Though currently Square is arguably the unquestioned titan atop the world of mobile credit card purchase processing, PayPal may now be looking to cut into that business by undercutting the popular startup.

In the very near future, PayPal – the payment processing company owned by eBay – will likely introduce its own plug-and-swipe mobile credit card reading device in an effort to compete directly with Square, according to a report from Bloomberg News. While Square, a tech startup created by former Twitter executive Jack Dorsey, currently has a huge advantage in the field, PayPal will create its footprint by targeting smaller businesses, and will do so with a lower cost for processing transactions.

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Square currently charges businesses using its mobile credit card readers, which plug into the headphone jacks of devices like iPhones and Android handsets, a transaction fee of 2.75% of the total purchase value, but PayPal’s card reader will levy a fee of 2.7%, the report said. A small distinction, but an important one that can help smaller businesses with thinner margins save money over the course of the year.

This is PayPal’s second foray into the world of brick-and-mortar, real-world transactions in a relatively short time after it got its start almost entirely in the online realm, the report said. Earlier this year, the company also forged a deal with the Home Depot to allow customers in its stores to complete transactions with their PayPal accounts at the register.

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“Everybody is thinking that everyone is going to pay for everything with their mobile phone,” Sam Shrauger, vice president of product and experience at PayPal, recently told the news agency. “We don’t actually believe that that has to be the case. We think consumers are going to decide how they want to pay. And what’s important is that they have a wallet – a digital wallet.”

Most experts agree that mobile purchases are going to be the next wave of the future in the purchasing world, and could be worth tens of billions of dollars or more annually by the end of 2015. However, many say that the largest hurdle to clear will be consumers’ willingness to adopt a new method of payment. Once that is cleared, experts say adoption will spread quickly.

Image: Jorge Quinteros, via Flickr

It’s plastic, it’s got a magstrip, and a bank logo, but don’t treat that tax refund given in the form of a prepaid card like it’s just another debit card. For instance, if you use it more than once at a bank to make a withdrawal, it could cost you $10 every time. And that’s just the beginning of the fees that can be hiding in these state tax refund prepaid cards.

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On the surface, I don’t have a problem with states giving tax refunds on prepaid cards. The practice could save states lots of money that can be used for more important things, such as for education and healthcare.

But I read a story in the Huffington Post last week that caught my eye. It seems that South Carolina is issuing state income tax refunds on prepaid cards unless you specifically request to receive your refund some other way. So the prepaid card, issued by Bank of America, is the default.

Here’s where I take issue with this: There are fees if you use the prepaid card in certain ways. For example, if you try to use the card at an out-of-network ATM to withdraw your cash, you’ll pay $2.50 each time.

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If you go to a bank multiple times to withdraw small amounts of cash, you’ll really get dinged. The first withdrawal is free, but after that, you’ll pay $10 for each withdrawal. The way to avoid this is to visit the teller and withdraw all your cash at one time. There’s no fee for doing it this way. If you have a savings or checking account, you can also transfer the funds to one of your accounts for free.

Many other states are offering refunds on prepaid cards so be aware of fee traps. Oklahoma, for instance, offers tax refunds on a prepaid card and charges a $1.50 inactivity fee if the card isn’t used for 60 days. New York is offering a prepaid card and notes that the first cash withdrawal at a bank is free, but additional withdrawals are $1 each.

You also need to be aware of expiration dates. The New York refund card, after its activated, expires in 18 months. It’s inconvenient, but there’s no charge to call customer service and have the card replaced. But in South Carolina, the card expires after only 12 months. You can call customer service to have the card replaced, but you’ll pay a $5 account closure fee to get a new card.

BOTTOM LINE: If you’re receiving your state tax refund on a prepaid card, read the fine print so you know how to use the card to avoid the fees. Consumers should not be expected to pay fees on money that’s owed to them. Both the bank issuing the prepaid card and the state government stand to benefit from the fees you pay. Don’t give either of them any more of your money than you absolutely have to.

Image: machfive, via Flickr

[Related Article: Prepaid Cards: How to Become a Fine Print Warrior]

Here’s a warning that caught our eye: A sticker in the window of a taxi warning riders in Dallas that if they try to pay by credit card, their identities may be stolen. The sticker was captured by Cory Doctorow, an editor for Boingboing.net. “WARNING,” the sticker read. “The method used to authenticate credit card transactions for approval is not secure and personal information is subject to being intercepted by unauthorized personnel.”

Wow. That sounds really bad. But is it? That’s hard to say, according to Ondrej Krehel, information security officer at Identity Theft 911. The real answer may be the simplest, Krehel says: many taxi drivers simply prefer their fares to pay with cash instead of credit. “My first thought is whether this is just the driver trying to get people to use cash,” Krehel says.

Doctorow didn’t speak to the driver about the sticker, but the UK-based author, activist, journalist and blogger did have an interesting conversation with another cabbie during his trip to Dallas. “I noticed on the way from the airport that the driver of a different cab was really reluctant to take a card,” Doctorow said.

He recounted the conversation thusly:

Doctorow: “Can I pay by Visa?”

Cabbie: “You don’t have cash?”

Doctorow: ”It’s easier for me to get reimbursed with a card.”

Cabbie:  ”I’ll give you a receipt.”

Doctorow: ”Do you take Visa?”

Cabbie: “OK, I’ll take Visa.”

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There’s a long history of taxi drivers fighting credit card interchange fees deducted from their profits, to which any frequent traveler is likely to attest. However, it’s hard to know whether the sticker is just a ploy without knowing more about the credit card terminal inside the taxi. The security rules regarding such terminals are written by the Payment Card Industry Security Standards Council, an organization governed by Visa, American Express, MasterCard and other major credit card networks. The council develops the data security standards that govern all types of credit card readers and networks. Maybe the taxi company uses old terminals that aren’t covered by the latest standards, Krehel says. Maybe the terminals are new, but weren’t installed properly. Either way, it’s possible that data sent by the terminals might not be properly encrypted, Krehel says. The PCI Security Standards Council did not return phone calls and emails seeking comment. But why would any company prominently advertise the fact that its credit card network is untrustworthy? Whatever the answer, people riding in this particular cab may want to avoid using their debit cards, which provide direct access to the funds in consumers’ checking accounts, and which can provide lesser protections against fraud than credit cards can.

“Certainly that could be a reason to use a credit card rather than a debit card,” says Gerri Detweiler, Credit.com’s debt expert. “But still, that doesn’t make you feel very safe, does it?”

Doctorow was sufficiently put off. He ultimately declined to use plastic in the cab with the sticker.

[Featured Products: Research and compare Identity theft protection plans at Credit.com]

Image: Seth W., via Flickr.com

Target REDcard credit and debit cards offer a generous 5% discount on your purchases, along with other benefits like free shipping for online orders at Target.com. But the discount comes with a price. Information about your purchases will be sliced, diced and combined with other personal information to create a profile that the retail giant will then use to try to entice you to buy more stuff from them.

While Target isn’t alone in using customer spending data this way, they happen to be very, very good at it, as a recent, much discussed New York Times story documents.

Given all that, it’s no surprise that a reader named John wrote me with the following question.

Hi Gerri, I just read your two-part blog on the Target RedCard. There is no mention of what Target gets out of this deal, although I can guess customer loyalty and maybe credit history which they then sell to other organizations?

I know for a fact that businesses like Target do not do anything for the sheer benefit of the consumer, there is a hidden benefit for Target somehow.

Can you explain? —John

It’s a great question. The Target REDcard 5% discount on virtually all purchases is more generous than other loyalty reward programs, general purpose credit card reward programs, and is certainly better than other debit card reward programs, many of which are no longer around since the Durbin amendment limited debit card swipe fees. On top of that, Target will donate 1% of the amount you purchase on one of these cards to a local school you designate. Target wouldn’t continue to offer those rebates if the program wasn’t lucrative for them.

[Related Article: The Target REDcard Debit Card: Savings...and Safety?]

John’s thinking—that customer loyalty and information must be worth something to them—is logical. So what kind of information are they collecting from cardholders, and what do they do with it?

The first place to look, of course, is at the privacy policy. As required by law, Target sends cardholders a privacy notice each year. I have one of these cards myself, and recently received the privacy policy in the mail. It is also posted on their website. Here’s an excerpt:

To summarize, Target says it may share personal information gathered in the course of using your Target REDcard (credit or debit card):

• For our everyday business purposes—such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus
• For our marketing purposes—to offer our products and services to you
• For joint marketing with other financial companies
• For our affiliates’ everyday business purposes—information about your transactions and experiences (Target defines its affiliates as companies related by common ownership or control, including Target National Bank, Target Bank, Target Stores and websites and Target Commercial Interiors)
• For nonaffiliates to market to you

Target’s privacy policy says it does not share information “For our affiliates’ everyday business purposes—information about your creditworthiness.” In other words, while Target may share credit information with the credit reporting agencies, it doesn’t share it directly with affiliates.  And although it’s not stated in the privacy policy, credit card activity is reported to the credit reporting agencies, but debit card activity typically is not.

Unfortunately, you can’t opt out of having your information shared for any of the above purposes, with one exception. You can instruct Target that you don’t want them to share your information with nonaffiliates in order to market to you. Everything else is fair game.

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What’s It Worth To You?

But is it really so bad for Target to collect and use your information for marketing, either internally or with other companies? A recent New York Times article, How Companies Learn Your Secrets, by Charles Duhigg, suggests Target places a lot of value on your personal information. He writes:

For decades, Target has collected vast amounts of data on every person who regularly walks into one of its stores. Whenever possible, Target assigns each shopper a unique code—known internally as the Guest ID number—that keeps tabs on everything they buy.

Duhigg reports that Target will collect information from credit card purchases, coupons, surveys—and presumably your REDcard—and supplement that with demographic data it may gather from other sources, all in an effort to understand what you buy and to find ways to encourage you to buy more at Target.

To be fair, this may not be that different from what other retailers do through loyalty programs and the like. But the article seemed to imply that Target is very, very good at mining and then using data. The article gave an example of a father who found out about his teen daughter’s pregnancy after noticing that Target was sending her coupons for maternity and infant products and then confronting her with that information.

Target declined to elaborate on its privacy policy or share any additional information about what type of information is gathered through the use of a REDcard, or how that information is used, for this story.

The Target REDcard privacy policy is not so different from those of other issuers. Comparing it with that of Chase, which issues an Amazon.com Rewards Card, the two are almost identical. The exception is that Chase does share information about cardholder’s creditworthiness with affiliates.

“When you use your credit card, that creates valuable information about your spending habits,” says Credit.com’s Credit Expert Beverly Harzog. “Banks collect this information and sell it to merchants and others who find the data valuable for marketing purposes.”

How much is your information worth? A lot, believes Eduard Goodman, chief privacy officer at Identity Theft 911, Credit.com’s sister company. “Your coming back, your buying stuff, and their being able to target you to buy more stuff is worth more than a 5% discount,” he says, adding: “A one-time sale is one thing, but reaping information to get you to spend more in the future is worth a lot more. ”

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It’s OK—American, Even »

Image: IntangibleArts, via Flickr.com

Image: naixn

It seems like everyone in the United States has some type of plastic card these days. Whether you are going to college and need a credit card, or you are an adult who has used a credit card for years, credit cards and “buying on credit” are part of our economy and culture. In fact, it seems like even children are receiving debit cards these days. According to the U.S. Census Bureau, there were an estimated 183 million credit card holders at the end of 2011. That number is ridiculous when you think about the current world population. There are many examples of how people used their card to rack up some pretty interesting credit card receipts.

The security of your credit and debit cards can really affect your financial well-being.  After all, you don’t want to discover that your credit score has dropped or that your debit account is overdrawn.  We rounded up a few of the most outrageous credit and debit card stories the Internet had to offer. Let them serve as a reminder to take the necessary steps to protect your plastic—and your finances.

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Slide 1: Through the Roof Interest Rates »