Google Federal Bank Inc.

The rumor has it that Google is preparing an online payment service similar to Ebay's PayPal.

Low tech American banking

(June 19 2005) There is one thing that never seizes to amaze Europeans. The Americans are still using checks for payments and salaries.

In Norway the banks has convinced most of us to do these transfers online, using the bank's web site. (They even make us pay a fee for doing this job for them! Yes, we are pretty gullible!)

The reason for the use of old fashioned checks in a high tech world is probably the lack of standards.

In Norway all banks use the same money transfer system with a common bank account number system. Moreover, in Europe all banks give you an IBAN number for international electronic money transfer. American banks obviously find this too much of an infringement on their own independence.

PayPal's online money transfer

Which brings us to PayPal, an online service owned by Ebay, that lets you transfer money from one PayPal account to another, and that lets website owner accept payments from anyone with a credit card.

No, it is not a proper bank as such. If that was the case, PayPal would have to follow much stricter laws and regulations. Hence, you cannot borrow money from PayPal. But you do get rid of the checks.

Google Wallet

According to the Wall Street Journal PayPal generated US$233.1 million, or 23 percent of eBay's revenue in the first quarter this year.

Now Google wants a piece of the pie -- or rather, of the pay. As Gary Price points out Google established the Google Payment Corporation in April.

The company will apparently be launching a service code named "Google Wallet," an online payment service that is similar to PayPal, letting users add money to their accounts using their credit cards.

They can then use this wallet for paying for services online. We would guess this system also will make it possible to make cheap "micro payments", i.e. payments where the sums are so small that the credit card fee will be larger than the total.

Hidden objectives

Google obviously wants this new service to generate revenue. Internet users have finally overcome their inhibitions against online shopping and the amount of money generated thorough online trading is enormous. By adding a small fee to each transaction, Google may generate significant revenue. PayPal has proved that this is possible.

However, this is not all. Google may benefit from such a service in other ways as well.

There is branding, of course. When "Google Wallet" logos pops up on a large number of sites, that is free advertising for Google and all its services, searching included.

Google already has a large number of registered subscribers to a large number of services, including AdWords, GMail, personalized news and more. All these subscribers can be immediately be offered a free Wallet account with close to no hassle.

This works both ways, new users establishing Wallet accounts, can easily be persuaded to use some of Google's other services, including the Froogle shopping search engine, which will generate even more money.

Getting the webmasters

Google is not only looking for the regular web surfers. The company is also very fond of webmasters and website owners, especially those that pay for pay-per-click text ads like Google Adwords, and those that would like to put content relevant text ads on their own sites. Google, of course, provides such text ads (Google AdSense).

The same webmasters may be looking for easy ways of receiving credit card payments from their customers, or methods for distributing affiliate payments. And now Google may provide these services as well, using the same account id and the same web interface. It is very tempting for a webmaster to stick to one supplyer for all such services.

Google knows that its position as the World's number one search engine is threatened, especially by Yahoo! and MSN. Hence the company must increase the "stickiness" of its web site, generating more loyal users and customers. Adding new services is one way of doing this.

Problems

However, Google should be prepared for a lot of pain. PayPal is currently waging an ongoing war with online crooks. We have lost count of all the fake PayPal mails we have received from people trying to get hold of our credit card information. PayPal, of course, never asks for such information through emails, but there are always someone who falls for this trick.

That being said, competition is nearly always a good thing, and the US desperately needs well functioning alternatives to an old fashioned banking systems. And by providing such services, Google will also help those of us that do online business with American firms.

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