ATLANTA - PayPal has launched a direct challenge to traditional payment systems by partnering with Home Depot, Bloomberg reports. The liaison will allow customers to pay with PayPal at a Home Depot checkout lane. This is the first retail relationship for the online payment company.

PayPal also has plans to create a mobile wallet that will facilitate payment from PayPal accounts at brick-and-mortar stores. Currently, PayPal employees at five locations are testing the Home Depot system. The Home Depot will expand its test run later this year.

"Home Depot has a significant reach," said Brian Blair, an analyst at Wedge Partners Corp. in New York. "PayPal has been historically in online payments. Now it becomes real-world currency."

PayPal has long been used by smaller retailers as a way to accept online orders, but the company quickly grew and now boasts Target and J. Crew as major merchants that utilize the service for e-commerce transactions. The PayPal mobile wallet would list debit and credit card data from multiple providers, with PayPal giving shoppers the ability to pick the provider to use up to a month after the sale.

For more on mobile payments, see "Paying it Forward" in the October 2011 issue of NACS Magazine and "The High Tech Payments Battle" in the May 2011 issue.