PayPal has more than just a digital wallet system for consumers planned. As rumored, today president and CEO John Donahoe has unveiled a small dongle that can be used to accept credit card payments to compete directly with Square, called “PayPal Here.” The reader, a large blue triangle that snaps on to the top of an iPhone via the headphone jack, includes a “wing” on a hinge to “stabilize” the reader on the phone when swiping a card.

The new service is supported by a free app and fully encrypted thumb-sized card reader for iPhone and soon Android. PayPal Here allows small businesses to accept debit and credit card payments, checks and PayPal using a single product. Cards can be swiped or entered manually and, along with cheques can be scanned by the smartphone’s camera. Direct invoicing from the app is also possible.

The card reader is encrypted, as is the app itself. PayPal is offering both for free, and PayPal will charge a flat rate of 2.7 percent. However, PayPal contends that the free debit card it offers gives 1 percent cash back, making the effective rate 1.7 percent if you use that card. It’s launching in the US, Canada, Hong Kong, and Australia today and heading to the rest of the world “soon.” A “few thousand” merchants are getting it today, but it won’t be shipping to everybody else for a few weeks.

One might expect their banks to offer better rates when it comes to card swiping, however, generally transaction rates are greater as third-party firms such as PayPal and Sage accept a level of responsibility for fraudulent or incorrect transactions, lending them a better relationship with our banks and, these services tend to work within slightly lower margins, typically working out cheaper than the direct alternative.