Observers Split over How Much Google Will Compete with PayPal

With online search giant Google Inc. reportedly a week away from launching its long-expected payment service, observers differ on the question of whether the service will allow merchants to accept electronic payments on their own sites or be limited to Google's own platforms, especially the rapidly growing Google Base online bazaar. The former approach would make the service a generally accepted payment mark and would thrust Google directly into competition not only with established marks like Visa and MasterCard but PayPal Inc., as well. PayPal is a unit of Internet auctioneer eBay Inc., a marketplace with which Google is increasingly competing for online sales. Google, which has long denied it is seeking to compete with existing online payment networks like PayPal, has been mum on details of its new service, rumors of which first surfaced a year ago. Speculation about Google's payment service was triggered anew recently when RBC Capital Markets, an investment-banking unit of Royal Bank of Canada, released an analyst report predicting the service, which it called GBuy, would launch June 28 with “a surprising number of merchants.” The report, which estimated GBuy would charge merchant fees between 1.5% and 2%, said the service would allow Google to collect transaction data about products sold through its clients' search results, information that could influence the rates Google charges for its bread-and-butter paid-search business. RBC analysts believe GBuy will appear as a payment mark not only next to search results on Google's own site but on merchants' checkout pages, as well, a move that would make it competitive with other payment-system bugs. A source close to developments at Google told Digital Transactions News in March that the company was struggling to build a home-grown processing capability and was aiming for a late spring or early summer launch (Digital Transactions News, March 10), an effort that seems likely if Google were aiming to compete head-on with PayPal, which has built formidable capabilities in critical functions like risk management. Google did not return calls from Digital Transactions News seeking comment on the source's report. But Dan Schatt, a senior analyst at research firm Celent LLC who has spoken to some merchants that have piloted GBuy, says Google isn't going that far. He sees the new service as a powerful way for merchants to sell overstock product on Google Base and to take advantage of the convenience of a readily available payment tool appearing alongside their listing as it pops up in a consumer's search. But extending the mark to merchants' own sites, he argues, doesn't “lend itself to Google's business model.” That model, he says, calls for Google to be a “master cataloger,” with functions like payment handled on its own platforms through the Google Account program, which allows consumers to specify credit cards they want to charge to. Schatt refuses to identify the merchants he's spoken to, but says they “are not all small.” “It's powerful to link this pay capability to paid search,” he says. “It's a little button that says, 'If you've signed up with Google Accounts it's basically done.' You don't have to go out to a Web site you don't know. You already trust Google.” Merchant pricing, he figures, will depend on such factors as how well the merchant is established and how payment is processed. Credit card payments to less well-known sellers will carry higher charges than stored-value payments to well-know merchants. If anything, Schatt says, Google will compete with more with eBay than with PayPal, particularly as Google Base offers more and more competition among online marketplaces. That could become a ticklish matter for Google as eBay is one of the search company's largest advertising clients. Ebay recently concluded a sweeping agreement with Google rival Yahoo! Inc. that includes promotion by Yahoo! of PayPal as a preferred payment mark (Digital Transactions News, May 30).