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VeriFone, PayPal dial up mobile payments deal

Partnership brings more tech cred to VeriFone in its battle in the mobile payments arena, where it's squared off against well-funded start-ups.

VeriFone's PayWare Mobile combines hardware

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The mobile payments race took an interesting turn today with an announcement from VeriFone and PayPal.

VeriFone, the business-focused electronic-payments company, unveiled a partnership that brings eBay-owned PayPal's merchant services to VeriFone's PayWare Mobile iPhone application.

PayWare, which is aimed at small businesses, consists of a hardware add-on and complementary iPhone application that turn a mobile handset into a credit card reader. With the new PayPal partnership, PayWare will accommodate PayPal payments as well as traditional credit-card transactions, and PayPal will market PayWare to its user base of business owners and eBay sellers. In addition, PayWare will now be able to handle "bump" transactions between two mobile devices, processed by tapping two compatible phones together.

The "bump" technology may already be familiar to iPhone and Android users. It is licensed from Bump Technologies, which makes an eponymous app that swaps contact information by "bumping" phones. It's already available on PayPal's iPhone app.

The mobile payments space has been an interesting one to watch because start-ups have gained an early advantage, at least in the eyes of the entrepreneur and venture-capital set. Square, a hardware-and-app combo co-founded by Twitter Chairman Jack Dorsey, and Venmo, a more consumer-focused pay-by-text-message start-up, have generated loads of industry buzz.

The start-ups have made the case that major industry players like VeriFone have too many hidden fees and barriers to entry; the counter-argument from a company like VeriFone is that it has existing security infrastructure, a big market lead, and a proven ability to scale. Then there's the fact that when it comes to something as security-intensive as e-commerce and mobile payments, the average small business is more likely to trust a proven name in the industry rather than a start-up (even one with the best of Silicon Valley's marquee investors).

In addition to expanding PayWare's technological capabilities, VeriFone's decision to partnering with PayPal is likely a strategic move designed to make VeriFone look like a more flexible, technologically-forward player in the space.

Meanwhile, Square--which targets small businesses as well as consumers--recently made moves to break into the mainstream and combat skepticism about scalability and potential for fraud. The company hired PayPal veteran and angel investor Keith Rabois as general manager in August, hoping that he will bring the start-up the expertise required to combat any such apprehension.