During an informal meeting at its Amsterdam headquarters Paypal has announced it will be facilitating In App Purchases in iPhone and Android applications.

According to Paypal Benelux Country Manager Dennis van Allermeersch, Paypal has managed to come up with a solution that is acceptable to Apple, Allermeersch noting: “We have found a way, Apple is OK with it”.

Android users will also be able to use Paypal as a payment method in the Android Market, adding an alternative to Google Checkout transactions.

At the time of writing there are very few details explaining how Paypal’s surprising new service will work. It seems incredible that Paypal have managed to gain approval from both Apple and Google to provide a payment method that directly competes with proprietary services on both Android and iPhone devices.

Paypal will launch their In App payment service in Q2 to the US, Canada, UK, France, Italy, The Netherlands and Australia.

We have contacted Paypal for more information, watch this space.

Update:Boxcar creator Jonathan George reached out to us to explain the iPhone In App payment system which Paypal refer to as its “iPhone Library” will be used to facilitate payments for physical goods and services, not for virtual purchases as first thought.

George was present at last weeks iPadDevCamp in San Jose, where Paypal was advertising its iPhone Library. He speculates that Apple approved the service as it would compliment its virtual In App purchase system, providing tools that Apple doesn’t currently provide for iPhone owner.

With our iPhone library, you’ll be able to start accepting payments for physical goods and services in a matter of minutes. Whether you’re looking to replicate a storefront you have online or you’re making something unique for the mobile device, this library can help you get paid. You won’t need to collect financial information or make users go to your website to complete a purchase. With our library, we’ll take care of the payment flow and you can keep focusing on making those great apps. Here’s how it will work. You’ll call a method to tell us how much you want to charge and who the money should go to. We’ll then slide up a view for the consumer to confirm the payment. When it’s complete, we’ll slide this back down.

Paypal also linked to a video of Osama Bedier, VP, Product Development. PayPal demonstrating the service:

We have been unable to confirm whether the service will be launching on Android, we are awaiting a response from Paypal.

Jonathan George suggests that iPhone Library is Paypal’s answer to Twitter co-founder Jack Dorsey’s new payment startup Square. What do you think? Can you see this new service changing the way we buy goods via our smartphones?