PayPal is offering to waive processing fees and provide free marketing to merchants as it looks to play a bigger role in how mobile and digital technology are transforming in-store purchasing. Competitors Square and Groupon are also making similar plays to win over merchants.

While most would agree that mobile will play a key role in the future of payments, PayPal, Square and Groupon are all looking to gain a foothold in physical retail locations with traditional point-of-sale solutions because their mobile POS strategies are growing slowly. That is why all three of these companies this week announced new pushes into POS solutions for local retailers.

“Originally, mPOS was designed to provide micro-merchants with a card acceptance solution that they could afford,” said David Kaminsky, emerging technologies analyst at Mercator Advisory Group, Maynard, MA.

“It appears that most of the micro-merchants who would have been interested in this type of solution have already obtained one, resulting in slower growth,” he said.

“These companies are now looking to expand their market by offering not only the simple and inexpensive models to micro-merchants, but also models that contain additional features and capabilities which slightly larger merchants would be willing to pay extra for.”

The digital wallet
In order for consumers to ditch their physical wallets in favor of digital wallets, merchants need to get rid of their old cash registers, said PayPal president David Marcus in a post on the company’s blog this week.

To encourage retailers to do just that, PayPal has introduced a new program, Cash for Registers, which will waive transactions fees when retailers begin using a PayPal Here package consisting of an iPad, card reader, iPad stand, cash drawer and printer instead of their old cash registers.

Additionally, merchants will be expected to use PayPal Here to accept credit, debit card, check and PayPal payments for the remainder of the year. The program will launch  next month.

PayPal will also market participating businesses to its U.S. customer base of over 55 million consumers.

PayPal’s mobile payments volume topped out at $14 billion last year, up 250 percent from the year before, and is expected to reach $20 billion this year. However, the company is trying to take a broader approach to digital payments and how they can solve customer problems and make shopping experiences more seamless.

For example, by enabling users to place an order before they arrive at a juice bar so their order is ready when they arrive or by delivering relevant, real-time coupons.

PayPal Here is PayPal’s solution enabling merchants to accept payments via an iPhone, iPad or Android device using the PayPal Here dongle attachment and the company’s software.

Winning over retailers
While PayPal has done a good job of winning over consumer support for its digital wallet initiatives, its efforts with retailers may not be proving as successful, which is one possible reason why the company has introduced the Cash for Registers program.

PayPal is not alone in trying to curry favor with retailers.

Also this week, Square launched Stand, a piece of hardware that turns an iPad into a digital POS system that can replace traditional cash registers.

The hardware works with Square’s mobile app, Square Register, for processing payments. It also features a built-in card reader and connects to accessories such as receipt printers and bar-code scanners.

With Square and Starbucks already partnering to share technology, it will be interesting to see if Square Stand begins showing up in Starbucks locations.

Sacrificing revenue
Groupon also announced plans to expand its POS program from restaurants and bars into all bricks-and-mortar merchants this week through a program it is calling Breadcrumb POS. The launch is being supported with a promotional offer of free processing on the first $5,000 in credit card transactions merchants process.

Breadcrumb POS is a free iPad app meant to replace traditional cash registers. Groupon is promising to beat any comparable plan on credit card transaction fees as it looks to get merchants to sign up. Rates for processing credit card transactions are 1.8 percent plus $0.15 per transaction.

“The market for mPOS to replace traditional POS systems is new and growing,” Mr. Kaminsky said. “All of these organizations see an opportunity to leverage their existing relationships to gain market share in an emerging market.

“While many companies have been trying to take advantage of the mobile platform for its own value, PayPal has never tried to hide that they view mobile as just one of many ways they can bring their brand to the POS,” he said. “Making paying with PayPal an option in bricks-and-mortar stores is PayPal’s No. 1 priority.

“It’s not surprising that they would sacrifice revenue streams from the mobile platform itself in order to further this primary goal.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York