Google's new online payment service launched today. Google Checkout offers secure transaction processing for people making purchases from stores on the web. Overall, it looks like a promising alternative for sellers who don't want to make the jump into expensive merchant accounts, and it offers some attractive features for buyers as well.

The early buzz on Google Checkout is that it's going to be a PayPal killer. While that isn't necessarily true, the Google Checkout service does offer a few advantages over PayPal for sellers — especially sellers enrolled in Google's AdWords search advertising program. If we were to name a target that Google is zeroing in on, the more accurate guess would be Amazon. Google Checkout rivals Amazon's 1-click shopping cart checkout system, and it offers a centralized place where users can track multiple purchases from multiple vendors. Amazon has a much wider array of goods for sale, but given Google's strong brand name and their reputation as a web innovator, they could build up the Google Checkout seller community rather quickly.

Right now, Google Checkout is U.S.-only. Buyers and sellers must have mailing addresses and billing addresses within the United States, and sellers must be based in the U.S. This is a shame, and hopefully Google will bring the service to international users soon.

When you search for products in Google and Froogle, a small shopping cart logo appears in the some of the sponsored AdWord links on the side of the page. These are stores that use Google Checkout. Big name stores like Levis, Starbucks and BlueFly are already using Google Checkout, but there are also some smaller merchants like Skates on Haight. Here's a full list.

The buyer goes to the store, fills up the cart, then clicks on the Google Checkout button:

If they are already signed up with Google Checkout, they just log in, review their order and their payment is processed immediately. If they have never used Google Checkout before, they enter their billing and shipping info into a secure web form just like a regular shopping cart checkout.

Buyers fill out this one form, then they're ready to go shopping.

Here's the breakdown for buyers and sellers.

For Buyers

With Google Checkout, buyers get a centralized location for managing purchases from multiple stores. They can track shipments and view purchase histories. They can also store multiple credit cards and shipping addresses in Google Checkout and track their activities across all of their accounts. This ability to monitor and track purchases from multiple vendors is the type of functionality that Amazon brought to the online shopping experience.

Shoppers are protected against unauthorized purchases made with their account. Also, Google doesn't share your credit card numbers or any of your non-essential personal information with sellers. One other feature I particularly like is the ability to keep your email address totally private. Unless you check a box allowing it, Google won't share your address with merchants you buy from.

Buyers can also use Google Checkout to purchase content from Google Video or pay for other Google services. There's a tour, complete with a video demo, for buyers here.

For Sellers

There's a separate site with information for sellers who want to use Google Checkout to process their transactions.

Before sellers can enroll as a Google Checkout merchant, they need to provide Google with a copy of their return, shipping and cancellation policies. They also need to provide a federal tax ID number, or a Social Security number and a credit card. As you can see, Google Checkout is meant solely for businesses interacting with customers. There aren't any options for PayPal-style person-to-person money transfers. It couldn't have been that tough to build in that ability, and I really would have liked to have seen that feature.

There are some fairly robust tools for businesses to use at the Google Checkout Developer's Center. Google offers support for third-party shopping cart applications, and they also provide an API for developing your own shopping cart that uses Google Checkout for credit card processing. This is an excellent alternative to using merchant accounts for credit card processing, which can be cost-prohibitive for smaller businesses.

Smaller businesses can use Google's PayPal-style "Buy Now" buttons on their site. If the seller doesn't have a website, they can create one using Google Base. These tools will attract small merchants, which is a big plus.

Google is offering a free transaction processing incentive for AdWords advertisers. They match every dollar spent on AdWords within one calendar month with ten dollars worth fee-free sales. So, spend $5 on AdWords in a month and process $50 worth of sales without fees. This type of innovative approach is sure to draw kudos from sellers who already have a relationship with Google. And, it will also encourage new sellers to sign up for AdWords. A shrewd move on Google's part, indeed.

Check out the demo video for sellers.

A PayPal Killer?

For sellers, Google Checkout offers some significant savings over PayPal. Google Checkout charges $0.20 per transaction plus 2% of the transaction total. Compare this to PayPal, which charges $0.30 per transaction and between 2.9% and 1.9% of the transaction total. PayPal's percentage is based on sales volume — to get the 1.9% rate from PayPal, your transactions have to exceed $100,000 per month.

Just like with PayPal, only the seller sees the fees. Also, keep in mind that those Google Checkout fees only apply if you aren't an AdWords advertiser, or if you're an AdWords advertiser and you've exceeded your monthly limit for free transaction processing.

The incentive for Google's AdWords customers is definitely enough to make merchants enrolled in the AdWords program switch from PayPal to Google Checkout. Also, new merchants or non-AdWords sellers may go the Google Checkout route since the fees are lower.

However, will buyers switch? PayPal has owned online payments for some time, and their user base is huge. One area where PayPal is going to be next to impossible to compete with is the auction sector. Sales on eBay are always going to be processed with PayPal, and it's safe to assume that Google understands that.

For most buyers, Google Checkout is yet another web form, yet another place to enter personal and financial information, and one more password to remember. Google Checkout does provide some nice features, like multiple credit cards and addresses and the one-click checkout option, but persuading buyers to jump to a whole new checkout service when PayPal or Amazon work just fine is a lot to ask.

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