I’ve been high on Square, the mobile payments startup, since it hit the scene December 2009. Square, started by a founder of Twitter, created a solution to a thorny problem: small business credit card processing. The company built a lovely interface and widget, as well as some fantastic PR buzz. Square has been one of the “hottest” banking startups of the last year.

Unfortunately, the Square party appears to be over. 

Today, Square secured $27.5 million of venture funding on top of the $10 million it scored in January 2010. This investment comes just as Intuit is taking direct aim at Square’s business and product. And with Intuit’s customer base as an engine, I expect Intuit to beat Square at the credit-cards-on-the-spot game.

Just last week, Intuit launched a major marketing campaign to promote its GoPayment product.

INTUIT’S GOPAYMENT PRINT AD CAMPAIGN (THE NEW YORK TIMES, JAN. 6, 2011)

How much Intuit is spending is unclear, but the company has tremendous street cred with small businesses. In announcing its latest VC round, Square said it was signing up 30,000 to 50,000 small businesses to its service per month for the last few months. Consider this: Intuit has more than 7 million small business customers and more than 21 million people used its TurboTax software to pay their taxes in 2010. 

And as if Intuit didn’t have enough of a customer base already, it is offering its GoPayment product at cut-throat pricing. Small businesses that sign up for GoPayment by mid-February will receive the service with no monthly fee attached, as well as receive a GoPayment credit card reader for free. According to Fortune, small businesses have already processed $80 million in transactions using GoPayment since its launch two years ago. With Square’s reader having always been free, the battle has turned to the discount rate charged by each. Intuit’s discount rate is now 2.7%, but higher for American Express, while Square charges 2.75% plus $0.15 per transaction, Fortune says. In other words, Square offers no pricing advantage.

Obviously, Intuit has another edge in that GoPayment syncs with QuickBooks, although from what I understand the sync isn’t as robust as it should be. GoPayment transactions download into QuickBooks as “a list of transactions,” which I presume can be classified after the fact. Seemingly, this “list” will not offer the same kind of memorized classifications that, say, downloaded credit card transactions enjoy. Regardless of this deficiency, the relatively minor fact that GoPayment transactions download into QB should be a deciding factor for many businesses choosing between Square and GoPayment. Now, Square can create a similar benefit through with an API to, say, FreshBooks, but I have yet to see such interoperability, and, of course, FreshBooks still trails QuickBooks in adoption by more than a country mile. 

So which company wins this battle — Square armed with $27.5 million to “spread the word,” as founder Jack Dorsey told the WSJ, or Intuit with its 7 million small business customers and $3 billion of overall revenue? Put it to you this way, I wouldn’t bet against the monolith. I just put in a call to Intuit customer service and was told that the call center is “swamped” with people calling in to get a free reader. Take that as a sign.