Like a pop star who sells more records posthumously, the Google Checkout payment service may prove most beneficial to Google after it is phased out.
Google's mobile wallet is about to absorb the user base of Checkout, the search giant's underwhelming answer to PayPal. Both the online and mobile payment services will be called Google Wallet.
By folding Checkout — which is used by 9% of consumers, according to Javelin Strategy and Research — into Google Wallet, Google could catapult the latter well ahead of many competitors in mobile payments.
The biggest challenge any mobile wallet provider faces is the chicken-and-egg issue of getting consumers on board. Most systems are designed around how to best serve the companies that would profit from them: the banks, payment providers, hardware makers, telecoms and others.
The consumers are key, but recent studies show they are largely uninterested in changing their payment habits from plastic cards to mobile phones. Many companies, including Google, hope to woo consumers with targeted rewards programs. But at least one provider that pushed too hard with that model, Bling Nation Ltd., found its move drove away the other stakeholders. Bling Nation shut down this year to develop a new business model.
Checkout has had a troubled history. Its biggest selling point upon its 2006 launch was pricing: it waived payment fees for companies that also advertised through Google's Adwords service.
Google changed its pricing in 2009 to make Checkout's fees match PayPal's fees almost exactly — thus eliminating Checkout's key competitive advantage. At the time, experts speculated that this was actually a move to drive merchants away from Checkout in preparation of shutting the service down.
But Google kept Checkout alive and even worked to improve the service in the years that followed. Even as Google shut down support for other prominent services, such as its social networking systems Wave and Buzz, Checkout remained deeply integrated with Google's other products.
Unlike PayPal, Google Checkout is not a stored-value account. To use it, consumers have to link their accounts to a payment card. Google would not say how many people are currently enrolled with Checkout, but the number is likely substantial enough to give Wallet a solid head start when those payment details are linked to Wallet.
With Checkout, Google has "a huge install base, so this really turbocharges Google Wallet," says Aaron McPherson, a practice director at the Framingham, Mass., research firm IDC Financial Insights.
"Their biggest problem now is they've got to get it on more handsets," he says. For point-of-sale payments, Google Wallet works only with the Nexus S handset on Sprint.
Google Wallet currently allows two funding sources: a Citigroup Inc. MasterCard and a Google-branded prepaid account. Consumers who do not have a Citi card can use other accounts to fund the prepaid option.
Once Google Checkout users sign the user agreement for Google Wallet, their "existing payment and shipping information from Google Checkout will automatically be available in your Google Wallet for online use," Google says on its online help center. Those with the Google Wallet mobile app "will also be able to reload your Google Prepaid Card from the payment cards stored in your Google Wallet."
Those who used a Citi MasterCard to enroll with Google Checkout will be able to use that card without going through the prepaid account.
It is likely that a number of Google Checkout users are also Citi MasterCard users, since Citi made a marketing push around Checkout when the alternative payment service launched. Citi offered its customers extra reward points if they used their Citi card to fund Checkout purchases.