The battle to control your online wallet is about to get a lot bloodier. More than a year after search giant Google (GOOG) was rumored to be preparing an online payment service, GBuy finally looks set to launch in test mode as early as June 28. But while Google may have quickly become the dominant force in search advertising, it's unlikely there will be one winner in online payments anytime soon—if ever.
That's because no other player is likely to give up without a big fight. There are credit-cards like Visa and MasterCard, of course, which remain by far the leading way for consumers and merchants to handle online payments. What's more, prime GBuy rival PayPal is running all-out to get its payment system used more widely, far beyond transactions involving parent eBay Inc. (EBAY) and even past the Web. "We have a lead that's been built since 2002," eBay Chief Executive Margaret C. Whitman told analysts in May.
Whatever the outcome, this battle is bound to benefit consumers and merchants. By providing new and cheaper alternatives to credit cards for buying items online, these and other new online payment services could give buyers more confidence in a wider range of e-commerce sites. And coupled with e-commerce services from eBay, Google, Amazon.com (AMZN), and others, they're likely to help smaller merchants who can't afford a credit-card merchant account to compete with bigger players.
According to people who have been briefed on the service, GBuy will be pitted most directly against PayPal, particularly in light of PayPal's push since last year to accept payments off the eBay.com site (see BusinessWeek.com, 5/23/05, "PayPal Spreads Its Wings"). For one, GBuy apparently will sport many of the same functions as PayPal, including the ability of consumers to purchase items without revealing a credit card number and a checkout system that can be integrated with merchants' systems.
More important, eBay's merchants increasingly are using Google as another venue to reach potential buyers. So a payment system tied more tightly to Google could be attractive—all the more so because it could be cheaper than PayPal's. Although people familiar with Google's plans said pricing was uncertain, they believe it will come close to PayPal's 1.9% to 2.9% commission, plus 30 cents per transaction.
But with potential discounts to merchants who use Google's AdWords search ad system, those fees could drop considerably for large merchants. "GBuy definitely goes after the off-eBay PayPal business," notes Jeetil Patel, an analyst with Deutsche Bank Securities Inc.
Still, Google will face some big challenges of its own. Indeed, the lengthy gestation of the GBuy service—first rumored more than a year ago—points up the sizable challenges involved with offering a payment service (see BusinessWeek.com, 6/21/05, "PayPal: One Tough Nut for Google"). It's especially tough against an established rival like PayPal, which has 105 million accounts. "Right now, Google's playing catch-up," says Allen Weinberg, cofounder of financial services consultant Glenbrook Partners. "They don't bring anything to the table that other people haven't wallowed in or taken their lumps on."
In particular, most of GBuy's challenges come down to trust. For one, it remains to be seen whether consumers will be inclined to trust a Google payment system more than the alternatives, such as credit cards or PayPal. Two possible GBuy features might prompt many to take a flier: a rebate on purchases and a "Trusted GBuy Merchant" logo on product listings.
But PayPal has spent years honing fraud prevention. That's something Google would have to hire experts to get up to speed on, not something that could be solved completely with Google's specialty, smart algorithms. "They can't PhD their way out of it," says Weinberg.
A bigger hurdle may be persuading merchants that the information GBuy enables Google to gather will be used in a way that benefits them. Jordan Rohan, an analyst with RBC Capital Markets, noted in a June 9 report that Google would be able to gather transaction data to determine which keywords lead to greater sales, not just clicks. "We expect some resistance from merchants who will fear that Google will use the transaction data to charge them more for sponsored links in the future," he wrote.
Meanwhile, PayPal is already running hard down the road toward becoming much more than a way to pay for baseball card purchases on eBay. A flurry of new initiatives, from a PayPal credit card to a virtual debit card that will start rolling out next month, makes the unit's ambitions plain. "We're creating the new global standard for online payments," Whitman told shareholders at eBay's annual meeting earlier this month.
BRING IT ON.
For one, it's quickly moving beyond eBay itself. Last year, PayPal courted other online merchants to accept PayPal in addition to credit cards. It now counts Apple Computer Inc. (AAPL) iTunes Music Store, and Dell Computer (DELL) among its merchants. "We want the PayPal mark on every single Web site," Dana Stalder, PayPal's senior vice-president of marketing and business operations, said at eBay's recent member conference in Las Vegas.
And next month, it will debut a test version of a "virtual debit card" for use on sites that don't currently accept PayPal. PayPal users will download software to create a small toolbar in a Web browser. When they visit a site that takes Mastercard, they can get a onetime-use MasterCard number that draws on their PayPal account, so they don't have to reveal their credit card to the site.
What's more, PayPal is quickly moving beyond just online payments. In April, it announced PayPal Mobile, a way to pay for items using a cell phone. And in May, it teamed with GE Consumer Finance (GE) to launch a PayPal-branded MasterCard credit card. "We think this is a big opportunity to take PayPal beyond Internet payments," eBay CEO Whitman said recently.
As a result, "we're ready for competition," PayPal President Jeff Jordan said recently. "We feel like we're competing from a position of strength." At the same time, Google's got money and momentum like few other companies. So the battle's just beginning.