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Google, PayPal heat up mobile-payments fray

PayPal announces acquisition of mobile-wallet maker, while Google unveils another mobile-payments service, in the growing fight for a piece of the smartphone payments market.

Google is taking another stab at the mobile-payments market with Android Pay. Google

PayPal and Google announced moves Monday to better position themselves for the expected growth in popularity of mobile payments.

PayPal, the digital payments unit being spun off from eBay later this year, announced Monday it would acquire Paydiant, a startup that helps companies such as Subway and Capitol One build mobile payments options. Founded in 2010, Massachusetts-based Paydiant is part of Merchant Customer Exchange, a consortium of major retailers working to launch the CurrentC mobile wallet later this year. Terms of the deal with PayPal were not revealed.

Also Monday, Google took the wraps off a mobile payment service called Android Pay that will compete with Apple Pay and Samsung Pay, a service unveiled Sunday at the Mobile World Congress in Barcelona. Like Apple and Samsung's versions, Android Pay will use near-field communications, or NFC, a technology that uses an embedded chip to talk with compatible registers. But unlike Apple and Samsung's services, Android Pay will not be a standalone app, serving instead as the platform for third-party store and payment apps.

The moves highlight the intensifying competition for mobile payments, the ability to pay for goods and services with a smartphone. While a handful of mobile-payments efforts have been around for the past couple of years, Apple jump-started interest last fall with the introduction of Apple Pay , which allows consumers to make credit card purchases with an iPhone 6 or iPhone 6 Plus . Less than 72 hours after its debut, 1 million credit cards had been used on the service.

Mobile payment are expected to explode in popularity by next year, growing to $27.5 billion in US transactions from last year's $3.5 billion, according to market research firm eMarketer. The number of mobile payment users in the US is expected to hit 36.2 million next year, more than twice the number using digital wallets in 2014, the researcher said. That pace is expected to continue into 2018, when eMarketer foresees 57 million consumers using their smartphones to checkout at store registers.

"Recent deal activity in the payments space shows the importance of becoming consumers' platform of choice for making payments with their phones, and PayPal's acquisition of Paydiant would give the company a strong foothold for in-store retail mobile payments -- an area where it has historically struggled to gain traction," Bryan Yeager, an analyst at eMarketer, said in a statement.

Android Pay represents Google's second effort in the mobile payments space. Google was one of the first companies to offer mobile payments, with a service called Wallet, but the offering has so far failed to gain traction with consumers. Android Pay will not replace Google Wallet but will be incorporated into payments service.