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Google Checkout versus gateways

Ben Goretsky

We're all familiar with Google. A little startup search engine in the dot com boom, it has become one of today's most profitable Internet ventures.

Its expanded services include instant messaging, free e-mail, targeted advertising, and specialized news, video and product search engines.

The company's newest service, Google Checkout, involves the payments industry. It offers merchants an alternative means of accepting payments for merchandise customers purchase via the Internet. In addition, Google combines Checkout with Adwords, a service merchants use to advertise their Web sites through Google searches.

Although Google Checkout is geared to compete with a service like PayPal, it does stick its foot into the gateway market. So, it's a good idea to know how to compare Checkout with payment gateways.

No merchant account required

Like PayPal, Google Checkout doesn't require a person to have a merchant account in order to process. Whereas, with a payment gateway, which acts as an intermediary between a merchant's shopping cart and the financial networks involved in the transaction, a merchant account is required.

Checkout is not a payment method; it accepts and proc-esses existing payment methods, such as Visa U.S.A. and MasterCard Worldwide bankcards. (PayPal does this as well, but it also provides a means by which members can send payments to one another's bank accounts, bypassing traditional payment methods.)

Snail mail payments

Since Checkout is integrated with Adwords, merchants typically pay Google to advertise their companies through sites that carry Google-supplied banners and ads. Often, merchants spend considerably more money on Adwords than they make on processing.

For merchants who actually do make a profit using Checkout, Google pays them via checks, which are mailed out. In contrast, when processing gateways are used, merchants must have merchant accounts, and deposits are done by direct deposit to merchants' bank accounts.

Vive la difference

On the whole, Google Checkout is almost like a gateway. Differences come to light, however, in the details. The first detail is cost. When using Checkout, merchants pay a flat 2% and $0.20 per transaction. With a merchant account and gateway, different banks apply different fees based on transaction types. The effect on a merchant's bottom line has to be determined case by case.

Other differences include the limitations, restrictions and reserves applied to Checkout accounts. With Checkout, some merchant sales are eligible for payment; others are not. Merchants also have a monthly dollar limit on payouts as well as a limit on the number of payments they can receive each month.

Checkout merchants who go over their limits can have fees "rollover," but then Google applies what it calls "activity charges" to roll the money over. On top of that, Google requires merchants to have a payout reserve before they receive any funds.

In essence, a merchant can process hundreds of dollars before Google releases funds. And then the merchant can miss out on funds again when Google holds them due to limits imposed.

In a gateway scenario, restrictions are based on individual merchant circumstances. Merchants might be required to have reserves, for example, but they rarely deal with limitations and delayed payments. Checkout's rollover type of scenario doesn't even exist on a gateway, and other activity charges do not apply.

Not quite a gateway

One similarity between payment gateways and Checkout is the ability to integrate their services into toolkits like shopping carts, "buy now" buttons and other e-commerce tools.

Checkout has a fairly large library of application program interfaces and developer toolkits, which are similar to those of a gateway. Over time we may see more and more carts, hosting companies and other services include the Checkout option in their products.

The bottom line is that even though Checkout acts like a payment gateway service to merchants, it doesn't exactly match up. It all comes down to what the merchant's needs are. And it's always good to know what's out there.

Ben Goretsky is the Chief Executive Officer and head of IT Development at USA ePay. He has been working with his brother Alex since they started the company in 1998. E-mail him at or call him at 866-872-3729, ext. 350.

Article published in issue number 060902

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