Google said to plan rival to PayPal

Google is preparing an online-payment system that would compete with PayPal, according to an online retailer who has been approached by Google to take part in the effort.

In addition to representing a direct challenge to eBay, which owns PayPal, the largest Internet payment system, the move signals Google's intention to become much more deeply involved in online commerce.

Google's flagship search engine and its Froogle shopping service are significant sources of customers for Internet stores. But so far, Google's only way to profit from its presence in online shopping is by selling advertisements that appear next to its search results and on Froogle pages.

Google has long been rumored to be developing a classified advertising service, one that would compete with eBay and with the popular free site Craigslist. A payment system would help Google bring into its marketplace individuals and small businesses that are not authorized to accept credit cards online.

Discussion of Google's plans arose on a panel at a conference for investors held last week by Piper Jaffray, and the talks were reported on Friday by the online edition of The Wall Street Journal. Google was not a part of the panel.

The chief executive of a major online merchant not involved in the conference said that his company had been approached by Google to take part in the service. He spoke on the condition that he not be identified because his company had agreed to keep its discussions with Google confidential. Steve Langdon, a Google spokesman, declined to comment.

Scot Wingo, the chief executive of ChannelAdvisor, a company that helps merchants sell on eBay and other online sites, said that several of his clients had told him that they had heard from Google about plans for a payment service, which they referred to as Google Wallet.

Wingo said in a telephone interview that he had called Google executives to see how his company could support the new service, but that the executives had declined to discuss it with him.

In April, Google filed documents to establish a new corporation in California called the Google Payments Corp., a development first published by SearchEngineWatch, an online newsletter.

Sara Bettencourt, a spokeswoman for PayPal, said that her company had heard rumors of a pending Google payment service but that it would not comment on a product that had yet to be announced.

PayPal has 72 million accounts and handled $6.2 billion in payments in the first quarter.

One question about the prospective Google service is how ambitious it will be.

Yahoo, Amazon, Microsoft and other companies offer "wallet" services where users can store credit card numbers for use while shopping at participating merchants. Such services aim to save time for users and help them feel secure because they need not provide financial information to an unknown merchant.

PayPal also allows such credit card purchases, and it also gives each user an account into which they can deposit and withdraw money by way of electronic transfers to bank accounts. This allows PayPal to be used to send money between individuals.

Wingo said that merchants had told him that Google's system was intended to rival the broad scope of PayPal rather than the narrow wallet systems.

The prospect of a payment system could help Google's core search advertising business as well, online commerce analysts said. Google has a rich trove of data about what people are searching for and what Web sites they click. Data about what people actually purchase could help it fine-tune its site to offer more effective advertisements.

Some merchants wonder what Google could offer that would make its service more attractive than their own credit card systems.

"I have nothing bad to say about Google, but I don't see what the advantage would be," said Michael Golden, chief executive of Homeclick.com, an online store. He said he had not been approached by Google to discuss its plans.

He said he accepted PayPal only for the part of his business that conducts auctions on eBay, but not on the rest of his site. For those customers who do not want to use credit cards, there are other options, he said, like a private-label credit card that Homeclick offers in conjunction with Wells Fargo Bank.

But others suggested that just as eBay can promote PayPal, Google's vast reach and reputation with consumers may well be able to promote its service. Google could, for example, place an icon on advertisements, or listings on Froogle, indicating that certain stores accepted its payment system. This could be enough to get merchants to take part.

Google has often given away some products that others charged money for in order to build traffic to its site. For example, its free Gmail service offers 2 gigabytes of storage, a level most other companies charge fees for. And Froogle does not charge merchants to list their products, as does Yahoo and other shopping services.

Some e-commerce analysts suggested that Google could well offer free or discounted payment services in order to expand its transaction business. Or it could offer its classified listings free, as Craigslist does, hoping to make money on payment transaction fees.