Google ChecksOut With Chase

One story few pursued in the wake of the Google Checkout announcement was just how they were doing the checking-out.

In other words, who’s running the cash register?

Basically they’re re-selling Paymentech. This was confirmed to me this week by a Google spokesman, although PaymentNews guessed it right away based on the terms on offer.

Paymentech was launched by First Data (the largest merchant processor) in the 1990s specifically to go after the Internet processing market, which is different from what goes on at your favorite restaurant, in part, because there’s no card, thus more open to fraud. Since last year it has been 51% owned by JP Morgan Chase, and is thus known as Chase Paymentech.

Transaction processing is not like ordinary computing. It uses
different networks, and involves in-depth relationships with banks.
Your credit card is an unsecured loan – you pay at the end of the month
(or a grace period), and a merchant account is also a risk
(transactions are credited right away and that’s a risk).

In other words it’s banking, not computing. (This is how one vendor describes the process to its customers. It’s busy in there.)

To deal with these risks merchants pay account set-up fees, transaction
fees, and (most important) a “discount.” The merchants with the best
loss history pay very low discounts, but sometimes much more.

What does this mean to my earlier stories indicating
that Google needs data to separate the phony AdSense merchants from the
real ones? Nothing. I am going to assume here that Chase is letting
Google in on the discount rate it’s charging Google Checkout customers,
based on their past histories. By dealing with Paymentech, in other
words, Google doesn’t have to build its own history on AdSense
prospects, it can find out as soon as they apply for Checkout
privileges. The benefits to AdSense flow immediately.

Of course, this makes the whole Checkout story a lot smaller than it
was portrayed in the press last month. Google is just a re-seller, like
thousands of others. It’s bigger than most, but not really that
different. Yet.

And as to eBay-Paypal, which isn’t taking Google Checkout? Paypal was always an
alternative to the regular banking system. Giving in to Google here
would mean giving in on what made it unique in the first place. So that
story, too, is smaller than it appeared.

A lot was made about Google “giving away” Checkout services in exchange
for ad revenue. That’s interesting from a marketing standpoint, but
behind the curtain money is flowing between Google and Paymentech, and
it’s the merchant’s money that’s doing the flowing. Not a biggie.

In the end, the real significance may be the consolidation of Internet
payments not by Google, but by Chase Paymentech. The company took a
risk going into the Internet area heavily and is now reaping the
benefits.