Google Plans Online Payment Service to Compete with Paypal

I came across a report by Dane Carlson from the Business Opportunities Weblog that Google could be entering the online payments industry. I was very, very pleased to read this news. I’d love to see some really serious competition for Paypal emerge and judging by past innovations and the solid reputation of Google they could go a long way and provide a superior product. At least I hope they do.

WSJ.com: Google Inc. this year plans to offer an electronic-payment service that could help the Internet-search company diversify its revenue and could put it in competition with eBay Inc.’s PayPal unit, according to people familiar with the matter.

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It’s quite strange, but when I think of Paypal I get an uncomfortable feeling. A feeling of mistrust, difficult to use and poor customer service. I’ve developed this perception from my experiences with Paypal and reports from others. Worse still because of Paypal’s mainstream penetration I often must use their system because they have the critical mass. The good thing is, unlike Paypal’s owner, eBay, Paypal’s critical mass can be competed away by a superior service. Paypal’s large user base is not quite as much of a competitive advantage as eBay’s is. The switching cost to move away from eBay is way too high and it’s not likely they will ever loose their market dominance. Paypal however could lose their dominance much easier because the switching costs are not nearly as high.

When I think of a Google run service I get very excited. I expect innovative features, ease of use, simplicity all backed by a business with a good reputation. I just wonder how far Google can successfully diversify away from search. Time will tell.