PayPal will introduce a mobile chip-and-PIN version of its payments service in Europe, starting with a selection of UK businesses over the coming months.

PayPal Here will fully launch in the UK this summer and will be available in other chip-and-PIN markets after the UK launch, PayPal announced.

The service processes payments using an iPhone or Android app in combination with a handheld card reader that connects to a mobile phone using a secure Bluetooth connection. Merchants log in to their PayPal account on the app, enter an amount and press charge. The customer then slides a payment card into the reader, confirms the amount on the phone and types the PIN code into the keypad on the card reader to authorise the payment. Afterwards, the merchant can email or text the receipt to the customer.

PayPal Here

PayPal Here will be available in the UK at £95 for the device, and a flat fee of 2.95% plus £0.20 per transaction. There's no contract or ongoing fees, PayPal said.

Like its European competitors Payleven, iZettle and Elavon, that all offer similar mobile chip-and-PIN services in the UK and various other European countries, PayPal is targeting small businesses such as market stalls, shops, restaurants and taxis that traditionally relied on cash or cheques, Paypal said.

PayPal is a relative latecomer to the European mobile chip-and-PIN market and the competition is already establishing itself in more European countries.

The Swedish iZettle for instance offers its services in Sweden, Norway, Denmark, Finland, the UK, Germany and Spain, while Germany's Payleven is also active in Italy, the Netherlands, Poland and the UK. Global payments processor Elavon is also offering mobile chip-and-PIN payments in the UK and Ireland.

PayPal, though, has been focusing on countries outside of the EU for its mobile payments until now. Local versions of PayPal Here are already available in Canada, Japan, Hong Kong and Australia, where credit cards rely on swiping a card rather than chip-and-PIN technology for transactions. In those countries, PayPal Here uses a swipe card reader that plugs into the headphone jack of a smartphone, much like that used by Square, which offers a similar service in the US.