PayPal (EBAY) announced Tuesday afternoon that it has acquired financial technology start-up, which drives PayPal Here's mobile payment option, uses cell phone cameras to scan cards, eliminating the need for point of sale terminals. Separately, offers similar software to mobile developers that they can integrate into their mobile apps.

"I think that PayPal and [its parent] eBay are trying to make sure that they own all the key technologies that enable their mobile wallet," says Wedbush analyst Gil B Luria.

In March, PayPal launched PayPal Here as a new way to allow payments to be made electronically as well as by card swipe and by using the phone's camera to accept card or check payments.

"It’s a smart move," says Jim Van Dyke, president of Javelin Strategy and Research. "I’ve been saying and seeing it for years: PayPal’s biggest play is in the physical word, and this is a big step to help them get there. Square is in a challenging position because a fast-follower could quickly eat up their lead."

Luria says there are two reasons PayPal wants the San Francisco start-up.

"One is if you are a merchant using PayPal Here, the equivalent to Square, you can accept a credit card by taking a picture of a credit card," says Luria. The second reason is PayPal users can also upload cards into their PayPal mobile wallets using the technology.

In a blog post, PayPal's vice president of global product Hill Ferguson says PayPal will leverage its latest purchase by "to help [PayPal] create new experiences to make it even easier for consumers and merchants to use the PayPal digital wallet."

In late May, chief executive Mike Mettler said PayPal Here "will certainly drive usage of" will continue to be available to third party developers for use in different applications. A PayPal spokesman did not immediately return a request to discuss the acquisition.