Card.io has a starring spot in Paypal Here, the company's riposte to Square which was launched in March.

PayPal Here consists of a free app and fully encrypted triangle-shaped thumb-sized card reader, which turns any iPhone, and soon Android handset, into a mobile payment system that customers can swipe their cards through to carry out transactions. Merchants can also accept payments by scanning cards and cheques using their phone cameras using the card.io software.

Announcing the acquisition, PayPal VP of global product Fergus Hill, says the company was impressed with the card.io team during the PayPal Here build phases.

"The employees at card.io will be joining the PayPal global product team in San Jose to help us create new experiences to make it even easier for consumers and merchants to use the PayPal digital wallet. The current card.io technology will remain available to developers for use in their own applications."

Card.io founders Mike Mettler and Josh Bleecher Snyder - former AdMob employees - secured $1 million in seed funding from angel investors Michael Dearing of Harrison Metal, Jeff Clavier and Charles Hudson of SoftTech VC, Manu Kumar of K9 Ventures, former PayPal exec Alok Bhanot and AdMob CEO Omar Hamoui, to get the company off the ground at its launch in June last year.

Financial terms of the PayPal acquisition were not disclosed.