Google’s Payment Service, Tied to AdWords, Could Be ‘Game-Changer’

Following a year of on-again, off-again speculation about its plans in online payments, Google Inc. launched a transaction service Thursday with at least 92 online merchants of various sizes already signed on, from Ace Hardware, Ritz Camera, and Buy.com to Trendy Togs and FaucetDirect. The new service, called Google Checkout, lets Internet merchants accept card-based payments at a rate that for many undercuts PayPal and other competitors. In addition, in a move some see as calculated to support Google's online advertising business, Checkout allows sellers that make heavy use of the online search giant's AdWords service process at least some transactions at no charge. It also extends limited chargeback protection to e-retailers, guaranteeing payment in cases of unauthorized card use or when consumers claim shipments weren't received. Mountain View, Calif.-based Google's announcement comes amid intensifying competition among online search companies and Internet marketplaces. Only a few weeks ago, Google rival Yahoo! Inc. signed a deal with online auctioneer eBay Inc. that among other things calls for Yahoo! to promote eBay's PayPal payment mark (Digital Transactions News, May 30). With new ventures such as its Google Base online market, Google has been seen as coming increasingly into competition with eBay's massive marketplace, and now, with Checkout, it has confirmed months of speculation that it was preparing to take on PayPal directly. Checkout, which some Google watchers had been referring to recently as GBuy, also allows Google to add the “obtain” component in the “search-find-obtain” business model the company has been seeking to follow. While Checkout's merchant fee is a straight 2% plus 20 cents per transaction, PayPal charges anywhere from 1.9% plus 30 cents up to 2.9% plus 30 cents, depending on volume. On a $100 sale, for example, Checkout matches PayPal's best rate and is as much as $1 cheaper than the higher rates on PayPal's sliding fee scale. Unlike Checkout, which requires consumers to use existing Visa, MasterCard, American Express, and Discover credit and debit accounts, PayPal lets buyers fund purchases with stored value and automated clearing house transfers as well as cards. But Checkout may not cost anything for merchants that make heavy use of AdWords, the Google service that inserts short hyperlinked text ads for merchants next to relevant search results, charging advertisers on a per-click basis. For every $1 merchants pay for AdWords clicks in one month, they can process $10 in payments at no charge the following month. Experts see this feature, which only a powerful search company could offer, having strong potential appeal to merchants. “It's a kind of a game-changer,” says Gwenn Bezard, a research director at Aite Group LLC, a Boston-based payments research firm. “It's a more holistic view of the merchant.” Still, given the cost of card acceptance, Google may be forced soon to introduce less costly prepaid accounts or ACH options, Bezard says. “The service they have is a very expensive service as [standalone] payment processing ,” he notes. “It's built as a loss leader.” To increase Checkout's appeal to consumers, 16 of the merchants onboard so far?including Starbucks, DVDEmpire, and Jockey–are offering $10 off on any order of $20 or more when placed through Checkout (Google lists accepting merchants at a Web site it has set up for the service, checkout.google.com). Google has also cut a deal with Citigroup Inc.'s Citibank unit to give $5 or 1,000 so-called ThankYou points to Citibank cardholders who register their cards with Checkout by Sept 15. To use Google Checkout, consumers set up an account, entering such information as billing and shipping addresses as well as credit and debit card details and setting up a user name and password. After that, they can pay on accepting merchant sites with their passwords. Clicking on the Google Checkout icon directs users to Google for payment processing, after which they can return to the merchant site at their option. Both consumers and merchants can track orders via a Web-based data base. Merchants can process orders through a Web service called Google Merchant Center or integrate Checkout into their existing order-management systems.