to pay with PayPal is moving strictly from online to in store. We think the wallet should not be stored in any one device, because devices change. PayPal is taking the wallet out from any one device and putting it into the cloud," said Anuj Nayar, PayPal's Senior Director of Corporate Communications, in a recent interview with TheStreet.

What PayPal has done is combine payment sources (checking accounts, credit cards, coupons, gift cards) into one app, allowing users to pay for products in a variety of different ways. They can set payment terms or pay for the item(s) all at once, giving customers the flexibility to pay how they want, when they want. The merchant is paid via PayPal in full, and has access to the cash immediately. PayPal does not break out its fees to individual rates per merchant for in store payments, but notes "they will be on a par with what they are currently paying the traditional payment processors."

"Mobile payment volume was $141 million in 2009 and we've previously said it's going to be $7 billion this year. That's 50x growth," said Nayar. PayPal has previously said it will "blow through" the $7 billion number. PayPal's $7 billion number is remote payment based, while Square's $5 billion number is based on proximity payments. PayPal has provided zero revenue guidance from its $7 billion number up until 2013, but with its PayPal Here card reader, that may change.
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