Payments firm means market traders, taxis and shops will be able to accept credit and debit cards as well as PayPal payments.
There will be an initial cost “under £100” ($160) for the PayPal Here device.
PayPal, which faces competition from other similar devices, said it will take a transaction fee of less than 3%.
“At PayPal, we spend a huge amount of time talking and listening to small businesses. They are the core of PayPal’s business and they’ve told us that they want a simple, secure way to take card payments anytime and anywhere they trade,” said David Marcus, president of PayPal.
PayPal is offering the devices to a few select businesses before a full launch in the summer. It will roll out in the UK first with other countries to follow.
In the US, PayPal has already brought out a similar device, a dongle that can be plugged into a mobile phone to act as a credit card reader.
Eden Zoller, an analyst with research firm Ovum, said the move was an obvious one for PayPal to make.
“It hasn’t released figures about the dongle it launched in the US but has indicated that it is popular so it makes sense to have an optimized version for the European market,” she said.
There are other similar devices on the market from companies such as iZettle, Intuit and mPowa.
“It is going to have a bit of competition but PayPal is an established a trusted brand,” said Eden Zoller.
Mark Thomas runs an ice cream stall at London’s Borough Market. He will be among the first to try out the device.
“Cash is king in the market, but people run out of cash very quickly, and we often lose sales because customers can’t face the long weekend wait at the ATM,” he said.
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