But it didn’t say how it would overcome technology barriers, such as finding a way for a smartphone to connect to the register without requiring a consumer to get a new phone with a near-field communication chip, or without making the retailer buy fancy new hardware.

Today, it announced an acquisition that may be one way it could solve this costly dilemma.

On the PayPal blog today, the company announced that PayPal has acquired Fig Card, which has developed a way for merchants to accept mobile payments by using a low-cost USB device that plugs into the cash register or point-of-sale terminal. Customers will have to install the Fig app on their smartphones.

“We loved their approach to point-of-sale, particularly because it was driven by the same vision that we have at PayPal–in the future, transactions can be as smart as a computer and not as dumb as paper. We won’t need our physical wallets. We’ll be able to pay any way we want, from any device, anywhere in the world with both flexibility and privacy,” said Peter Chu, PayPal Mobile’s senior director.

Fig Card was founded in early 2010 by Hasty Granbery and Max Metral, who will be joining the PayPal team. On the company’s Web site, it admits that the obvious challenge for the company is its small size, but that it was moving forward with trials among a handful of merchants in Boston’s south end.

Prior to founding Fig, Metral was co-founder and CTO of Firefly, which was bought by Microsoft. At Microsoft, he developed Microsoft Passport, one of the first single-sign-on systems. He then co-founded PeoplePC, where he met Granbery. PeoplePC was purchased by Earthlink.

If you spend any time with eBay at all, it’s clear that a lot of its emphasis is on PayPal. On Wednesday, it noted the division’s contribution to revenue growth in the first quarter and said in the first three months of the year, PayPal added one million accounts for the sixth quarter in a row. It now expects to achieve 100 million active accounts by the end of next quarter.

Additionally, PayPal was just shy of hitting its first billion-dollar quarter, and now represents 39 percent of the company’s overall revenues. To support its goals further, eBay recently acquired WHERE, a location-based mobile services and ad network.

While PayPal is one of the longest-standing online payment providers, it faces steep competition in the digital payment space from both incumbent providers and new entrants.

For instance, the Fig technology sounds similar to what Square is trying to accomplish by passing out dongles that can enable virtually any smartphone to accept payments. Square announced this week that it received an investment by Visa. Other giants like Google are getting into the space, and additionally, Facebook is becoming a big player in the space with the roll-out of Credits, a system used today to pay for virtual goods, digital items, and, increasingly, physical goods, like daily deals.

Apparently, some parents think it’s a good idea to give a cellphone to their preteen children. And, ever anxious to please, the technology industry is ready with just such a gadget.

A new company, Firefly Mobile Inc., has introduced a small, colorful, cellphone that fits comfortably into the hands of kids aged 8 through 12, and is greatly simplified so kids can easily use it. But the phone is also designed to strictly limit what the kids can do with it and to give parents control.

For instance, there is no key pad for dialing; out of the box, the phone can dial only numbers programmed into its phone book and large direct-dial buttons, presumably by parents.

My assistant Katie Boehret and I have been testing this mini phone, and we liked its kid-oriented features. Among other things, Firefly has a 911 button on its side for emergencies and its battery isn’t removable because, according to the company’s CEO, kids put their tongues on batteries.

Firefly Mobile will start selling the phones in May on its www.fireflymobile.com Web site for $99.95 each, which includes 30 minutes of prepaid talk time. You’ll be able to buy additional airtime in increments of $10, $25 and $50, which get you 40, 100 and 200 minutes, respectively. If the phone runs out of minutes, it will still be able to dial 911 (which requires a combination of two button presses so kids can’t inadvertently summon the cops).

According to Firefly, in July Target Corp. will begin selling the Firefly mobile phone loaded with prepaid minutes at its stores; it hasn’t yet set pricing for the phones.

The Firefly phone: available in May for $99.95 at www.fireflymobile.com.

You can already buy the Firefly phone from a couple of regional wireless-phone carriers, under widely varying plans. For instance, Triton PCS, also known as SunCom — a company with retail stores in the Southeastern U.S. — sells the Firefly for $199.95, complete with enough talk-time for your child to chat for 1,200 minutes or 12 months, whichever comes first.

This little blue phone measures about the length of an adult’s middle finger. Instead of a numerical keypad, the Firefly has only five buttons and a small three-line screen on its front side. Two of these buttons have male and female stick-figure images on them, and are intended to auto-dial Mom and Dad. To accommodate all kinds of families, Firefly is considering optional images for its keypad instead of just male and female figures.

Though the phone is very light and has a snap-off shell, its translucent case is quite rugged. To simulate real-world use by kids, we dropped our test Firefly phone six times, from about three feet, onto a variety of surfaces, including school-quality industrial carpeting and outdoor sidewalk pavement. After the last drop, onto a sidewalk, the phone flashed an error message. But turning it off and restarting made it good as new.

Pressing the keypad’s center button opens an electronic phonebook, the contents of which are protected by a four-digit code that only the child’s parent knows. As many as 20 numbers can be added to the phonebook, in addition to the two quick buttons for Mom and Dad. You can turn on the phone’s call-screening features so that the phone receives calls only from one of the 22 preprogrammed phone numbers, if you choose.

The phone’s “send” and “end” buttons, colored in green and red, respectively, work like those on regular cellphones and also serve as left and right menu-navigation buttons.

Katie turned on our test phone and dug into its menu system by holding down the green “send” key for four seconds. This system can be accessed by anyone, but without a code only four categories are visible: Missed Calls, Ringers, Display Colors and Options.

The Display Colors section let us choose one of seven colored lights that illuminate the screen when the Phonebook, Mom or Dad key was pressed. Ringers opened a selection of 12 playful ringtones, including Whirligig, Twister, Genie and our favorite, Secret Agent.

There’s also a feature called Fireworks that cycles a bunch of lights built into the phone when a button is pressed, just for fun.

The code-protected section of the phone opens four additional categories: Change Pin, Keys, Call Screening and My Number. This last category keeps the phone’s number private so that strangers can’t find it by just pressing a few buttons, which is the case with normal cellphones.

We opened the first category and changed the default “1-2-3-4″ code to something slightly trickier. Entering anything — letters or numbers — on this phone is so aggravatingly tedious that we couldn’t imagine a child even wanting to change a phone number if he or she figured out the code.

To set up the phone book, we had to laboriously select each individual letter and number from a long, scrolling list. The screen’s type is so tiny that we had to squint to see what we were doing, but we managed to enter a few names into our phonebook. Parents can configure the phone so that the kids can dial numbers that are not in the phonebook, but dialing involves the same tortuous process as the one needed to enter numbers in the phonebook.

Incoming calls display the caller’s name on the screen if he or she is in your phonebook, as well as “Hi” and “Bye” written above the “send” and “end” buttons. Because our Firefly phone came with 30 prepaid minutes, the tiny screen displayed data about how much each call cost after it was ended, as well as our account balance.

Extra accessories, such as different shell colors and carrying pouches, will be available from Firefly and other companies. Our favorite accessory that came with the Firefly phone was a clip that helped us attach the phone to purses and backpacks so as not to lose it.

We are skeptical that cellphones and young kids make a good combination. But the Firefly has a lot of smart features that make it a good choice for those parents who want their kids to join the mobile-phone mob.

With reporting by Katherine Boehret

Write to Walter S. Mossberg at mossberg@wsj.com