One of Square's (NYSE:SQ) top priorities for last year was improving its omnichannel services. Square couldn't quite make it to the finish line before the new year on its mobile payments software development kit, but as of January 9, the company officially offers first-party payments solutions in stores, online, and in mobile apps. Management says it's the only company offering solutions across all three.

PayPal (NASDAQ:PYPL) might beg to differ. It's a popular digital wallet, but it also offers payment processing online and in apps through Braintree, a company it acquired in 2013 and is best known for Venmo. PayPal also offers its own in-store solutions, PayPal Here and iZettle.

Still, Square's strength is in its ecosystem of services all working together. PayPal has put together piecemeal solutions. As merchants look to expand their omnichannel presence, Square's products might present a better solution.

A graphic of credit cards overlaid on a smartphone

Image source: Square.

Offering a better experience

Square is building a better experience for its merchants by ensuring all of its payments processing services work together seamlessly. Payments in stores, on merchants' websites, or in apps are all aggregated on merchants' dashboards. That can provide merchants with a better view of how the business is performing and where there may be opportunities to improve operations.

PayPal, by comparison, might offer a better experience for the consumer. Consumers only have to enter their payment information once, and they can use the same payment card across millions of merchants. PayPal argues that approach improves sales by reducing friction at checkout, particularly on mobile.

However, having a way to track shopper behavior across channels may prove more valuable to many merchants than improving the speed and reducing the friction of checkout on mobile. Square's solutions could easily enable a salon to tie an appointment booked and paid for in its mobile app to sales of products in its store by that same customer.

Competing on price

Square charges the same price for digital payment processing as PayPal: 2.9% plus $0.30, but Square may be able to offer better pricing for larger merchants, particularly those that take multiple products.

Square not only provides a better ecosystem, it enables Square to offer better pricing than piecemeal solutions. PayPal's focus primarily on payment processing means it doesn't have as much pricing flexibility as Square, which also offers services like Appointments, Payroll, food delivery, inventory tracking, and business lending.

Price and convenience are two of the biggest factors when making any purchasing decision. Square could beat PayPal on both accounts.

Not a PayPal killer

It's important to note that Square's mobile payments processing service is in no way a PayPal killer. It's not necessarily the best solution for many merchants, particularly those who only sell online or in apps.

Square's solution is best for merchants with a significant physical presence; merchants that can take advantage of all Square has to offer. Otherwise, the benefits of using Square over PayPal fade away.

Still, Square's expansion into omnichannel payment processing -- both its virtual terminal for online and card-not-present transactions and its mobile software development kit -- should make it a lot harder for PayPal to expand to more in-store payments. That's clearly an area of interest for PayPal, as it continues to develop PayPal Here and recently acquired iZettle. PayPal is relying on transitioning its online merchants to in-store merchants, but it might be easier for merchants to switch to Square online instead of switching to PayPal in store. That's especially true if they use other Square services already.

PayPal's position in mobile and online payment processing is not at risk, but its potential expansion is.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings and Square. The Motley Fool has the following options: short January 2019 $82 calls on PayPal Holdings and short January 2019 $80 calls on Square. The Motley Fool has a disclosure policy.