Google Unveils Payment Service

Challenges PayPal With Electronic Wallet For Online Shoppers

(CBS/AP)  The looming battle in online payments could be a showdown between two of the Internet's biggest success stories. Google earned $1.5 billion on revenue of $6.14 billion last year while eBay made $1.1 billion on revenue of $4.55 billion.

Users with a Google account simply enter a credit card account number along with a few other details and the company will deliver the payments to any of the participating merchants, which must advertise on the search engine to participate.

Currently, Google is only accepting credit cards for purchases but remains open to other payment vehicles such as electronic fund transfers from individual bank accounts, said Salar Kamangar, vice president of product management for the company.

Merchants that accept Google Checkout will be identified by a green shopping cart symbol that will appear next to their ads.

Google will discount its payment processing fees based on how much merchants spend on advertising through the search engine - a strategy designed to generate more revenue for the company.

"It's a really smart move by Google, a wonderful way to close the loop with its advertisers," said Forrester Research analyst Charlene Li.

Still, Li believes many major merchants with well-recognized brand names will be reluctant to use the Google service because they prefer collecting the checkout information themselves so they have the data for future marketing efforts.

Merchants won't have to pay processing fees on purchases totaling 10 times their advertising volume with Google. That means an advertiser spending $20,000 per month at Google would not pay any processing fees on purchases totaling $200,000.

After the spending threshold is exceeded, Google will charge merchants a fee equal to 2 percent of the purchase amount, plus 20 cents (16 cents) per transaction.

PayPal's processing fees range between 1.9 percent and 2.9 percent of the purchase amount plus 30 cents per transaction. The model that has proven successful so far. PayPal handled $27.5 billion (euro21.9 billion) in online transactions last year, generating $1 billion (euro800 million) in revenue for the company. It currently has about 105 million users worldwide.

Except for PayPal, few other online payment services have gained much traction so far.

Google is betting its service will catch on by simplifying the online checkout process for consumers, encouraging people to shop more on the Web and use its search engine even more frequently. Citing industry surveys, Google estimates that 37 percent of all e-commerce begins with a request entered into an Internet search engine.

"We think Google Checkout will complete the process so people can search, find and buy things quickly," Kamangar said.