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Google (Nasdaq: GOOG) extended the reach of its online payment service Friday, launching Google Checkout in the UK and setting up an expanded showdown with eBay's (Nasdaq: EBAY) PayPal and other Web payment alternatives.
As with its U.S. launch, Google Checkout will be supported with steep discounts and promotions for buyers and merchants alike.
Merchants who sign up to accept Checkout will receive free credit and debit card processing for the rest of 2007 -- potentially a significant savings for high-volume merchants, stated Jerry Dischler, Google senior product manager.
Shoppers are being enticed to try out Checkout with a discount of Pounds 10 (US$20) off all orders of Pounds 30 ($60) or more.
The UK push is the first overseas foray for Checkout, which launched in the middle of 2006 in the U.S. and was heavily promoted during the holiday shopping season. As with the U.S. version, Checkout works by enabling shoppers to create accounts that are accessed using the Google e-mail 
log-ins and passwords. Users then can avoid re-entering credit card numbers or other information each time they make a purchase.
Utilizing AdWords
As in the U.S., Google is hoping to link use of Checkout to its AdWords keyword advertising system. After the original offer of free payment processing runs out, Google said it would apply AdWords spending as a discount toward Checkout fees, which will amount to a few cents for each transaction, plus a 1.5 percent total transaction charge.
The discount will offer merchants the chance to have transactions equal to up to 10 times of their AdWords monthly spending processed for free. In other words, a merchant that spends $100 a month on ads will get $1,000 worth of free transactions.
The UK is an important move for Checkout because it's already Google's second-largest market outside the U.S. The region is also a place where eBay and PayPal have a long-established presence. Other payment services have found traction in the UK as well -- Neteller being one example -- possibly suggesting that consumers there will be more likely to adopt the payment service.
Before its launch in the U.S., Checkout was the subject of rampant speculation. Known as GBuy while in development, the service was seen as a potential PayPal killer by some.
While many merchants offered Checkout during the 2006 holiday season and many consumers took advantage of the discounts Google offered, the service has yet to have a profound impact on the online payment space.
Google is said to already be at work on other foreign versions of Checkout, but the company has acknowledged that different countries offer different technological and cultural challenges to overcome as it tries to propagate the payment alternative.
'Tying the Wallet Service to Search'
More than a PayPal killer, Checkout has always been meant to help drive AdWords adoption, especially among smaller merchants, Forrester Research analyst Charlene Li told the E-Commerce Times.
However, Checkout doesn't address the person-to-person transactions -- such as eBay sales -- that are PayPal's bread-and-butter, she noted.
Instead, at least for now, Google is aiming to create a "virtuous circle" by tying Checkout in with its search advertising offerings. "By tying the wallet service to search, Google creates a huge incentive for its retail advertisers to participate," Li said.
Google has not provided specific financials on the service, but for now, Checkout may remain a money-loser for the company.
Nevertheless, Google will eventually turn Checkout into a strong revenue producer, helping the company retain its healthy growth and profits as its myriad efforts to diversify beyond pure search being to bear fruit, Goldman Sachs analyst Anthony Noto said in a recent research note.
"Business and operations that are currently incurring costs without generating significant revenue, such as Checkout, will become revenue drivers over time," he wrote.
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