The shift in payment methods from credit cards, debit cards and cash to smartphones, tablets and other mobile devices is imminent. Research firm Gartner believes the space could be worth as much as $600 billion by 2016, and PayPal is clearly willing to take on Square, Visa ( V), MasterCard ( MA) and anyone else in the space.

PayPal may receive a percentage of each transaction for the right to run over Discover's network. With Discover's 7 million retail locations, this could be as significant a deal as PayPal has ever signed.

Just a couple of weeks ago, it looked as if Square had one upped the industry, getting a retail giant like Starbucks to use its services in its stores. With this news, PayPal is saying not so fast.

Things are about to get a lot more interesting in the mobile payments war.

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-- Written by Chris Ciaccia in New York

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