Baby Boomers Shop Online, but Paying at Google

Reciently, Google Inc. introduced Google Checkout, a service that stores a user’s financial information and quickly shuttles them through checkout at retail sites. The program is still being tested, but the roster of participating merchants is growing (consumers can register to use it at checkout.google.com).

Some analysts believe the service could be a boon to online merchants, which have been saddled with the reality that about half of Internet users are still too afraid of credit card fraud and identity theft to buy anything online, according to surveys. Payment alternatives like PayPal and Bill Me Later have helped some merchants entice nervous shoppers to cross the line.

“It hinges on a couple of things, but I think Google can be a significant accelerator for alternative online payments,” said Dan Schatt, an analyst with Celent Communications, a Boston-based financial consulting firm.

Google Checkout functions as a virtual wallet of sorts, storing the user’s credit card and personal information in a database. When someone registers with Google and visits the page of a merchant who accepts Checkout as a payment method, they click on the Checkout logo to sign into the service and are shown a page with their personal information and the transaction amount. One click later, the transaction is completed.

The service could mean more problems for PayPal and its parent company, eBay — both of which are in Google’s cross hairs. Google’s free classified listing service, Google Base, is already competing heavily with eBay, with more than 185 million items for sale, and now Checkout threatens to take market share from PayPal. (PayPal executives declined to comment on Checkout.)

Google would not comment on how many users the service had attracted, or how many merchants would soon join the roughly 100 that were using Checkout as of late last week.

Google charges merchants 20 cents, plus 2 percent of the purchase price for each transaction; credit card companies typically charge about 30 cents and 1.95 percent of the purchase price. Google will make up the difference when it sends each purchase through the credit card systems. For every $1 a merchant spends on Google advertising, Google will also waive transaction fees on $10 worth of purchases.

Fred H. Lerner, chief executive of Ritz Interactive, which, among other things, operates the online photography store RitzCamera.com, said that new payment options for customers almost always gained a following on his sites.

“I was a doubting Thomas in the past, but each time we introduced a new payment type, it got a substantial amount of traction,” Mr. Lerner said. RitzCamera.com, which was among the first handful of Web sites to offer Google Checkout when the service made its debut on June 29, also offers customers the ability to pay with PayPal, gift certificates and Bill Me Later, which, as the name implies, lets customers pay after they receive a bill in the mail.

Mr. Lerner said consumer reaction to Checkout has been good, thanks partly to a $10 rebate offer for those who use the service. (Google and Ritz Interactive are paying jointly for that rebate.)

Credit and debit cards have lost some ground as the payment method of choice online, according to Mr. Schatt, of Celent. Roughly 86 percent of online shoppers pay with credit or debit cards today — 10 percentage points less than in 1999. By 2009, Mr. Schatt predicted, consumers will use such cards for fewer than half of all online purchases.

Consumers have migrated quickly from credit cards to PayPal and Bill Me Later, in particular, Mr. Schatt said. Take, for instance, Overstock.com, an online retailer and auction service that began offering the Bill Me Later service two years ago. In the first three months of offering the service, the company said the average purchases of Bill Me Later customers were twice as large as the purchases of credit card users.

An Overstock.com spokesman would not say what percentage of the company’s sales were executed with the Bill Me Later service, but Mr. Schatt estimated that the figure was 6 percent to 9 percent.

Gary Marino, chief executive of I4Commerce, which provides the Bill Me Later service to merchants, said 270 Web sites now offered the technology, up from about 60 at the start of last year.

The service rivals that of Google Checkout in its simplicity. Consumers who use the service type their addresses and the last four digits of their Social Security numbers into the merchant’s site, and I4Commerce’s systems quickly trace the consumer’s credit before granting them permission to pay later.

Wealthy customers make up the bulk of the Bill Me Later users, Mr. Marino said. “If you had an easy, safe way to pay for a $79 item and you didn’t have to expose your $50,000 credit line with your card, why wouldn’t you?” he said.

PayPal has also in recent weeks moved to increase its exposure. The company, which accounts for 10 percent of overall e-commerce payments, this month started testing a service that allowed shoppers to use PayPal on any site that accepted MasterCard.

The service, called the “PayPal Virtual Debit Card,” requires users to download a piece of software and register their payment information with PayPal. When users are on a merchant’s checkout page, PayPal’s software prompts them to log into the PayPal system. The service then issues a temporary debit card to the merchant for the transaction amount, thereby sparing users from giving out their credit card information.

Chris George, PayPal’s senior director of financial products, said an increasing number of big online stores, like Dell.com and PetSmart, now accept PayPal.

Still, according to Mr. Schatt, PayPal, Bill Me Later and other payment companies are justified in having “big fears” of Google. “Checkout is valuable to consumers,” he said, “and it’s also a great deal for merchants.”