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How will Google's Checkout system work?

July 3, 2006

Last week, Google revealed its much anticipated new Internet payment processing service designed to offer eCommerce shoppers with a Google payment account, helping them with an easy-to-use service for online purchases.

Reportedly, Google is launching a new service designed to make paying for online purchases on eCommerce sites a lot simpler. Google's new service was supposed to be called GBuy, but its name has since been changed to Google Checkout.

Google's new payment service can be integrated into merchant websites and offered as an alternative to existing checkout and credit card processing systems. This is supposed to directly compete against eBay's PayPal service.

Industry analysts, who have long expected Google to offer Internet users this checkout service, say Google Checkout has a very good chance of being widely adopted by eCommerce merchants and eTailors, as long as its users are certain it's secure.

Commercial websites and merchants can integrate Google Checkout into their Websites as an alternative payment processing method to existing checkout and credit card processing systems, said Salar Kamangar, vice president of product management at Google.

Internet users with a Google Checkout account can type their credit card and billing information into the service just once and then settle for their purchases after with only one click on any website that offers Google's new system, Kamangar said.

As things now stand, he said, "If I buy five items from five different merchants, I have to fill out five different forms. This process can take three, four, five minutes" for each form. Google Checkout is meant to change all that.

Once they've purchased something through Google Checkout, consumers can track their orders through the system, which will be live starting Thursday at

Merchants using the system will be charged a processing fee of 20 cents per transaction, plus 2 percent of the relevant purchase price. Customers who pay for search-related keyword ads through Google AdWords will be able to process, free of charge, transactions that add up to 10 times the dollar amount of their AdWords spending, Kamangar said.

Beyond that, they pay the 20 cents plus 2.2 percent. Kamangar said the regular transaction fees are less than those charged by credit card companies, which can be about 1 percent higher.

AdWords customers who use the payment system will have shopping cart icons displayed in their ads so customers will know that they can use their Google Checkout account to pay for purchases.

The back-end system is the same as what Google has been using for at least a year to allow customers to pay for premium services on its Google Earth, Google Video and Picasa Web services, Kamangar said. Now the system is being expanded to allow any merchant to use it as an alternative payment processing system.

Though Google Checkout is being integrated into AdWords, Google will not track data about which keywords lead to purchases, use such information to modify AdWords auctions or bid prices, or combine such data with its new cost-per-action test ad system, under which advertisers pay only when the ad leads to a sales lead or a purchase, Kamangar said. For now anyway.

"We wouldn't rule that out entirely," he said. "There may be opportunities" in the future.

The Google Checkout service could also be extended for use on mobile devices, but Google is not working on that right now either, Kamangar said.

Any Web site can add Google Checkout as a payment processing method by either cutting and pasting HTML, or Web code, into the site. Large companies and e-commerce and shopping integration providers can also integrate it as an option within new or existing shopping cart systems, as retailers Timberland and Levi's are doing, he said.

Google also is partnering with financial services companies. For example, Google and Citibank will offer customers a co-branded Checkout option that will provide users $5 or 1,000 "thank-you" points for signing up, Kamangar said.

Like other payment processing services, Google Checkout hides credit card numbers and reimburses consumers for unauthorized transactions. It also lets users choose whether to keep their e-mail addresses confidential, and users can opt out of unwanted e-mail from merchants.

"The system takes some of the friction out of making a transaction," said Greg Sterling of consultancy and research firm Sterling Market Intelligence. "But the question is, will consumers feel this is secure and trustworthy?"

Charlene Li, an analyst at Forrester Research, said the system bolsters Google's search marketing service by making it easier for shoppers to find things and purchase them. "A lot of people abandon (their shopping) during the shopping cart process," she said. "Anything (merchants) can do to increase the conversion rate will lead to a better return on their (advertising) investment."

The service will initially be offered in the United States only, and, unlike most new Google products, it is not a beta test version.

"No. For once, we are not releasing a beta product," Kamangar said. "It will be ready to go as of Thursday. We've been testing it extensively with a small set of customers."

Google Checkout will handle only payments of 1 cent or more--not micropayments for things costing a fraction of a cent, Kamangar said.

Analysts had been expecting the announcement for more than a year, and some speculated that it would be the first piece in a larger infrastructure to enable payments across the Web.

Though analysts were dubbing the product a "PayPal killer" before launch, Google executives have dismissed that notion. "We think this is a very different type of product," Kamangar said.

"This is about the checkout process, not the payment method," he said. "We're trying to make the checkout experience linked from an ad, and make it so you can buy things as quickly online as (you can) offline."

Source: C-Net News

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