Google Inc.’s online payment service, Google Checkout, has for nearly three years offered online retailers below-market transaction processing and a discount for using Google’s AdWords search marketing program. As of May 5, that all changes. Retailers are not happy with the new fees, and some analysts wonder if the changes mean Google is planning to phase out the payment service.
Google has announced via its Google Checkout blog that it will introduce a new tiered pricing schedule that favors larger merchants—and is identical to the tiered pricing of online payments rival PayPal. It also is discontinuing the program that offers $1 in free Google Checkout processing for every $10 in AdWords spend.
Without the tie-in to AdWords, Google Checkout loses much of its appeal for e-retailers, says payments specialist Bruce Cundiff of Javelin Strategy & Research. “They’re decoupling the one piece of value that merchants really saw as a reason to accept Google Checkout,” Cundiff says. “They’re putting Google Checkout out on its own as a standalone product, and I can’t see it surviving without that backing.”
Asked if Google had any plans to phase out Google Checkout a spokeswoman pointed to the original blog posting that says. "We're committed to the continued growth and development of Checkout."
Retailers, including some that were among the first to offer Google Checkout when it was introduced in June 2006, are unhappy. “We’re seriously looking at a change in how we use Google Checkout,” says Fred Lerner, president and CEO of Ritz Interactive Inc., No. 114 in the Internet Retailer Top 500 Guide. Asked if he might drop Google Checkout, Lerner replied, “We might.”
“It’s pretty upsetting to me,” says Andrew Esserman, president of online retailer Coffee Bean Direct. “We participate in the AdWords campaign and part of the sales pitch was that we were going to have free processing.” Google Checkout merchants got their processing for free if their AdWords spend is more than 10 times the transaction fees they owe for purchases made with Google Checkout. At Coffee Bean Direct, Google Checkout represents more than 10% of sales, Esserman says.
Google did not offer a reason for the changes in the blog posting by Anita Barci, product marketing manager. “When we launched Google Checkout in 2006, we set out to create a fast, secure online shopping experience for our users,” Barci wrote earlier this month. “Now in our third year of helping merchants increase sales and attract user interest, we're announcing the decision to move from our previous standard fee schedule to a new tiered pricing model where rates decrease as merchants process more transactions through Checkout.”
The new tiers are identical to those of PayPal: 2.9% of the transaction amount plus 30 cents for merchants that process up to $3,000 in Google Checkout purchases per month, 2.5% plus 30 cents for those processing between $3,000 and $10,000, 2.2% plus 30 cents for $10,000 to $100,000 and 1.9% plus 30 cents above $100,000 per month.
The old Google Checkout rate was 2% plus 20 cents per transaction. That meant many smaller merchants were paying less to Google for processing a credit or debit card than they would to payments processors, which often charge smaller e-retailers as much as 4% or more plus 20 or 30 cents. Consumers who sign up with Google Checkout choose a payment method for covering purchases, and many choose a debit or credit card.
Google Checkout made a splash during the 2006 holiday season when Google offered many discounts to consumers who paid with Google Checkout, spurring adoption. But those promotions stopped, and Lerner of Ritz Interactive believes that contributed to consumers increasingly choosing payment alternatives such as Bill Me Later and PayPal, both owned by eBay Inc., which continued to offer incentives. “As a retailer we give consumer options, and the consumer is the one who chooses PayPal and Bill Me Later as preferred payment types, primarily based on the promotional activity those payment types offer,” he says. More Ritz customers pay with PayPal and Bill Me Later than Google Checkout, Lerner says, but he would not provide details.
Forrester Research Inc. data from a September 2008 survey indicates only 1% of consumers had a Google Checkout account at that time, about the same as a year earlier. Forrester payments analyst Ed Kountz doubts Google is planning to shut down Google Checkout, but he says Google is “moving in the direction of saying we’re done wooing merchants. Time to generate cash.”
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