Should PayPal Fear Looming 'Google Wallet' Service?

Internet analysts' reactions were mixed to the news that Google plans to start an online payment system this year to rival eBay's PayPal.

Though Google has not officially announced what observers are calling the “Google Wallet” program, news reports said the service would be an electronic payment system similar to PayPal, with declining balance accounts allowing consumers to buy on Web sites instead of using their credit cards to pay for merchandise on the sites.

A Google spokesperson declined comment when DM News asked about the possibility of a “Google Wallet” program.

Though the company has the resources and broad reach to launch and manage such a service, Google observers differ on whether the search giant can compete with PayPal. Google would join a competitive space, with PayPal the most successful online payment program, generating about $1 billion in annual revenue and boasting about 72 million users, according to analysts.

Microsoft and Yahoo have similar, but small-scale, payment programs for consumers in the form of Microsoft's Passport and Yahoo's Wallet. However, Google has a broader reach than eBay and could offer “Google Wallet” services for a lower cost than PayPal, analysts said.

“The difference is, this is intended to be a lot broader. The fact that you have Google, a company with the resources to give those services a pretty good go, is potentially worrisome [to eBay],” said Scott Kessler, Internet equities analyst with Standard & Poor's, New York.

But eBay should not be overly concerned, Kessler said.

“This is a new business that would require significant investment, and … there is no guarantee of success,” he said.

Though Google's new services typically are lauded as successful, Kessler said the company also has begun programs that got mixed reactions, including Gmail and its “Work It” social network.

Google likely would garner merchants to compete with PayPal's merchants from its advertising network and Froogle shopping programs.

“I think they're going to promote it via incentives relative to advertisers, such as lower price points [than PayPal],” Kessler said.

Online publishers also could use the “Google Wallet” service to charge consumers for content, suggests Kevin Lee, chairman of search marketing firm, New York.

It would not be worthwhile to charge consumers a few cents via credit card to read an article, but online publishers could charge a fee via Google's declining balance program.

“Micropayments would be really great for publishers,” Lee said. “It would really open them up for selling content.”

EBay shares fell 3 percent in early trading yesterday on the news, but later rebounded to $37.48 per share, a 1.5 percent decline on the day. Google stock also started the day lower, then rose 6 percent near the end of the day to $286.39 a share.

Christine Blank covers online marketing and advertising, including e-mail marketing and paid search, for DM News and To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting

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