The deal will enable PayPal to expand its presence in in-store payments globally, and will mark the largest-ever acquisition by the USA fintech giant, Reuters reports.
"Small businesses are the engine of the global economy and we are continuing to expand our platform to help them compete and win online, in-store and via mobile", said PayPal's chief executive, Dan Schulman.
"In today's digital world, consumers want to be able to buy when, where and how they want".
The chip-card reader and its app for smartphone-based mobile commerce meet global security standards. iZettle's service is available in 12 countries which includes United Kingdom, Finland, Denmark, Germany, Italy, Netherlands, Spain, Italy, Germany, and Brazil, among others.
This combination brings together iZettle's in-store expertise, recognized brand and digital marketing strength with PayPal's global scale, mobile and online payments leadership, and trusted brand reputation.
It was unclear on Thursday night whether Mr de Geer and his senior colleagues would remain with the business if a takeover by PayPal does go ahead, although sources indicated that they would be likely to.
Buying iZettle will expand PayPal's reach into shops in Brazil, Denmark, Finland, France, Germany, Italy, Mexico, the Netherlands, Norway, Spain and Sweden.
In a statement on its website, iZettle CEO and co-founder Jacob de Geer welcomed the deal, which he said would allow the company to "join forces" with PayPal. Paypal expects this huge bet to pay off by giving it a formidable presence in the point-of-sales market and a better standing against strong competitors such as Square Inc and Stripe Inc.
PayPal said it hopes to be able to reap the advantages of the merger nearly immediately in certain areas, and that the financial benefits will kick in shortly after the deal closes, expected in the third quarter.
"By joining the PayPal family we'll become iZettle with superpowers and jump on a fast track to realise our vision".