(December 6, 2006) Google Inc.’s decision to extend Checkout’s offer of free processing to the end of 2007, which it announced Wednesday, could help the 6-month-old online payments service attract more merchants at a time when it’s not only up against heavy-duty competition, but also facing skepticism from some online sellers. The new offer “demonstrates [Google Checkout] has a long way to go lure in merchants to the extent eBay and PayPal have done,” says Dan Schatt, senior analyst at Boston-based researcher Celent LLC. PayPal Inc. is a business unit of online auctioneer eBay Inc.

Mountain View, Calif.-based Google early last month said it would forgo Checkout’s processing fee, normally 2% plus 20 cents, for all transactions between Nov. 8 and the end of the year. Now it says Checkout transactions will be free to merchants until Jan. 1, 2008. As with the original promotion, Google is eliminating its fee for all merchants, whether or not they use the search giant’s AdWords pay-per-click marketing service. When Google introduced Checkout in June, it offered to process $10 in sales free for every $1 merchants spent on AdWords in the previous month. When it restores its fee in January 2008, Checkout will credit AdWords clients for their December spending, Google says.

The promotion is likely to be costly for Google, since Checkout processes only bank credit card transactions and stands in as merchant. These transactions carry the bank card networks’ card-not-present interchange rates, which are typically higher than rates on payments in physical stores. But Schatt argues the cost is worth it to Google to bring more merchants to Checkout and, ultimately, to its bread-and-butter marketing service. “If [Checkout] were their core business, this could be disastrous,” he says. Instead, he says, the free-processing offer could attract merchants not now using AdWords. Linking Checkout merchant accounts to the ad service, he says, should then be much easier for Google. With AdWords, online sellers receive short text ads next to search results related to their products. When consumers click on the ads, the advertisers pay Google a fee.

Just getting more merchants using Checkout could be a big plus, too, given the competition Checkout is up against in online payments. Google has kept mum about the number of merchants Checkout has attracted so far, and recent press reports have indicated some dissatisfaction among merchants using the service. Among the complaints have been gripes about unresponsive customer service and slow processing, according to the accounts. Some merchants have also been wary of a Checkout feature that lets consumers withhold certain information, such as e-mail addresses, from merchants. “Consumers can choose to toggle that on or off,” says Schatt. “There’s still some hesitancy on the part of merchants on what this will mean from an intelligence perspective, that they’ll know less about their customers.”

Still, though Google must play catch up with the likes of PayPal, it appears to be off to a good start. A recent survey of online merchants by CyberSource Corp. indicated 6% of 351 respondents were accepting Checkout (Digital Transactions News, Nov. 14). “Google has a learning curve to go up, but I haven’t seen anything to suggest they’re not on the right track to gaining traction,” says Schatt.