The new service unveiled Thursday includes a free app and encrypted thumb-sized card reader, which allows merchants with an iPhone, and later Android smartphones, to process payments.

Merchants can accept payments by swiping cards in the card reader, scanning cards and checks using their phone cameras, or by entering card information manually into the app, the eBay unit said. They can also send an invoice and set payment terms, and accept PayPal payments from the app. The check facility is however only available in the U.S.

An iPhone version of the card reader and merchant app is available from Thursday to select merchants in the U.S., Canada, Australia and Hong Kong, with general availability in those countries scheduled for April. PayPal also plans to have an Android version of the merchant app by then. It will announce the availability of the service in more countries soon, it said.

Merchants pay a flat rate of 2.7 percent for card swipes and PayPal payments, while checks will be processed free of charge. Scanning of cards or typing the card information extra. PayPal Here merchants will also receive a business debit card for access to cash and 1 percent cash-back on eligible purchases.

PayPal will be competing with mobile payment systems from other providers such as and .